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.

Wealocity's perspective of the market happenings  Monthly Market Commentary

Experiential Luxury A shift in focus from purchasing luxury goods to enjoying services. A common refrain of the past half-decade has been the decline of luxury ‘ownership’ and the rise of luxury ‘experience’. If this is to believed, then we're moving away from permanent, physical object ‘possession’ and ‘personal luxury goods’ into transient, intangible, service-dominated ‘experiential luxury.’ Experiential luxury is one-off and unrepeatable. This makes the moment of experience ever more important.

RBI Monetary Policy Two key aspects of RBI's commentary are: Hawkish inflationary outlook while extremely optimistic about growth in the coming FY; and serious intent to solve the NPA problem of the banks. While sticking to the medium term target of CPI to 4% within a band of +/-2% it flagged multiple risks to inflation. These include the probability of recurrence of El Niño and it's impact on food inflation, 7th pay commission receipts, one-off GST effect and even the farm loan waiver in several states. Rupee Conundrum The rupee rise in the last quarter caught almost all the analysts off-guard, revising the forecasts for the quarter and year. RBI's gauge of the currency's strength puts in the overvalued territory. And it's non-intervention though perplexing is a wise move as any aggressive buying of dollars would only add to the excess liquidity it's trying to suck out through reverse repo rate hike. We see the trend to continue in the medium term. The Syrian War The US has thrown a wrench in to the ongoing Syrian repair, unsure of which nuts and bolts it wants to tighten or loosen. So, this sudden US reaction to an alleged chemical attack by the Assad admin to be considered genuine or a POTUS ploy  to reverse the ever falling approval ratings is unclear. Musings also indicate the sustenance of new tax cuts and hiked spend proposals need more political mileage especially post the failure to replace 'Obamacare'. But this misadventure could add chaos to the Middle East.

What's in it for you: ‘Bull markets are known to be born on pessimism, grown on scepticism, mature on optimism and die on euphoria'  ~ Sir John Templeton.   Equity: The recent political victories have changed the sentiment and is attracting huge inflows both domestic and foreign. At Wealocity, we've used these higher levels to create cash reserves and believe this strategy would help us grab an impending opportunity. Probably time to bet on the infrastructure theme again!    Debt: With the change in RBI stand and the subsequent events, there could be possibilities of profitability in the long papers and hence are interested in the dynamic asset allocation based investment avenues. Crude: The Domestic price would be dependent on the USD parity, though the recent gains in the global prices is a combination of demand (US summer spends) - supply (shutdown in Libya) issues. The current geo-political tone would add more volatility to it. 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.

Buzz 

Midorexia - a label for the middle-aged and older consumers who act younger than their years.

This Australian Open when for the first time the finalists in both the men”s and women”s singles finals were all 30+ in their age (considered veterans in the pro tennis) also when the Indian Cricket team recalled Yuvi, Nehra and Dhoni (all 30+ veterans), it was like watching matches a decade old. Most of us regaled feeling that we’ve gone down by 10 years of our age. This is not just a feeling but a revolution unfolding across the world.

Its just highlighting the shifting status and expectations of a demographic whose members are living and working for longer and prioritizing wellness while challenging the typical age-appropriate behavior of older people. These consumers are transforming what it means to be older in terms of lifestyle and are more demanding in their consumption needs, creating what is increasingly referred to as the “Longevity Economy”. These changes are inspiring the financial advisors to extend the traditional boundaries of planning and execution of the retirement.

The Union Budget has set a tone of incrementalism and continuity, which within a few years would turn into a non-event, ideally how it should be. This budget had all the expectations of turning into populist as its between two big events of denonitisation and big state elections but we're impressed at the restraint shown by the FM. 

Wealocity sees a reformist path other than merging the railway budget are: 
5% reduction in the corporate tax for cos less than Rs.50Cr turnover,

lowering cash donations to the political parties,
making it unlawful to deal in cash over Rs.3L,
reduction of 5% in the 1st slab of individual tax,
restricting the tax concession for housing loan interest to Rs.2L and reduction of holding period form 3 to 2 years for considering LTCG. 

The icing on the top is the empathy for tax payers who're a minority while crunching big data (the govt.'s keenness to hook the non-complaint).

The new US administration is on a mission to issue executive orders in it's attempts to live up to the election promises. This has resulted in pulling out of the burgeoning TPP though it was expected to add just 0.2% of GDP to the US in over 15 yrs. So, the cost of withdrawing seems small. But it would be a big blow to the free trade across the world and also significant deterrence would be lost to the ever expanding influence of China.

Already the new visa ban laws have attracted wide negative attention across the world while innumerable suits filed within the US by organisations and institutions. Despite all this political turmoil, the US economy continues to chug along with increasing consumer confidence. While US stocks touched newer highs, clouds are gathering over the lengthiest bull run ever in it's history.

The RBI's decision to hold the interest rates in this quarterly monetary policy is considered as surprise and hawkish. But, Wealocity believes the stance change from accommodative to neutral is pragmatic considering the unknown effects of demonetisation, the possible crude price hike, the strengthening US dollar and the impending FED rate hike.
By remaining neutral, the committee has shown that they would wait and watch the situation than have a preconceived approach. The bonds had the biggest rout in three years with this announcement.

The UK as it explores to invoke the article 50 of the EU, it tries to fight within while struggling to have a soft exit. To achieve this, they're warming up to the US, their natural and largest ally.
China's growth has become what economist's call Goodhart's law. It says, when an economic metric becomes the goal of a policy, it loses meaning as a metric. So, once the Chinese govt. decided to target GDP at 8% or 7% or 6.5%, the GDP growth lost its meaning as a reliable guide to Chinese economic performance. The biggest concern going into this year is the debt-trap the economy faces. 

What's in it for you:

Equity: The much better-than-anticipated quarterly results post the demonetisation have given a fillip to the markets. The pre & post budget rally has added gleam with a sudden reversal in the FII has contribution, though the domestic inflows remained strong and historical highs. However, we believe the impact of demonetisation could be felt in this quarter results. 
This is an opportunist time to have exposures to equity with higher allocation to large caps and select mid & small cap stocks/funds.

Debt: Though the reversal in stand without warning by the RBI  in the interest rates, we believe further rate cuts could happen and has given an option to enter in the gilts now. The ideal exposure to dynamic bond funds would be good for fixed income space. 

“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.