Falling shares wipe out Indian funds' 2007 gains

Actively managed diversified stock funds in India, which posted their best annual returns in four years in 2007, lost all their gains of last year in the first half of 2008, data from fund tracker Lipper showed.These funds’ net values plunged 38.8 percent on an average as weak global markets and concern on domestic economy under pressure of inflation triggered a fall in local stocks, hurting large bets in financial and capital goods sectors even more.

Nine out of ten such funds fell more than India’s benchmark stock index, which posted its biggest monthly loss in 16 years in June, extending the fall to just over a third in the first half.

Equity funds had risen an average 55.97 percent in 2007 to record their best annual returns in four years.

"This time I think the first six months have certainly caught everyone unawares," Sanjay Santhanam, director of Canara Robeco Asset Management, a joint venture between Canara Bank and Dutch fund firm Robeco.

"They are probably overweight on a few sectors and companies. So that is where they have taken a hit," Aditya Agarwal, joint managing director at fund tracker ICRA Online, said.

Diversified funds invested more than a fourth of their assets in financial services and capital goods sectors consistently in 2008 and suffered as the BSE Bankex and BSE Capital Goods indices tumbled more than 48 percent.

Larger bets on relatively illiquid medium and small-sized firms, commanding an allocation of more than 40 percent of the assets, deepened the looses with the BSE Mid Cap and BSE Small Cap indices dipping more than 44 percent each.

Financial sector funds lost the most, sliding 45 percent, as stocks were hit on expected monetary tightening by the central bank on spiralling inflation, which rose to 11.42 percent in the 12 months to June 14, its highest in more than 13 years.

Gold exchange traded funds were the top performing category,

rising nearly 20 percent, as the yellow metal prices in the local market showed sharper gains compared to foreign markets owing to a fall in the rupee against the dollar.

On June 30, spot gold rate quoted by a bank was at 13,120 rupees per 10 grams, up 21 percent from 10,854 rupees at the beginning of the year.

'Today's parents are poor role models'

Parents are usually considered to be a child’s first teachers and role models. But, a study has some dampening news for today’s generation of adults - you’re responsible for your kid’s lack of basic moral values.

Researchers at the Children’s Society in Britain have carried out the study and found that children aren’t acquiring basic moral values nowadays because today’s parents are actually poor role models.

For their study, the researchers questioned 1,176 people - they found that two thirds of adults believe that the moral values of young people have declined considerably since the time when they were young, the Times reported. According to the society, the rise of the celebrity culture and weakening family bonds are undermining traditional moral values among young people.

But it has also blamed adults for failing to engage with children and being too eager to criticise their behaviour rather than just intervening and helping them to navigate the challenges of modern life.

According to Bob Reitemeier, the chief executive of the society, adults need to take more responsibility for the young people around them. "We reap what we sow when it comes to teaching children values. Every adult plays a vital role, which we should nurture as much as we can.

"Unfortunately, it is easier to criticise children than to invest in them, and it is the children most in need of positive role models who are becoming disconnected from their communities and wider society."

'Dangerous' words to label N-waste

How will "DANGER!" be written 5,000 years from now? How will it be written in 50,000 years? Finding an answer to these questions may not seem like a Code Red emergency to most people. But for a growing cadre of scientists, figuring out how to alert our distant descendants to perilous nuclear waste entombed hundreds of metres below ground has become a fascinating task.

After more than six decades, high-level nuclear detritus is piling up above ground, and governments are starting to spend billions on underground facilities intended to survive tens of thousands and hopefully hundreds of thousands of years.

That means there is an emerging interest in choosing the right signs and language to warn people of a stockpile that could be deadly, as well as a source of military nuclear proliferation - or even a source of fuel, if future technology can recycle it. Languages evolve fast - the English of the 11th century bears scant resemblance to the English of the 21st - and places of human settlement also come and go, shaped by war, climate change and other forces.

Words not only change, they also die out. Today’s dead languages include those that, in their halcyon days, belonged to the world’s most advanced civilizations. It took decades to unlock the meaning of Egyptian hieroglyphs only a few thousand years old, and Mayan symbols of even more recent vintage remain a mystery to this day. So, for humans many generations hence, the major languages, customs and symbols of today may be indecipherable, even though the threat from casks of plutonium – or
caesium-tainted waste will still be lethal.

