The downtrend may be arrested at around 5,600 on the Nifty
The market saw its highest percentage loss in the past 21 months, which led the rupee making fresh all-time lows. The downtrend may be arrested at around 5,600 on the Nifty. The National Stock Exchange (NSE) witnessed a turnover of 59.67 crore shares and poor advance-decline ratio of 252:1143.
The market started the day with a deep cut on comments from the US Federal Reserve that that it would scale down it bond buying scheme later this year if “unemployment reaches the vicinity of 7%”. The comments rattled the US markets on Wednesday and the Asian pack in morning trade today. Adding to investors’ woes, China’s HSBC Flash Purchasing Managers’ Index (PMI) fell to a 9-month low of 48.3 in June down from May’s reading of 49.2.
The Nifty opened 68 points lower at 5,754 and the Sensex resumed trade at 19,069, a decline of 177 points from its previous close. While the opening figure on the Sensex was its intraday high, the Nifty touched its high in opening trade itself with the index at 5,755.
Meanwhile, the rupee plunged by a whopping 130 paise to hit life-time low of 60 against the US dollar in early trade today on the Interbank Foreign Exchange on strong demand for the American currency from banks and importers.
The market continued to remain range-bound in the negative terrain in morning trade on all-round pressure led by realty, metal and banking stocks. A weak opening of the European markets added to investor woes in the second half of the trading session.
The benchmarks extended their losses in late trade on the weakening rupee and a pullout by institutional investors. The market touched its lows towards the end of trade on unsupportive global cues following comments made by the US Fed that it would scale down its stimulus programme as the economy showed signs of improvement. The Nifty fell to 5,646 and the Sensex declined to 18,687 at their respective lows.
The market finally ended near the lows of the day on across-the-board selling sparked by unsupportive global cues. The Nifty dropped 166 points (2.86%) to close at 5,656 and the Sensex tumbled 526 points (2.74%) to end the session at 18,719.
The broader indices also fell in line with the market leaders. The BSE Mid-cap index tanked 1.93% and the BSE Small-cap index dropped 1.72%.
The mayhem in the market saw all sectoral indices settling lower. The main losers were BSE Realty (down 5.18%); BSE Metal (down 4.63%); BSE Bankex (down 3.98%); BSE Power (down 3.29%) and BSE Oil & Gas (down 3.06%).
Out of the 30 stocks on the Sensex, only two stocks, Wipro (up 1.28%) and Sun Pharmaceutical Industries (up 0. 69%) settled higher. The major losers were Jindal Steel & Power (down 9.62%); Tata Steel (down 6.25%); Hindalco Industries (down 6.24%); BHEL (down 4.99%) and Sterlite Industries (down 4.52%).
The top two A Group gainers on the BSE were—Bajaj Holdings (up .73%) and Future Retail (up 1.63%).
The top two A Group losers on the BSE were—JSPL (down 9.62%) and Indiabulls Real Estate (down 9.15%).
The top two B Group gainers on the BSE were—Venus Universal (up 20%) and Filatex Fashions (up 20%).
The top two B Group losers on the BSE were—Freshtrop Fruits (down 16.30%) and Upper Ganges Sugar Industries (down 14.24%).
Of the 50 stocks on the Nifty, only two ended in the in the green, they were Sun Pharma (up 0.60%) and Ambuja Cement (up 0.05%). The key losers were JSPL (down 10.82%); Jaiprakash Associates (down 7.34%); DLF (down 7.22%); Tata Steel (down 6.97%) and Reliance Infrastructure (down 6.77%).
Markets in Asia closed in the negative on pessimism from the US and the slowdown in Chinese manufacturing output, highlighted by the HSBC Flash PMI. Chinese financials extended losses after inter-bank funding costs surged on Thursday, leading Shanghai Composite to close at its lowest levels since December.
The Shanghai Composite dropped 2.77%; the Hang Seng tanked 2.88%; the Jakarta Composite tumbled 3.68%; the KLSE Composite fell 0.59%; the Nikkei 225 declined 1.74%; the Straits Times contracted by 2.51%; the Seoul Composite lost 2% and the Taiwan Weighted settled 1.35% lower.
At the time of writing, the CAC 40 of France was down 2.42%; the DAX of Germany declined 2.50% and UK’s FTSE 100 dropped 2.30%. At the same time, the US stock futures were trading in the red.
Back home, foreign institutional investors were net sellers of equities aggregating Rs544.97 crore on Wednesday while domestic institutional investors were net buyers of shares totalling Rs415.82 crore.
Adani Power today said it has commissioned the third unit of 660 megawatt (MW) of its super critical power plant at Tiroda in Maharashtra, taking the company’s total power generation capacity to 7,260 MW. The company commissioned its first two units of 660 MW each in last financial year 2012-13 and has current generation capacity of 1,980 MW at Tiroda. The stock dropped 6.86% to close at Rs41.40 on the NSE.
Tree House Education and Accessories, a self-operated pre-school chain, has completed the business purchase transaction with Brainworks Learning Systems for a consolidated all cash value of Rs5 crore. With this transaction, Tree House has gained ownership of the Brainworks brand along with all its assets. Tree House declined 1.46% to close at Rs269.95 on the NSE.
Vegetable prices have shot up over the past few days. As it happens, both the farmers and consumers are reeling under this artificial price hike, while middlemen of APMC markets, as well as, vendors and hawkers are ripping off huge profits
The wholesale price index (WPI) based inflation fell to 4.7% in May, driven mainly by declining prices of manufactured items. However, this hides the fact about sky-high prices of vegetables and fruits. Just ask any common man about vegetable prices in his area.
Normally, prices of vegetables and fruits remain on the higher side between May and July due to unavailability and thus lower supply. However, this time around, prices of vegetables, especially in and around Mumbai are touching a new high every day. First, these people cited the local body tax (LBT) as reason for high prices of vegetables, ignoring the fact that there is no LBT on vegetables. This game of price increasing is being played mainly due to cartelisation of vendors and Agricultural and Produce Market Committee (APMC) Act that prevents farmers from selling their produce directly to consumers.
Street vendors and hawkers often sell vegetables at prices over 20-30% than the wholesale market or Agricultural and Produce Market Committee (APMC) market (for Mumbai, it is in Vashi) rates. However, this year, they have come up with a unique idea of 'normalising' prices of all vegetables. Therefore, over the past days most of the vegetables like tomato, lady-fingers (bhindi) and brinjal in Mumbai were sold at same rate ranging from Rs40 to Rs100 per kg, depending on the locality.
AgMarkNet, is a site maintained by department of agriculture and cooperation, for providing daily rates of different agri-commodities. According to the portal, onions at Lasalgaon market were priced between Rs600 to Rs1,400 per quintal (100kg). The price for potato at Vashi's APMC market is Rs1,200 per quintal. However, in the vegetable market at Dadar west, both onions and potato are sold at Rs25 per kg. A hike of almost 80% (on the maximum wholesale price) for onions and 108% for potatoes compared with the wholesale price.
Another example, as per the APMC market at Kalyan, the model price for green chillies was (as of Wednesday) