Global analysts opine that the markets are still going nowhere as investors see some more bad news, going ahead
The local market is likely to open marginally higher tracking its Asian peers which were mostly in the green in early trade on Wednesday. On the other hand, Wall Street continued its losing spree, settling lower for the third day in a row on dismal reports from Wal-Mart and Hewlett-Packard, however, a late recovery helped to cap the losses. The SGX Nifty was 12.50 points higher at 5,462.50 against its previous close of 5,450.
A couple of negative corporate news reports pulled down the indices in trade yesterday. State Bank of India and ONGC emerged as the top losers as the country’s biggest lender reported a huge decline in profit and the oil explorer was hurt by buzz that it would have to share more of the subsidy burden to offset the losses incurred by oil majors.
Earlier, the market opened sideways, tracking weak cues from bourses across Asia. The Sensex opened 29 points up at 18,374 and the Nifty resumed trade at 5,496, down three points from its previous close. Even though headline inflation for April was lower at 8.66%, investors are worried that the government and the Reserve Bank of India (RBI) will continue to take harsh steps to moderate prices. The market touched the day's high at around 9.45am, with the Sensex at 18,436 and the Nifty touching 5,524.
After staying in the green for almost an hour, the indices lost steam and slipped into negative terrain. The market was range-bound in the absence of any major trigger. Oil & gas was the biggest sectoral loser on reports that the government has increased the contribution of upstream oil companies towards sharing the subsidy burden of fuel marketing firms for FY10-11.
The benchmark indices slipped further in afternoon trade, on lacklustre results from the State Bank of India. The news pulled down the banking sector, which ended as the second-biggest sectoral loser. The market staged a minor recovery in the last hour, but still closed in the negative for a second day in a row. The Sensex closed 208 points lower at 18,137 and the Nifty ended the session down 60 points at 5,439.
The market is losing ground and is expected to fall further. The next support for the Nifty lies at 5,340.
Markets in the US ended lower for the third straight day, but a late recovery ensured a close above the day’s lows. The decline was led by negative news from Wal-Mart and Hewlett-Packard. Wal-Mart Stores Inc said same-store sales have now fallen for two years, dragging the 0.9% down, HP tumbled 7.3% after cutting its forecast due to problems stemming from Japan’s earthquake and lower PC sales.
In economic news, the Commerce Department said on Tuesday housing starts declined 10.6% to a seasonally adjusted annual rate of 523,000 units. Figures for March were revised up to a 585,000-unit pace from the previously reported rate of 549,000 units. The Federal Reserve is considering subjecting US banks to annual stress tests, reserving the right to veto dividend pay-outs if they do not pass. A draft of the new rule is set to be approved by the Fed’s board and put out for public comment within weeks. Factory production fell 0.4% in April, its first decline in 10 months. Excluding motor vehicles and parts, factory production rose 0.2% in April.
The Dow declined 68.79 points (0.55%) to 12,479.58. The S&P 500 fell 0.49 of a point (0.04%) to 1,328.98. On the other hand, the Nasdaq gained 0.90 of a point (0.03%) to 2,783.21.
Markets in Asia were mostly in the green, brushing aside global issues. The markets took support from a weak yen, which boosted the outlook for corporates in the region. However, developments in Europe kept investors guarded.
Also, Tokyo Electric Power expects to cool reactors at its stricken Fukushima Dai-Ichi plant by as early as October, maintaining its earlier timetable in an updated plan on resolving the worst nuclear crisis in 25 years.
The Shanghai Composite advanced 0.21%, the Hang Seng gained 0.45%, the Jakarta Composite was up rose 0.59%, the KLSE Composite was up 0.34%, the Nikkei 225 surged 0.88%, the Straits Times added 0.10%, the Seoul Composite jumped 1.13% and the Taiwan Weighted rose 0.25% in early trade.
Back home, India’s market capitalisation to gross domestic product (GDP) ratio has reached a record level of 132.47% in financial year 2010-11 from 23.28% in 2002-03. Market capitalisation to GDP ratio is an indicator of the total listed wealth of a country as a percentage of its GDP.
“The reason for such substantial rise can be attributed to two major factors, first, more and more Indian companies started accessing the capital market through IPOs, secondly, there was a continuous rise in valuations in the capital market; thanks to the bull phase between 2002 and 2003 and between 2007 and 2008,” SMC Global Securities said in a report.
Buying health insurance is still a little understood area for most people. But it is important that they try to learn how the mediclaim system operates and make the best use of it, according to speakers at a Moneylife Foundation seminar
The cost of healthcare is galloping and with insurance firms lobbying to increase their premiums, it is becoming more essential for those seeking to buy insurance to have a better understanding of how to go about it. This was the simple consensus at a well-attended seminar on "How to get the right health insurance cover at the right price", hosted by Moneylife Foundation today.
"Buying health insurance is like getting into a marriage," said Mahavir Chopra, head-eBusiness and Personal Lines at Medimanage. "Because, it's usually difficult to find the perfect product for all your requirements just like it is impossible to find a perfect match in marriage." Medimanage is a dedicated health insurance broking firm.