Simply installing a red-lettered sign warning our descendants to steer clear of a deep chamber will not be enough. To those in the future, it might be taken as meaning: "Hey! Dig here! Treasure below!"

Tom Peake of the US Environmental Protection Agency (EPA) says the search for a solution encompasses many areas, including semiotics (the study of signs), linguistics, history and anthropology. "The need to address the disposal of nuclear waste and its long-term potential hazard has been the impetus for research into long-term memory," he explains.

In the US, researchers at the Waste Isolation Pilot Plant, a nuclear waste dump for the military in the New Mexico desert, envisage crafting gigantic blocks of stone engraved with symbols designed to last for thousands of years.

These will be supported by "information in multiple languages in multiple media" to try to convey the potential danger, said Peake. In Europe, though, a strong current of thinking is that future waste sites should somehow be integrated into human society so that the warnings are transmitted from generation to generation.

The great anticlimax!

Vatsyayana would be a very unhappy man if he glanced through the Durex survey 2008. The urban Indian is so caught up with life that there’s little action happening between the sheets. Hectic stressed-out lifestyles are getting in the way of libido and liaisons.

A global survey conducted by the leading condom manufacturer, Durex, reveals that 46 per cent Indians experience an orgasm during every encounter against 24 per cent of Chinese and 27 per cent of Japanese. Italians, Spaniards and Mexicans have best sex lives with 66 per cent of them reaching the peak, the survey, which polled 26,000 people in 26 countries.

Women get a worse deal; only 32 per cent say they reached the peak every time they have sex, compared with 63 per cent of men. But not everyone is going through a routine of pleasure denial. Usha, a 26-year-old professional says, "I lost my virginity to my husband on the marriage night. I was very naïve but my husband was very understanding. Today we share a very healthy sexual relationship. My husband is very sensitive to my sexual needs. We spend a lot of time in foreplay and I enjoy his playfulness."

However, that’s not always the story as many Indian women go through the motions of faking it if only to keep their partners happy." Women do not understand that they can be in control of their own pleasure. They believe that the man is the one having his fun. Once women understand their own sexuality it will boost their satisfaction factor," explains Ian Faria, a marriage counsellor.

Jamal Shaikh, editor Men’s Health magazine says, "In India most men have their first sexual encounter at the age of 25 or even later, with a girl who is his wife. So they may come across as shy. For most Indian women, a man who’s not completely sure of himself is a turn off. This reduces the level of satisfaction for the man and the woman."

Globally, a third of people do it once a week while Greeks are really at it with all their hot-blooded Mediterranean virility (87 per cent) and Brazilians close behind (82 per cent), around 68 per cent of Indians have sex once a week.

Are Indians, then holding their urges back and keeping hormones on a leash? "Although India is the land of the Kama Sutra, there has been a lot of negative ideas doing the rounds about sex. Women believe that they have to oblige their husbands in bed -- sex is the price for marriage and for men marriage is the price for sex. This mindset is throwing the balance off," says Faria.

Sudha, 24, believes that sex comes naturally to people. "I am a virgin and I intend to lose my virginity to my husband. For me sex should be spontaneous and not be goal oriented. It should be love making and an orgasm in the mind."

Though the experiencing of pleasure has its origin in the mind, there is no denying that the mating game is also a very touch-feel skill involving hits, misses, erogenous zones and sensitive spots. These physical ramifications heighten the satisfaction of the ritual. Intellectualising it beyond a point might take way from that sense of fulfillment. Maybe we need to talk, express, open up, and experiment.

'School expenses rise by 160% in 8 years'

While politicians battle it out over inflation and the prices of onions and brinjals, the probable blow for the Indian middle class with its obsession for a ’good’ education are the rising school expenses. According to an ASSOCHAM survey, the costs of sending a child to school have risen by 160% in the last 8 years. What’s more, this figure is exclusive of the tuition fees hiked every now and then.

The survey, done under the aegis of the Social Development Foundation of ASSOCHAM on ’Rising school expenses vis-a-vis dilemma of young parents’ says annual school expenses for a single child excluding tuition fees have risen from Rs 25,000 in 2000 to Rs 65,000 in 2008 while the average annual income of fairly well-off parents has not risen by more than 30% in the same period. The average tuition fees for a private school is Rs 35,000 per year, with Rs 30,000-35,000 per year as expense for a host of ’overheads’. An estimated 3 crore children in the country study in private schools, says the survey.

