Investor Issues
Ignore India PMI-Purchasing Managers Indices: Credit Suisse
Credit Suisse have made a startling discovery. It has found that a popular leading indicator, PMI, followed by all analysts and policymakers including even the Reserve Bank of India, had no correlation with the actual data, which was released later
Credit Suisse has found out that India’s Purchasing Managers Indices (PMI) data has little or no correlation with actual data released by the government. Yet, many experts and analysts, and even Reserve Bank of India follow it as though PMI is a leading indicator of economic activity and a tool to make policy and investment decisions. Robert Prior-Wandersforde, a research analyst, said in his research note, “Unfortunately, we have failed to find a single indicator that consistently leads real growth rates in the Indian economy which then leaves us to focus squarely on fundamentals. Focusing on such indicators as the PMIs could present greater dangers”. 
The analyst further says, in his note, “Judging from their commentary, forecasters and policy markers in India clearly pay close attention to the monthly release of the manufacturing and service sector PMIs. However, a close inspection of their historical relationship with industrial production and service sector growth suggests that they should often be taken with a sizeable pinch of salt.”
The Purchasing Managers Index, or PMI, is widely used as a leading indicator of performance of manufacturing and service sectors. Companies like Markit provide this service by individually collecting information from companies about their performance or output, every month, and compare it with previous months. The advantage of this is that the data is known ahead of government data. This gives investors, policy makers and analysts, who use it, an “edge” over others to make decisions.
Credit Suisse has found out that PMI data had no correlation with actual data! In other words, whatever the PMI data showed turned out to be misleading. 
“There have been periods when correlation between India’s manufacturing PMI and output growth has been non-existent or indeed even negative. This has been true of the past couple of years for example, as we have highlighted in chart. From mid-2011 to mid-2013, the correlation between the two series has been just 0.09,” said the note. The chart below shows how different PMI is from the actual data. 
This is startling because a correlation of 0.09 means there is absolutely no correlation between PMI and actual data, or in fact “decoupled”. Ideally, if PMI were to be a good indicator, the number ought to be close to one.
It is even worse for service sector PMI. Credit Suisse found out that between October 2011 and January 2013, the PMI was trending higher, but in reality services sector actually slowed down. The graph below illustrates this phenomenon. 
Robert says, “PMIs are by no means the only indicators that are wrongly thought to have powerful leading properties to real economic developments in India”. 
If this Credit Suisse study is any indicator, then it is time to take PMI with a heavy dose of scepticism and, instead, either wait for the data or do you own homework. 


Sensex, Nifty to move in a range: Thursday closing report

The Nifty has to break through today’s days range for further direction

On a marginally lower volume of 83.40 crore shares on the National Stock Exchange (NSE), the Nifty broke the trend of five days up move. The BSE 30-share Sensex opened in the positive at 20,046 and hit intra-day high of 20,052. The Nifty opened at 5,931 that was also its intra-day high level. For the rest of the trading session, both the indices traded in the negative zone. In the last hour of trading, the benchmarks hit their respective intra-day lows and tried to recover before ending in the negative. The Sensex hit an intra-day low of 19,676 and closed at 19,782 (down 216 points or 1.08%). The Nifty hit an intra-day low of 5,816 and closed at 5,851 (down 62 points or 1.06%).


Except for FMCG (up 0.74%); Realty (up 0.52%) and Pharma (up 0.12%) all the other indices on the NSE closed in the negative. The top five losers among indices were Metal (2.61%); Bank Nifty (2.03%); MNC (1.95%); Auto (1.66%) and PSE (1.66%).


Of the 50 stocks on the Nifty, 12 ended in the green. The top five gainers were Tata Power (3.80%); IDFC (2.66%); ITC (2.32%); Gail (2.03%) and Ranbaxy (1.18%). The top five losers were Jaiprakash Associates (11.98%); IndusInd Bank (5.65%); Tata Steel (4.48%); BHEL (4.12%) and ONGC (3.98%).


Reserve Bank of India (RBI) governor Raghuram Rajan on 11 September 2013, said India's slowing economy and its massive current account and fiscal deficits are not structural problems and can be fixed with modest reforms. Read: India does not have structural problems: Raghuram Rajan 


After the close of markets, the union government unveiled the data on consumer price index for urban and rural India for August 2013 and industrial production for July 2013. After contracting for two consecutive months, the industrial output grew at a four-month high of 2.6% in July against contraction of 0.1% in same month last year, according to the official data released by Ministry of Statistics and Programme Implementation. This will pump some confidence in the economy as the IIP fell 1.1% in the first quarter of 2013-14 against a decline of 0.2% in the corresponding period of 2012-13.


