When will the 'healthy' correction take place?

The Indian equity markets continue to power on. On Monday, the stock indices got a major boost in the form of industrial production numbers, which came in at a 22-month high, and buzz that the warring Ambani brothers may be headed for a settlement in the bitter legal tussle over supply of gas. With the Sensex atop the 17,000 market and valuations certainly not cheap as compared to six months ago, will the market see a correction — something that everybody is terming ‘healthy’? Analysts think so but with the usual caveat — liquidity is the joker in the pack you can’t predict and so long as that remains robust, you never know. View from the street “There is still a lot of liquidity flowing into India,” said Sonam Udasi of brokerage firm Brics Securities. “It’s still looking attractive though our view is cautious on the market.” “While there is enough money waiting on the sidelines, people would prefer to see some correction — even if it’s only a 5-10% correction — and that’s the broad voice what we have heard historically,” said C Jayaram, ED of Kotak Mahindra Bank. He added that, if indeed a correction took place in the market, it won’t exceed 5–10% because of the amount of money waiting on the sidelines to get invested. Jayaram, however, was concerned with the market rally and said stocks had gone up more than the expectation of a recovery in the companies’ actual businesses. “At these levels it becomes very difficult to justify the valuations particularly in many of the frontline stocks,” he said. “I would also suspect that the market has factored in a lot of positives in earnings upgrades as well. Some of those may indeed happen but I would also think there could be some cases in which upgrades or improvement in earnings may not be as much as the market thinks it will.” “I would be cautious about whether earnings upgrade in many of these cases is actually justified. If you put the whole thing in a pot then I would argue that there is a larger case for disappointment right now rather than for any sort of big positive,” Jayaram said. However, almost every analyst has been for long echoing the correction-is-healthy call but the market continues to surprise. Information technology: “One or two big concerns about IT is that it’s a question of in terms of visibility as to how clear is it particularly for the smaller and midcap IT firms,” Jayaram said. “More immediately, the question of the rupee strengthening seems to be a feature right now and unless you start to see some reversal of that, honestly I can’t think of too many reasons to be particularly positive about IT right now.” Capital goods: “Within the sector, we have an overweight on the transmission and distribution (T&D) equipment space, on companies which are into project execution. We are positive on Jyoti Structures, Kalpataru Power Transmission all these companies. We are not so positive right now on the utility space in the near term,” said Udasi. Metals: “Within the metal space, we are generally positive on the resource companies, so we may not be so positive on the commodity aspect as such because it is too cyclical but on whoever owns the resource,” Udasi said. “So we are positive on Hindustan Zinc with a long-term view. Whoever owns the raw material on this rather than the metal itself.” Source: Money Control

Gold ETFs: High Volume shows firm recap

Record gold prices may be deterring jewellery buyers, but they are triggering trading interest in Gold Exchange Traded Funds (ETFs). All gold-ETFs have seen volumes double in the last two days. GoldBEeS, which saw an average of 22,000 units traded last week, has seen a surge to 42,000 trades in the last two days.

However, Indian investors who bet on gold-ETFs a month ago have not participated actively in the recent rally. Their returns have been depressed, capped by the rising rupee. Despite the 5 per cent run up in international gold prices in the last one month, prices for domestic gold-ETFs are where they were last month. GoldBEeS, Benchmark Mutual Fund’s gold-ETF, which closed flat in Wednesday’s trade, has been hovering around Rs 1,570-levels for the last one month.

The spurt in gold prices in the international markets, from $1,000 last month to $1,053/ounce, follows the weakness in dollar on fears of a fall in the currency’s value. However, this has lent strength to the rupee, thus muting returns for investors. GoldBEeS, Goldshare (UTI Mutual Fund) and Relgold (Reliance Mutual Fund) all are below their last month highs. When gold crossed $1000 on September 8, all these funds reported new highs.

Source: The Business Line

Gold ETF | Advantages & Disadvantages

Advantages of Gold ETF:

• First, Gold ETFs allow you to invest in gold even if you have a small investible surplus. Instead of waiting until you accumulate enough funds to buy a 50 gm gold bar, you can make an investments in gold ETFs with an outlay of just Rs 10,000, to start with.

• Second, You can also gradually build your exposures by buying additional units as and when you can afford them. Second, you can phase out your investments in a Gold ETF over a period of several months or years, so that you do not invest lump sum at a single price.

• Third, when you take the ETF route, you can invest in gold without worrying about the purity issues that usually dog jewelery purchases.

• Finally, because you can liquidate your ETF units at NAV-based prices through the stock market, they may offer better liquidity at prices closer to the market than gold bars or jewelery.

Disadvantages of Gold ETF:

• One, returns on Gold ETFs may be lower than those on physical gold by virtue of management fees, transaction costs and other operational expenses levied by the fund house on the fund's NAV.

• Second, if the ETF units are not actively traded in the stock market, you may not be in a position to exit your holdings at the time or price of your choice.

Solutions:

• However, these risks appear unlikely to play out in practice. Competition between different ETF products may ensure that these products generate returns that are pretty close to those generated by physical gold.