Mr Chopra explained that if insurance companies were to provide everything that a customer requires, the cost of such a product would be way higher and unaffordable. Hence, he emphasised it is essential to focus on getting the major burden covered instead of trying to get many more items included.
In this respect, he listed the following issues to be kept in mind: The younger you are you have more choices; it is desirable to look for the basics and cut out the frills; clearly understand the inclusions and exclusions as described in the policy; it is necessary to go long term and keep the maximum renewal age in mind; knowing the company from which you are buying the insurance.
Mr Chopra also cautioned against making comparisons of any sort, whether it is between public and private companies, or between policies and premiums.
Sudhir Sarnobat, co-founder and CEO of Medimanage, pointed out that medical insurance in India is restricted to hospitalisation coverage and needs to evolve to preventive healthcare. For instance, no insurance covers routine health checkups, whether it be eye, dental, or any periodical tests.
"You must be hospitalised for a minimum 24 hours; you should have taken active treatment; and there should be major diagnosis, to substantiate any insurance claim today," Mr Sarnobat explained. "The company will verify family history, symptoms, investigations before making the payment of the claim."
He also referred to the careless attitude towards medical insurance wherein people wait to fall ill before actually bothering about getting insurance. "They think 'I am healthy, I will buy when I need it'." Like in life insurance, there are those who also expect payment even in claim-free years, he pointed out.
Mr Sarnobat explained that with the breakup of the joint family system, an increase in lifestyle diseases, the increase in individual income levels and the choice in health insurance products, individuals should not hesitate to spend on the cost of mediclaim. Or, better still focus on preventive care by improving one's lifestyle.
Introducing the subject at the opening of the seminar, Debashis Basu, trustee, Moneylife Foundation, said healthcare costs are galloping at 20% per annum, which is twice the rate of inflation. Insurance companies, unable to cover costs, were lobbying for an increase in premiums. In this harsh demand-supply health insurance environment, the biggest victims were senior citizens, individuals, employees of small and medium enterprises, consultants, who could not benefit from group health insurance schemes.
In fact, less than 15% of the population have some form of healthcare. He stressed that while insurance is for unforeseen contingencies and not an investment for returns, more and more people should get themselves insured.
It would have been a useful part of the portfolio if the NSE small-cap index was constructed properly. But is it? Besides, the combined illiquidity of small-caps and the ETF itself would be a double whammy for investors. Stay away from the ETF; try DSP BlackRock’s Micro Cap fund
Benchmark Asset Management Company has filed an offer document with the Securities and Exchange Board of India (SEBI) to launch the Smallcap Benchmark Exchange Traded Scheme (Smallcap BeES), an open-ended listed index plan.
The investment objective is to provide returns that, before expenses, closely correspond to the total returns on securities represented by the CNX Smallcap Index, by investing in these securities in the proportion to the weightage they have in the index.
The scheme proposes to allocate 95%-100% of assets in stocks in the CNX Smallcap Index, with a medium- to high-risk profile, and invest up to 5% of assets in money market instruments, G-Secs, bonds, debentures and cash-at-call with low risk profile.
The launch of a small-cap ETF is a big step in expanding the range of products that can help you in proper allocation of assets. According to research, there are usually price anomalies in the small-cap segment from which big gains are possible. Even die-hard advocates of efficient market theory, Eugene Fama and Kenneth French, who believed that one cannot beat the market, later discovered that one could hold an edge in picking small-cap stocks. But it one wants an exposure to small-caps, it is not possible so easily. DSP BlackRock's Micro Cap fund (it is smaller than 300 companies by market cap) has done very well since its inception in May 2007, recording a 10.78% gain compared to the 2.95% on the benchmark index.
To take advantage of the higher risk-reward equation that small-caps offer, buying an index ETF would be a good option. But is the CNX small-cap Index the right option? The index has stocks like 3i Infotech, Adhunik Metaliks, Allied Digital Services, Alok Industries, Arvind and BF Utilities, all of which suffer issues related to corporate governance, erratic growth or business model.
If the stock index is not worked out properly, the performance of the fund would be affected as the benchmark fund proposes to invest exactly according to the weightage of stocks in the index. Moreover, CNX Smallcap Index has only just been launched, so we won't have any past performance to compare with or to analyse the index.
While investing in small-cap stocks, investors must keep in mind another aspect, that of liquidity. Despite their best efforts, fund companies often find themselves saddled with small stocks that have low liquidity. In a bull market, many small stocks appear to be good bets. They come with a promise of powerful earnings momentum. Their small size ceases to be a concern amid all the hyperbole. But liquidity in a small-cap stock disappears in a jiffy.
When the market is down, it does not take much for investors to flee from such stocks and for liquidity to dry up. When that happens, there may be redemption pressures too on the ETF. The ETF selling to raise cash, to meet redemption, will depress prices further. So, if at that stage you want to sell your ETFs, you will have to sell it at far below the NAV, because the buyers for the small-cap ETF-like in the case of small-cap stocks-will disappear overnight.
We believe that the best option is to take an exposure to DSP BlackRock Micro Cap fund. It's not exactly micro-cap, not even small-cap, but that's among the few good options available. And of course, hold it for the really long term. Small-cap ETF is too new and unproven to risk your money.