The annual consumer price inflation eased marginally in August to 9.52% in line with expectations from 9.64 in July, government data showed on Thursday. Food prices for consumers also eased to an annual 11.06% in August from 11.24% in July.


The power ministry has made a proposal to mix imported and locally produced natural gas and supply it to electricity producers at a subsidized price.


The government will decide on raising the retail prices of diesel and cooking gas (LPG) in a few weeks, the oil secretary said on Thursday, in a bid to cut the biggest item in its import bill and support the local currency. While, on the other hand, petrol prices may be cut by as much as Rs1-1.50 per litre next week on falling international oil rates and appreciating rupee.


Except for Nikkei 225 (down 0.26%) all the other Asian indices ended in the green. Shanghai Composite, top gainer, up 0.64%.


Bank Indonesia on Thursday raised its benchmark interest rate by a quarter of a percentage point, while central banks in the Philippines, South Korea and New Zealand all kept rates on hold. Indonesia's central bank Bank Indonesia raised its benchmark interest rate by 25 basis points to 7.25% on Thursday. Bank Indonesia also raised the key money market Fasbi rate to 5.5%.


US indices had a mix performance on Wednesday with Dow rising by 136 points but the tech-heavy Nasdaq falling by 4 points. The US and Russia will meet today to discuss a plan for Syria to surrender its chemical weapons, potentially averting a military strike. Among the first steps US wants is, one of the US officials said, for the government of Bashar al-Assad to quickly make a complete, public declaration of its chemical weapons stockpiles as a prelude to inspecting and neutralizing them.


The UK’s unemployment rate measured by International Labour Organization methods declined to 7.7% from 7.8% in the second quarter, the Office for National Statistics said.


Italy's industrial production fell unexpectedly in July, declining 1.1% on the month in seasonally-adjusted terms, as output fell in all the main sectors apart from energy, national statistics institute Istat said Thursday. Industrial output in the euro zone's third-largest economy fell 4.3% in July from the same month a year earlier, using workday-adjusted terms for the annualized figure, Istat said. This marks the 23rd consecutive decline. June's monthly figure was revised lower to a 0.2% increase from the earlier estimate of a 0.3% increase, Istat said.


French consumer prices rose in August from July, led by an increase in the price of clothes and shoes, statistics showed Thursday. The consumer price index rose 0.5% in August from the previous month. Prices were 0.9% higher than in August 2012, France's statistics bureau Insee said. European indices were trading in the red and the US Futures too were trading in the negative.


Portfolio Management Schemes: Our online survey results

Moneylife online survey on PMS shows large-scale underperformance and gross mismanagement by PMS companies. While many investors may not have invested due to lack of data for making an informed decision, a majority of those who have invested, say they lost money

There are 253 portfolio management schemes (PMS) offered by various portfolio managers, brokers and asset management companies, registered with the Securities and Exchange Board of India (SEBI). Moneylife has been campaigning to bring some transparency in how PMS performance data is reported. However, we also wanted to capture the experience of the investors of PMS in our cover story, Portfolio Management Schemes: Will Your Portfolio Blow Up?, through an online Survey. Our Survey received responses from 360 participants out of which nearly one-third have invested in PMS schemes. Here is a summary of the responses.


According to the Survey, lack of disclosure and poor performance are the main cause of concern for the investors which puts them off. As many as 35% said that they were not convinced if their PMS would deliver good returns. A disturbing 45% of the respondents who have invested in PMS say that they were unable to make an informed decision because of lack of data. Just 15% respondents of our survey said that they compared various schemes before investing.


More than half of those who invested in PMS schemes said they have lost their money. When we asked to name the PMS company in which they have lost money, there was no clear poor performing fund house; the names varied from HSBC Wealth Management to JM Financial and Kotak Mahindra PMS to HDFC PMS. Similarly when we asked which was the best PMS company, there was no clear winner either. As many as 65% of the respondents, who have invested, claim that returns were below the benchmark. A mere 5% say that they got returns better than the benchmark. Nearly half the respondents, who have invested, mentioned that their portfolio was churned excessively. This gross mismanagement certainly does not go down well with investors. Nearly 60% of the participants who have invested in PMS have stopped investing altogether. An equivalent proportion of respondents say that they will never recommend PMS to others.


