Wealocity's perspective on the market happenings.                                                            Monthly Market Commentary Jul'17

Farm Loan Waiver There has been an increasing call for farm loan waiver from across the states and also from the Union govt. But, we believe this would be a temporary solution to a deeper malice. A statistic puts the total outstanding at about Rs.3LCr and any write-off move puts stress on the fiscal deficit. Add to that the state of banks, esp the PSBs which have substantial exposure to rural credit and the psyche it builds in the people's minds. RBI’s financial stability report warns that the banking system’s gross bad loan ratio will rise to 10.2% of the total loan book in Mar'18 from 9.6% in Mar'17. The need of hour is in employing modern farming techniques, scientific approach, improving overall infrastructure and eliminate counterfeit seeds/pesticides/fertilisers. The recently concluded G20 meetings didn't bring much change to the global business environment but has shown the world the new US admin ways of dealing with the rest. Though, a common communique was drafted the resolve for the same was missing from the largest economic powerhouse. And later it was vetoed for a resolution against North Korea by rivals Russia and China. The India-China boarder conflict is not new but this time there's been an aggressive stance by the Indian Army and also the administration. There's been a resolve to counter any activities around the boarder esp since the launch of 'new silk route'. The current Govt has expressed it's displeasure. Need to see how things evolve now-on. What's in it for you: Equity: The equity markets turn volatile in the near term with a uptick in the shorter term. The GST implementation would be complex so could create hiccups in the near term. Already we're seeing the wait period of the truckers on the highways shrink by about 25%. We recommend staggered investments in the large cap space while hedge based investment for lumpsum. Geo political events are a concern.  Debt: The domestic inflation softened more than anticipated and so the RBI's dovish tone despite maintaining the interest rates as status-quo. This makes the possibility of a rate cut in near future. This creates an opportunity for the medium term funds to provide stable accruals and also gain through the downward yields.  Commodities: The geo-political tensions and strengthened dollar bear impact on commodities. Except for steel most of the commodities including Gold/Silver are subdued and would further see pressure.    Copyright © Wealocity, All rights reserved. Our mailing address is: dreams@wealocity.com Disclaimer: All the views expressed are strictly personal and we recommend consulting your financial advisor for making any investment decisions based on your risk appetite, timelines and goals.

Wealocity's perspective on market happenings Monthly Commentary Jun '17

Death of Paris Agreement Trump - Promise on track President Trump is on track of fulfilling his campaign promises to his voters. After many protectionist measures, the environment treaty brokered last year is trashed by the new US administration. This despite the developing economies like India, China, etc. are on a rampage to create new capacities in the renewable space. Not all across the US embraced their President's stand and started to do their own legislations in their cities, communities, etc. UK Election Results Dis'May'- Have the Millennials sought their revenge? That seems to be the case as more youth turned out to vote in favour of Corbyn's Labour party. Also, May could've relied on the very pollsters who predicted Bremain possibility as her 20% lead evaporated to a cut of 13 seats and most importantly pitting her into a minority government. For UK, a harsher Brexit could be a reality now. The 'Gulf' around Qatar When everyone thought the POTUS completed his first major tour of nations - the GCC, on a sane note, a major crisis emerged out and all the fingers lead to Trump. Isn't it a coincidence that the Qatar sanctions were announced just as his air force one took off. Rumours have it that Trump gave a thumbs up to stifle and wipe out Qatar, the pain point for Saudis and the new crown prince's plans. It's an irony for Saudis mention terrorism! The current crisis has the potential to spill beyond the region. Are we heading into a Kuwait situation? Interest Rate Divergence As reflation takes a breather, the approach to interest rates seems to diverge across the Atlantic. While the EU and the rest of the world maintain status quo, the US is looking to increase the interest rates. This FOMC meet this month, could sound on those lines. Though, the growth in employment staggered, the wage growth is eluding. Domestically, RBI is at loggerheads with the Finance Ministry though the former is in a wait-and-watch mode with monsoon season approaching and GST implementation as triggers for a rate cut. What's in it for you: Equity: With no major headwinds and continued fund flows, the equity market has not lost its steam. The near term market is still in the bullish phase and investments could be very opportunistic and staggered with a horizon of 3 years.  Debt: The interest rate dilemma hangs on for any directional change in the fixed income space. Small exposures to hybrid debt is recommended with a 3 year horizon. Commodities: As US ditched the Paris agreement, Crude seems to head nowhere despite the production cuts by OPEC, while the US rate hike could further bounce the greenback the safe heaven seems to lose it's sheen further. Copyright © Wealocity, All rights reserved. Our mailing address is: dreams@wealocity.com Disclaimer: All the views expressed are strictly personal and we recommend consulting your financial advisor for making any investment decisions based on your risk appetite, timelines and goals.

“People are trying to be smart - all I’m trying to do is not to be idiotic, but it’s harder than most people think.” ~ Charlie Munger. 

Trend: This is a newer section we’re introducing from this month which captures our imagination of next big things in our lives, markets and/or business. 

Electric cars and Tesla occupy that distinction in this month’s commentary. Just at the month end, Tesla launched Model 3, their cheapest ever electric car at USD 35,000 with a goal to produce 500,000 vehicles. 

The pre-orders stand at 276,000 according to Elon Musk, the founder & CEO within two days of launch. Though, they’re notorious for their delays in delivery, they could probably end up with more cash issues this time. Watch out!!!