The 2,000 working parents across were surveyed across nine cities—Delhi, Mumbai, Lucknow, Dehradun, Pune, Bangalore, Kolkata, Chennai and Chandigarh—during April and May this year. One in 10 respondents said the cost of schooling did affect the choice of school. These were parents of young enough kids who had the option of changing schools. Sixty-five per cent respondents said more than half of their salary was spent on their children’s education while 50% conceded schooling was actually a ’strain’ on the family budget.

Nearly 60% of parents felt education had become a business and that the high tuition fees did not actually indicate the academic standards of a school. Rather, it indicated a demand-supply function so that school managements could effect erratic fee hikes every year—something parents can not protest. Even private preparatory schools charge Rs 25,000 a term, the survey says.

Said a parent with two children studying in a very reputed chain of schools, ’Every year there is a hike. Every few days there is something or the other in school for which I have to cough up more money.’

Transport has emerged as one of the most expensive components of a child’s schooling with an average annual cost of Rs 12,000 per child. Packed lunches cost Rs 9,600 per year per child and shoes cost Rs 4,000-5,000 per year per child.

Said Rakhi Sengupta, whose daughter studies in a reputed private school in south Delhi, ’It’s all a racket but we can do nothing about it.’ This ’brand consciousness" too finds a mention in the survey.

Sensex's returns to be less than 10%?

The Bombay Stock Exchange’s benchmark Sensex may have registered its biggest ever monthly fall in the last 16 years when it sank to a 15-month low of 13,405.54 points on Monday, but the worst is still not over if a survey of fund managers is to be believed.

The country’s key stock index could provide a return of less than 10 per cent over the next 12 months, brokerage firm CLSA said on Monday, citing a majority of fund managers in a poll. The Sensex has already dropped 33 per cent this calendar year, its worst six months since the benchmark was introduced in 1979.

In fact, according to 31 per cent of the participants in the poll, a further downside in the benchmark index can be expected as rising commodity prices and higher interest rates hurt growth in Asia’s third largest economy.

“India-dedicated funds and mid-sized funds are relatively bearish,” CLSA said, adding that 57 per cent of non-India dedicated funds were underweight on the Indian market.

NO END TO BAD NEWS...

The survey could not have come at a more inopportune time as investor sentiments had already been dampened by high inflation and a resurgence in global crude oil prices which again surged to over $142 in Asian trade.

Even during Monday’s trade session, fund houses and investors off-loaded holdings in refinery, bank and realty segments following projections of a fall in economic growth.

Germany-based Dresdner Bank said that the soaring inflation and high interest rates are expected to take a toll on the Indian economy, bringing down its GDP growth rate to 7.5 per cent this financial year as against the 9 per cent clocked in 2007-08 .

Dresdner Bank, the banking arm of global insurance major Allianz Group, also observed that the Indian economy had already lost momentum this year with production growth slowing substantially in the first four months of 2008.

This projection is much lower than the Finance Ministry’s expectations of 8-8 .5 per cent GDP growth, and is the second major one since research firm Standard and Poor’s slashed its forecast to 7.8 per cent last Thursday.

SENSEX DROPS BY 340 PTS

The downgrading of GDP growth forecasts, coupled with global oil rates heading northwards again, hit the BSE’s bellwether hard, pulling it down by another significant 340.62 points to register its biggest ever monthly fall in the last 16 years.The 30-share Sensex settled the day at 13,405.54, showing a loss of 2.47 per cent, from its previous close. Similarly, the NSE’s 50-share S&P CNX Nifty fell by 96.10 points, or 2.32 per cent, to close at 4,040.55.

Traders said that the ongoing political uncertainty at the Centre had a sentimental impact on markets too. The Left supporters of UPA Government had threatened to withdraw support if Prime Minister Manmohan Singh pushed ahead with the Indo-Us Nuclear Deal.

