India’s overall inflation touched 10.16% in May, while food inflation is above 16%. Added to that, last week's decision to raise fuel prices is likely to stoke inflation by 0.9 percentage points
Amid concerns over sustaining the recovery through domestic consumption, the world's most influential leaders have asked their grouping, Group of Twenty (G-20), to work for price stability—a key challenge for India grappling with double digit inflation, reports PTI.
"Monetary policy will continue to be appropriate to achieve price stability and thereby contribute to the recovery," the declaration by G-20 leaders said on Sunday after their two-day summit in Toronto, Canada.
India is battling high overall inflation which touched 10.16% in May, while food inflation is above 16%. The government's chief economic adviser himself estimated that last week's decision to raise fuel prices would stoke inflation by 0.9 percentage points.
The Reserve Bank of India (RBI) is scheduled to review monetary policy on 27th July amid expectations of rise in key policy interest rates.
Though India, as prime minister Manmohan Singh said, is on the way to returning to 9% economic growth, sustaining it with strong demand would require a fine balancing act.
"The path of adjustment must be carefully calibrated to sustain the recovery in private demand," the declaration said.
Sustaining private demand amid stress on government finances in several European countries remains a major challenge for the global economy.
Don’t expect any price wars, but it is time to start searching for more fuel-efficient vehicles
So what does the freeing of the fuel price mechanism really mean for us in India, on the street and at home, and where does this go next?
By all reckoning, it goes only one way, and that is straight up. A cynical way of looking at things would be that the cost of the cleanup of the Deepwater Horizon/BP oil spill in the US, and the resulting reduction in oil production as well as increased cost of future offshore drilling especially in the US, will cause a spike in crude oil prices worldwide-which will further notch up prices for fuel at the retail outlet in India. That's certainly the larger picture, and winter crude price predictions are touching three figures in dollar terms per barrel, again. Add to that all the predictions for inflation, worldwide, staring us in the face.
At the time of writing this article, the oil companies had not provided their dealers with any indications on what this would really mean in the future, barring the notified hike on the night of Friday, 25th June. Prices of petrol, diesel and kerosene at the retail outlet, as well as LPG and CNG, would continue to be "administered" by the parent company-chances of any price-wars at this level are totally ruled out. And the buzz with dealers is that public sector oil companies, who have an almost 100% presence and dominance in urban locations, are likely to form a "consultative committee" once again to "set" prices at their outlets.
The few private oil company outlets that exist in India are largely on the outskirts of cities or on highways, and it is not expected that they will go into any price-war or any sort of loss-making method to gain market share, as was done in telecom. They are expected to willy-nilly follow the larger public sector oil company pricing policies, and will hope to make better margins out of efficiency, as well as allied usage of retail outlets.
What may also increase is advertising spend and perception management. Beyond that, time to start looking at more fuel-efficient motor vehicles again, and on that, luckily, we seem to be moving towards a vast choice in all segments.
Sector or theme-based funds do not perform well. Will L&T Banking & Financial Services Fund be an exception?
With expectations of 20%-22% credit growth in the coming years on the back of the finance ministry’s expectations of 8.5% plus GDP growth in 2010-11, L&T Mutual Fund is planning to launch a new fund called ‘L&T Banking and Financial Services Fund’. It filed its draft offer document for launching the open-ended fund on 17 June 2010. The scheme will invest in companies which operate in the banking and financial services sector and also in companies providing services to these companies.
Benchmarked against the CNX Bank Index, the fund carries 1% exit load if redeemed before one year. The fund may also invest up to 35% in sectors falling outside the purview of banking and financial services. The performance of sector funds has been a mixed bag. There are 48 sector funds in existence of which there are seven equity banking and financial sector funds. Out of these, four have outperformed their benchmarks while three have underperformed.
Among the funds which underperformed their benchmarks are Religare Banking Fund, JM Financial Services Sector Fund, and ICICI Prudential Banking and Financial Services Fund. Not surprisingly, JM Financial Services Sector Fund has been the worst performer in this category. The fund has posted 0% NAV return since its inception in 2006. Moreover, its benchmark ‘BSE Finance’ is not available in the public domain. Sahara Banking and Financial Services Fund has been the top performer in this category which posted 77% NAV return against its benchmark CNX Bank Nifty which yielded 30.14% returns since the inception of the fund.
The fact remains that asset management companies always have a tendency to launch sector funds when a sector has already performed well and investor interest is running high. However, by the time the sector fund is launched, the stock is usually at its multi-year high. The probability of such sectors continuing their momentum in the future is uncertain. Moneylife had previously carried a detailed study on the best and worst performing sector funds. (Read here: http://www.moneylife.in/article/81/2044.html). L&T Mutual Fund has 19 schemes in its kitty, acquired from DBS Cholamandalam Asset Management which L&T Asset Management took over.