Terrorism: When the heart of the Europe was struck with terror attacks last month, the world markets remained unfazed - Was it a sign of defiance or an acceptance of such disasters is still unclear? 

But, these attacks along with the recent events of deporting migrants by Greece and the voices gathering for Brexit are only adding woes to the borderless sustenance of Europe. 

The continued rhetoric by Donald Trump, contender for Republican the US Presidential nominee is another nail drawing in for more protectionism. Of all, the central bankers in a bid to regain their importance in the scheme of things, are dangerously toying with the Negative Interest Rate Policies to prop up growth.

Italy: Europe and the world could soon wake up to additional financial risks posed by Italy. According to Euro stat, Italy comes 2^nd in the debt-to-GDP ratio with over 132%, a tad below Greece which continues to occupy the top slot. Greece being only the 44^th largest economy in the world has brought the global financial markets to the brink and what could Italy do being the 8^th largest economy? Save your thoughts.

Fed: Last December’s policy statement and the dot-plot predicted 3 to 4 hikes in to this year but we at Wealocity had our concerns expressed and have cautioned to a maximum of 1 rate hike at the best case scenario but with a bias towards the zero interest rate i.e. rolling back the hike Fed has done last year. We still maintain this forecast considering the larger than the anticipated fall in the commodities and the stagnant inflation (US) despite the job growth. 

China: As it struggles to transition from a manufacture-led economy to consumer-led, the forex reserves are evaporated faster than anticipated. The reserves reached to $3.3tn in Feb, a record $1tn has moved out of China in 2015. While the official deficit stands at 2.4% of the GDP for 2015 and 3% (estimated) for 2016, the Societe Generale puts it at 3.5% and 4% respectively.

What’s in it for you:

Equity: Domestic equities have recovered from this calendar year’s lows but ended up on net negative for the FY & YTD basis. As an asset class, these are attractive and staggered investments are recommended with top-up on dips. A good   monsoon is all it takes to see your portfolios bulge.

Debt: FMP (Fixed Maturity Plan) are attractive considering possible further cuts in the interest rates in the coming quarters. Also, dynamic bond MFs could take advantage of the evolving scenarios. Any tax-free bond issues to be lapped up especially by the investors at the retirement door-step

Commodities: In our last update, we’ve extensively covered why crude hovers within the current range and we reiterate the bottom’s done. Gold fights to shackle it’s resistance but faces hurdle while the rest of the metals remain humbled.

Disclaimer: The views expressed here are personal and any investment decisions to be made in consideration with the risk appetite, timelines and needs with an assistance from an advisor.

"The individual investor should act consistently as an investor and not as a speculator." - Ben Graham

  

While staring at the world of the past year, I was desperately trying to look for any bright spots and I found nothing much except my unwavering hope. The lower bids in the recent months at the AP Govt.’s & Indian Govt.’s auctions on the solar projects is an important and promising development in this field, esp. with the falling crude and commodity prices.

A New Neutral has set in the world with an overall lower trend growth rates. Global growth remained weak and at an uninspiring range of 2.5-3%. Falling oil prices, low interest rates, massive monetary accommodation and lower global aggregate demand has contirbuted to a continued sluggish growth. The effects of lower oil prices and expansionary monetary policy could prove much more dramatic than many anticipate.

Chinese engineered soft-landing seems to be having hiccups with a miscalculation of the ground level. This could mean not just a hard landing but also an inevitable crash though it has the tools to manage, only time would tell us how it fared.One shouldn't forget the fact that Chinese economy has always been managed. By concentrating more on the quality parameters, private/foriegn participation & transparancy the way forward won't be all that easy & controlled.

EU seems to be determined with its “whatever-it-takes-attitude” and pump in more liquidity. While Japan is unsure of its situation and its demographics are not helping much either. The US is a sole large economy seems to have put a brave face in this adversary.

Fed rate hike would be gradual and prolongedstretching into 2018-19 and follow a lower trajectory; the neutral policy rate is well below the historic levels – a new neutral. Post the initial hike, it would proceed very gradually, all the while attuned to the global implications of their actions.

On the domestic front, the lower commodity prices have been a big boon for the margins but the continued weakness in the demand is a concern. Capacity utilization is at multi-year low in the manufacturing and we could see a gradual improvement in the demand from the 2nd quarter of the year.

What’s in it for you?

This never-seen-before environment demands a more dynamic strategy and a multi-asset allocation is needed to beat the volatility.

Equity: The last leg Dec rally helped post positive returns on the monthly basis and covered some ground on the yearly basis, though generating negative returns. The major indices never delivered negative returns in consecutive years since 2001 and hope for the history to repeat.

The market provides ample opportunities for entry and any systematic approach is recommended with a horizon of 1 year.     

Debt: The central banker still has room for rate cuts, though he would keep an eye on the US Fed and the inflation greatly influenced by the oil/commodity prices.

Stay put in long duration funds with a play in the mid & short term for arbitration as the spread narrows between the repo and benchmark yield.

Commodities: Commodities would bottom-out this year along with Oil, limiting the volatility. Oil could well see a little uptick from the current sub-40 levels while gold would continue to be under pressure.

Currency: Strengthening of the USD continues and as the volatility settles across the other asset classes, it would reach equilibrium, another new norm.

Disclaimer: The views expressed here are personal and any investment decisions to be made in consideration with the risk appetite, timelines and needs.