“The only segment that is showing some resilience is the services sector, which is still recording double-digit growth rates,” Allianz-Dresdner Economic Research said in its report on the economy and markets. AGENCIES

MANIC MONDAY

DOWN 340.62 PTS AT 13,405.54 CLOSING LEVEL IS A 15-MONTH LOW JUNE ’08 ENDS AS BIGGEST LOSING MONTH IN 16 YEARS

World's longest cable-stayed bridge opens in China

The world’s longest cable-stayed bridge has officially opened in eastern China, linking the two banks of the Yangtze river, state media reported Tuesday.

The Sutong bridge, which spans 1,088 metres (3,570 feet) over China’s longest waterway and links the cities of Suzhou and Nantong, officially opened with a ceremony Monday after a month-long trial, the Shanghai Daily reported.

The six-lane bridge is expected to boost economic growth in the region and cut the travel time between Shanghai and Nantong to one hour from the previous four hours, the report said.

Up to 30,000 vehicles a day crossed the bridge during the trial, the Xinhua news agency reported.

"With the bridge, it takes just seven minutes to drive across the Yangtze," the agency quoted Jiangsu province’s transportation director, You Qingzhong, as saying.

The 1.15-billion-dollar bridge, which overtakes Japan’s 890-metre (2,900-foot) Tatara Bridge as the longest of its kind, is a feat of modern Chinese engineering, the project’s chief engineer Wu Shouchang said.

"The bridge is a good demonstration of China’s scientific achievements in bridge construction over the past years," Xinhua quoted Wu as saying.

The bridge, 108 kilometers (67 miles) upstream from the mouth of the Yangtze River, joins the national highway network on both banks, Xinhua said.

The bridge is supported by soaring steel and concrete towers that stand 300 meters tall.

Mobile phones pose no health risk: German study

One in four Germans who worry that mobile phones and their transmission towers are health hazards can now relax following studies coordinated by the Berlin-based Federal Office for Radiation Protection (BfS).

German Environment Minister Sigmar Gabriel said more than 50 studies in the German Mobile Telecommunications Research Programme (DMF), conducted from 2002 to 2008, had found no evidence that mobile phones and transmission towers posed a health risk within the required limits for electromagnetic radiation.

The programme was funded with 17 million euros ($26 million), a small sum compared with the billions of euros that the German government collected when it auctioned licenses for slices of Germany’s UMTS airwave spectrum in 2000. Though the country’s four mobile network operators provided half of the research funds, the BfS told critics that DMF procedures had ensured the objectivity of the studies.

Research focused on the functioning mechanisms of high frequency electromagnetic fields in mobile telephony, the fields’ effect on humans and animals, and the amount of electromagnetic radiation to which the German public is exposed.

Several studies looked at possible effects on what is known as the blood-brain barrier, a kind of filter that prevents harmful substances in the blood from reaching neurons in the brain.

According to the BfS, the studies found no conclusive evidence that radiation from mobile telephony significantly weakened the blood-brain barrier.

Three studies dealt with the 1.5 percent of Germans who describe themselves as "electrosensitive" and blame various health problems on electromagnetic fields.

Since the ailments are typically things like headaches and sleep disorders, which could have many causes, establishing a link with electromagnetic radiation is very difficult.

The studies found that some people were quicker to sense electromagnetic fields than others, and that health complaints were not necessarily connected with radiation.

est persons were asked to speak up as soon as they felt exposure to electromagnetic fields. Those who considered themselves electrosensitive sounded the most false alarms.

The BfS concluded there was no proof that electromagnetic fields caused the health problems named by electrosensitive people.

The research programme also included a number of epidemiological studies aimed at determining whether mobile phone users contracted certain kinds of cancer more often than nonusers.

The BfS said there was no evidence of a link.

Despite the studies’ reassuring results, the "all clear" signal comes with a caveat: Mobile telephony is safe as far as we know, but we still do not know everything.

"What concerns me is that we know little about the effects on children and juveniles," remarked Rolf Buschmann, an environmental expert at the North Rhine-Westphalia Consumer Centre in Dusseldorf.

There are no suitable scientific models at present for studies involving children.

The effects of longterm mobile phone use - 10 years or more - have not been sufficiently studied either, which is not surprising considering that the technology is still young.

For Bernd Rainer Mueller, an engineer and measurement technology specialist for the Berlin-based environmental protection organisation BUND, this is reason enough to demand lower legal limits for the electromagnetic radiation caused by mobile telephony.