• The problems associated with liquidity may be sorted out if the idea of Gold ETFs really catches on with investors.

Exchange Traded Funds | Advantages & Disadvantages

Exchange traded funds (ETFs) are a popular among investors nowadays.
These investment vehicles are similar to index funds, except they are traded as stocks on the stock market.

Here are advantages and disadvantages of investing in ETFs

Advantages

1. Convenience
Investing in ETFs are as easy as investing in stocks. You just need to buy one as you would buy any regular stock.

2. Low fees
Like index fund, ETFs have low fees. You can expect the management fee to be about .1% for S&P 500 trackers like IVV and SPY.

3. Tax efficient
There are no unexpected capital gains/losses when you purchase an ETF. Sell when tax-wise it makes the most sense to you.

Disadvantages

1. Convenience
The ease of buying/selling an ETF means you might sell an ETF when you later believed you should have held on. Of course, solid investment discipline will avoid this disadvantage.

2. Market spread
If you are buying a rare ETF, the buy/ask spread might be somewhat significant. This can be avoided if you invest in the major ETFs.

3. Index fund disadvantages
Since you gain the advantages of an index fund (like low fees), you also receive most of the disadvantages as well. Because an ETF blindly follows an index, it means it holds shares of stocks you might not like that happen to be in that index.

Telecom towers, huge power guzzlers too

With about 2.5 lakh towers powering mobile services to over 400 million subscribers, the telecom industry is now the second largest consumer of energy in the country.

According to industry estimates, each tower consumes 3-5 kW to run the air-conditioner, generators and other equipment required to keep the base station in operation.

“The entire ICT industry accounts for 1.5 per cent of India’s total energy bill. This is expected to go up to 2.7 per cent by 2020. That makes it the second largest consumer of energy. Of this, telecom infrastructure accounts for one-third of the consumption while running IT equipment accounts for half,” says Mr Ankit Tandon, Company Strategist, Acme Tele Power.

High consumption also means high cost for infrastructure companies and mobile operators. “Most of the towers in rural areas are run on diesel gensets since there is no regular supply of power. Even in urban areas, there are frequent power cuts and we have to use as much as 5-10 litres of diesel a day,” said a mobile operator.

Telecom companies are adopting a multi-pronged strategy to reduce energy cost.

Infrastructure sharing has cut down power consumption in a major way. A single base station requires about 3 kW for uninterrupted service. So, if three operators were to set up their own towers to load up the base stations, it would require 9 kW. However, since operators are sharing the infrastructure by loading up their base stations on a single tower, they need only about 5 kW.

Operators are also using renewable sources such as solar and wind to power the base stations. “Though this is more costly in terms of capital expenditure, it gives lower operational expenditure,” said Mr Tandon.

Operators have sought incentives from the Government to promote use of renewable sources of energy.

Since air-conditioning is the major reason for high power consumption at tower sites, operators are also deploying systems that keep air cool without compressors.

Home loans up to Rs 10 lakh get 1% interest rate subsidy

Affordable housing, especially in non-metros, could get a much-needed boost with the Government on Thursday approving the one per cent interest subvention scheme for housing loans up to Rs 10 lakh. The Centre has allocated Rs 1,000 crore for the scheme.

Under the new scheme approved by the Cabinet, the interest subsidy will be made available through commercial banks and housing finance companies for construction/purchase of a new house or extension of an existing one. This will be allowed so long as the cost per housing unit does not exceed Rs 20 lakh. The move augurs well for the sector as it comes at a time when there has been a notable slide in the flow of credit to the sector. This was largely on account of increase in real estate prices, slackening of income growth, and rise in interest rate for home loans — all of which have brought home sales to a near standstill since late last year.

The sop will be available only for the first twelve instalments for loans sanctioned and disbursed in the twelve months running from the date of publication of the scheme.

Also, the one per cent subsidy will be computed for 12 months on disbursed amount, and adjusted upfront in the principal outstanding irrespective of whether the loan is taken on fixed or floating rate basis.

On a housing loan of Rs 10 lakh, the interest relief will amount to Rs 10,000 per account, an official release said. As such, the scheme of a size of Rs 1,000 crore is expected to cover 10 lakh beneficiaries in one-year period.

Meanwhile, Mr S. Sridhar, Chairman, National Housing Bank (NHB) — the designated nodal agency for this scheme — told Business Line that the scheme will help improve sentiment in the housing sector, especially those in the non-metros.

“A home loan borrower will be encouraged to take a decision. The developers can also quickly get their act together to increase the supply of affordable housing,” Mr Sridhar said. Developers such as DLF and Unitech said that the scheme would “galvanise” buying sentiments. Clearly, it would benefit buyers in tier-II and tier-III cities as also affordable housing projects that are now coming up in the suburbs of major cities. But, it may not be of much benefit to buyers in prime locations of metros where the ticket sizes tend to be over Rs 20 lakh.

“Nearly, 50-60 per cent of potential home buyers belong to the low cost housing category. So, the scheme is a welcome step and would benefit buyers in smaller cities and suburban locations”, Mr Pradeep Jain, Chairman of Parsvnath Developers, said.

Source: Business Line