While one-fourth of PMS investors have invested in multiple schemes, an equivalent number of investors were not sure of what kind of service (discretionary, non-discretionary, advisory) they have opted for. Were they greedy or foolish or both? Bankers have a major role to play in selection of PMS. Many abuse the trust of the clients and take them for a ride. In our survey, one-third of the respondents who have invested got to know of PMS through their bank relationship manager or wealth manager. Nearly one-fifth came to know of a PMS through a friend or a colleague and an equivalent number got to know of PMS through advertisements.


In terms of transparency, nearly 30% say that all portfolio details, charges and returns were not disclosed adequately. As many as 60% of the respondents who have invested in PMS mention that portfolio managers did not make smart investment decisions. But still, nearly 45% of the respondents feel that their PMS will deliver a return over 15% in the next five years. Nearly 75% of the respondents, who have invested in PMS, have done so over the last five years. Despite the complaints of gross mismanagement by PMS companies, just 2% have filed a complaint with the regulator.


The survey tried capturing certain key points like, how did the respondents come to know about the scheme, the reasons for not investing, how the investors rate the overall performance of the PMS, whether they lost money on PMS, has losing money on PMS de-motivated them to not to invest further, the names of the scheme where they lost money, whether they think the loss was due to bad selection and/or excessive churning and, most importantly, whether they compared other schemes of PMS before investing in one.


Recently we also analysed the performance of PMS which have disclosed their data (PMS Performance: The Good, the Average and the Ugly) Except for a couple of PMS companies, the performance of the others was patchy.



Satyendra Rao

2 years ago

I had a bad experience with Motiwal Oswal PMS. They charge too much. They want to share profit but not loss. They charge performance fee even when I lose money


3 years ago

I have invested in PMS named Value Strategy of Motilal Oswal & its giving fantastic returns. Moreover the stock churning is as low as zreo. PMS investments are long term and should not be churned- Keyur Mehta 9327393274

Dr Anantha K Ramdas

3 years ago

Thank you MGT - I began my work through PMS of a leading bank when it started way back in `1985 and after a couple of years, began to pick and choose my own investment pattern. At this point of time I was an NRI so, we had lots of IPOs coming in with "exclusive" allotments for greenhorns like us. Believe me, we bought everything that was offered and maybe 3 to 5 were good out of a hundred! In the rest we lost our shirts.

On my return back to base in India, in 2007, I spent almost 6 months in reading every journal and commercial newspaper in the country, until I zeroed in on Moneylife. I still follow and maintain regular track of what I want to buy, sell, hold or increase to build a good portfolio. I take the guidance from ML as a rule as to how to avoid pitfalls and so far, I am safe and happy.

Still, I have made the mistakes of not buying on time (hestation
factor) and delays in selling when price is right (greed and stupidity) and hear the pontification by "experts" in TV
channels occasionally, but all the right and wrong decisions are mine own. Period.

To invest and let the wealth grow is an individual's personal and prime responsibility and advice that we get from anyone is to be taken with a pinch of salt!



In Reply to Dr Anantha K Ramdas 3 years ago

Very nicely said sir.

Team Moneylife can protect investors better, only if more people chose to follow your method & approach.

It is far better than seeking recourse after burning a hole due to ignorance, greed & folly.

amol ghule

3 years ago

there should be some kind of ranking which is transparent so that investors can choose right portfolio mamagement companies.


Suiketu Shah

In Reply to amol ghule 3 years ago

Amol none of the companies are worth doing PMS with.Best is to educate one self via ml and invest wisely and not depend on "wealth management experts".

Krishnamurthy Kakaraparthy

3 years ago

What is the tax treatment for PMS gains,if any,in Commodity futures ? Capital gains or Business income ?

nagesh kini

3 years ago

The numbers in your Survey have only gone to endorse my belief that PMS is not everyone's cup of tea, not every portfolio managers or financial planners are any Gods.
Every reasonably sane, alert and knowledgeable investor could take initial expert guidance on building up his/her own portfolio and later possibly churn it quarterly taking into account the company and sector performance. He takes his own call and can't blame anyone!


Suiketu Shah

In Reply to nagesh kini 3 years ago

Absolutely right Mr Kini.PMS is best to be totally avoided in every which way.


In Reply to nagesh kini 3 years ago

Do you follow the above stated investment policy yourself or is it just for the sake of making one more comment?

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