"I’m afraid that otherwise half the population will have health problems at some point," he said. Mueller’s fears are based in part on the justified assumption that mobile-phone use will increase in the years ahead.

For its part, the BfS also sees the need for more research on long-term mobile-phone use as well as on the effects on children and juveniles.

And it continues to advise consumers to use mobile phones as little as possible, to buy low-radiation models, and to make sure that conditions for reception are good.

Use your PC with tip of the tongue

A new device that uses a tiny magnet can help disabled people steer a wheelchair or operate a computer using only the tip of the tongue, US researchers reported on Monday.

The magnet, the size of a grain of rice, lets people direct the movement of a cursor across a computer screen or a powered wheelchair around a room. It is easily implanted under the tongue, the team at the Georgia Institute of Technology said.

"We chose the tongue to operate the system because unlike hands and feet, which are controlled by the brain through the spinal cord, the tongue is directly connected to the brain by a cranial nerve that generally escapes damage in severe spinal cord injuries or neuromuscular diseases," said Maysam Ghovanloo, an assistant professor who helped direct the work. "Tongue movements are also fast, accurate and do not require much thinking, concentration or effort."

A headset with magnetic field sensors detects the magnetic tracer on the tongue and transmits wireless signals to a portable computer, which can be carried on the user’s clothing or wheelchair.

"This device could revolutionize the field of assistive technologies by helping individuals with severe disabilities, such as those with high-level spinal cord injuries, return to rich, active, independent and productive lives," Ghovanloo said. The team reported on their device to a meeting of the Rehabilitation Engineering and Assistive Technology Society of North America in Washington.

The researchers said the computer could be programmed to recognize a unique set of specific tongue movements for each user. "An individual could potentially train our system to recognize touching each tooth as a different command," Ghovanloo said.

The researchers tested the Tongue Drive system on 12 able-bodied volunteers and now plan to test it on people with severe disabilities, Ghovanloo said.

Rise in interest rates to push up your EMIs

With the inflationary trend in the economy persisting, more and more lenders are raising interest rates. The country’s largest home loan lenders, HDFC Ltd and ICICI Bank, joined the bandwagon on Monday, increasing interest rates on home loans by 0.50 to 0.75 percentage points.

This means all fresh borrowers and those existing customers who borrowed under the floating-rate option will now have to shell out more. This applies not only to home loans, but to all kinds of consumer loans, including car financing. Public sector banks like SBI, UBI and PNB increased the rate by half to one percentage point last week.

The rise may also affect the borrowers because the longer the duration of the loan, the more the impact of the rise in interest rate on your EMI.

Since home loans are normally taken for 20 years, rise in EMI is substantial. For every percentage point rise in interest rate, EMI on a 20-year loan goes up by Rs 68 per lakh. Normally, the size of the home loan in the present scenario is in the range of Rs 30 lakh to Rs 50 lakh. EMI on a Rs 50 lakh loan for 20 years will go up by Rs 3,402 per month. This means an additional annual burden of Rs 40,830.

A senior banker pointed out that the cumulative effect of interest rate hikes over the last three years means that for those who borrowed in 2005, the new EMI would be almost 28% higher than it was when they started repaying the loan. That means, EMI on a Rs 50 lakh loan has gone up by Rs 11,500 to Rs 53,322 after the latest hikes, which means the borrower will now fork out Rs 1,38,000 more per year than he did three years ago.

This is a major cause of concern not only for customers, but also for banks as they are now beginning to fear that rising EMIs might increase the default rate. If it happens, it won’t just be the bank’s profitability that will take a hit. You can be sure they will hike rates even further to cover for the higher risk of default.

But apprehensions of default as EMIs rise mean that banks and finance companies will first resort to increasing the repayment period while keeping the EMI unchanged. However, this may not be possible for many old customers, who have already had their repayment periods extended at the time of earlier hikes.

If the interest rate goes up by one percentage point, the repayment period increases by eight years if EMI is to be maintained at current levels. As the rate has gone up by three percentage points since 2005, most customers of that vintage may have reached the maximum possible repayment period already. In such cases, the increase in interest rates will perforce lead to rising EMIs.

For new customers, however, banks will try as far as possible to increase the repayment period, keeping their EMI unchanged, so that it would not stretch their repayment capacity immediately. Of course, this won’t be possible if the extended repayment period goes beyond the borrower’s super-annuation date.

In any case, whether through higher monthly payouts or a longer period of repayment, borrowers will have to meet the extra burden.

For those who have bought houses on borrowed funds, it’s a double whammy. On the one hand, high inflation at 11.42% is adding to their monthly bills. On the other, the rise in interest rates will push their EMIs substantially upwards.

'Rupee to test 47-level vs USD, GDP growth 6% by year-end'

Continuing flight of foreign capital from Indian equity markets and the persisting global financial crisis, hit by surging crude oil prices, are likely to send the domestic currency crashing to 47-level against the US dollar in the coming months, the experts have warned.

Since the beginning of 2008, the rupee has depreciated by over 8 per cent against the US dollar in a downward rally, which started after a sharp appreciation of over 11 per cent in the Indian currency spanning over a year-long period.

During its last appreciation leg, the rupee rose from about 45-level to a high of close to 39 per dollar mark, while it is currently inching towards 43-level amid continuing pull- out of foreign capital from India and surge in oil price.

Global brokerage and equity research major CLSA’s analyst and a renowned portfolio manager Christopher Wood has said in the latest June edition of his famed "Greed and Fear" report that further rise in oil price would continue to be particularly bad news for India.

"This is both despite and because of the Reserve Bank of India’s increasingly pre-emptive monetary tightening stance. The RBI raised on Tuesday the repo rate and the cash reserve ratio (CRR) by 50 bps each to 8.5 per cent and 8.75 per cent, respectively.

"Certainly, a re-test of the 12,000 level on the Sensex cannot be ruled out in these circumstances. And that will be accompanied by a further weakening in the rupee," Wood wrote.

Separately, research and analytics firm Evalueserve’s Chairman Alok Aggarwal has written in a whitepaper that the rupee is expected to fall to 47 against the US dollar and GDP growth could slow down to six per cent by the fourth quarter of this fiscal.

"Should the present global financial crisis not subside, crude oil continue to trade upwards, FII outflow from India continues unabated, and the Indian government do more harm than good to the country’s fiscal health in an election year, we are revising down our earlier forecasts.

"We now believe that the Sensex could drop to 12,000 in the near term, the Rupee could depreciate by another five to six per cent against the US dollar, and the GDP growth could slow to approximately six per cent by the fourth quarter of this fiscal year," Aggarwal wrote.

He also pointed out that deterioration of external and internal factors have thrown obstacles in the country’s growth story.

"We also believe that the Indian government’s hands are tied in an election year and it is likely to be a net negative contributor," he said.

Noting that the Indian economy is in a tight spot in the short term, the whitepaper said a number of external and internal factors are likely to create pressure on economic growth, corporate earnings and the stock market.

Further, it added that as the country’s financial markets are relatively immature, small capital inflows and outflows tend to have an exaggerated impact.

Time MFs put money into the market

The Indian stock markets should ideally reflect the strength of the domestic economy and corporate fundamentals rather than get totally swayed by the risk perception of foreign institutional investors (FII). FII net sales of about $6.1 billion (year to date), does not in any way mean that the economy has lost steam.

Spiralling inflation, partly due to the sharp surge in prices of crude oil and other commodities, and monetary tightening (in particular, the latest measures) will slow growth, but not enough to take the economy downhill. Nor does it warrant large-scale selling on the stock markets.

Almost all stocks have been hammered down by the bears, and many blue-chips are trading at prices close to their 52-week lows. Worst-affected sectors include realty, banking and capital goods. Power and oil stocks have also been battered.

But then, stock markets are not for the faint-hearted. In volatile conditions, investments made with short-term horizon are bound to give negative returns. Staying invested in the medium-to-long term will be rewarding; the sensex and Nifty have returned about 23-24% per annum over the past three years and about 30-31% a year over the past five years, even after erasing nearly all the gains made over the past one year.

Retail investors would do well to invest through mutual fund schemes, the best managed diversified equity scheme delivered 35% per annum over a three year period and about 52% a year over the past five years.

Asset management companies (AMCs) have overall been net buyers this year. But with uninvested funds and cash equivalent estimated at more than Rs 20,000 crore in hand, AMCs have the potential to change the sentiment in the market.

Retail investors in mutual fund schemes have not rushed to redeem their investment this time. Instead, many continue to make fresh investment in schemes. That should provide fund managers some comfort. And therefore, rather than wait for positive developments on policy making, fund managers must step up active buying.

Retail investors can also seize the current market conditions to strengthen their portfolio with blue chips, which are now available at reasonable valuation.

Investors should track market forces, say analysts

Last week was bad for the markets. Both the Nifty and Sensex lost more than five percent. The market breadth remained negative as the number of declining stocks was more than the number of advancing stocks in the market. Foreign institutional investors (FIIs) have been net sellers in the market. They have taken out more than $500 million from the markets.

Some value buying activity was seen by domestic funds but that was nowhere close to the selling by FIIs. The market sentiments were already quite negative and the unexpected hike in the repo rate by the Reserve Bank of India (RBI) surprised most analysts.

These are some of the major factors investors need to watch:

Heavy FII selling

FIIs are selling heavily in the domestic markets this year. We have already seen FIIs taking out six billion dollars from the markets. Last year, FIIs invested 18 billion dollars in the domestic markets. One major reason for FIIs selling is the urgent need for liquidity in their parent companies abroad. Also, the macroeconomic situation in India has changed quite a bit this year. FIIs will be hesitant to invest fresh money till they see improvement in the macroeconomic environment and global inflation rate.

Sharp rise in crude oil prices

Rising crude oil prices is one of the major sentiment-dampeners in the domestic stock markets. India imports more than 75 percent of its crude oil needs from the oil producing nations. In the last few months, the crude oil prices rose sharply and touched an all-time high mark of USD 140 per barrel last week. Since this sharp rise cannot be passed quickly to the consumers it is resulting in a surge of oil pool deficit.
High commodity prices

This is another large problem faced by emerging economies. The prices of some basic commodities have gone up quite significantly over the last few months. Hence the high inflation rate almost all over the world. Analysts believe that this high inflation rate will hamper the world economic growth rate.

The RBI increased both the repo rate as well as the cash reserve ratio (CRR) this week to get a control on the rising inflation rate. The repo rate was increased by 50 basis points (0.5 percent) to 8.5 percent with immediate effect while the CRR will be increased in two phases. A 25 basis point CRR hike will be effective from July 5th and another 25 basis points will be increased from July 25th.

Many analysts and market traders expected a hike in the CRR after the double digit inflation numbers were announced on June 20. However, a sharp increase in the repo rate came as a surprise to many. This hike in repo rate will result in a rise in banks’ lending rates, which in turn will have an adverse impact on the credit growth and capital expenditure. This will lead to a slowdown in growth. The RBI also signaled that the tightening of monetary policy may not stop here and it may take further steps if required.

Many analysts believe that the current RBI action had already been factored in by the market. The markets had fallen to the lowest levels of this year. Investors should keep a careful watch on the weekly inflation numbers. The RBI may take some tough monetary policy measures again (CRR or repo rate hike) if the inflation does not show signs of softening. This will further add to the negative sentiments in the markets. Many analysts feel that the market sentiments are quite weak, and unlike in the past, it may take considerably longer for things to improve

Good time to invest in gold: World Gold Council

With crude prices hitting the roof and the stock market nosediving, gold is emerging as a good hedge option against inflation. "It is the right time to invest in gold," says K Shivram, vice-president, World Gold Council.

There has also been a shift in the consumption of gold. According to Shivram, a lot of jewellers are now setting up shop in tier-II and tier-III towns.

"Small towns have definitely benefited from the influx of the large retail brands," he said. Moreover, when it comes to gold purchase, it’s not restricted to jewellery alone.

The sale of gold coins is on the rise especially during Diwali and Akshaya Tritiya. "Many jewel retail brands are catering to the requirements of working women by designing light pieces," he said.

Against the backdrop of this, the Gold Club of Chennai and the World Gold Council are partnering to host an India Gold Conclave (IGC) on 19th July. Around 250 delegates are expected to participate in this B2B event.

The IGC will bring together on a single platform key stockholders to discuss trends in the gold and the jewellery industry.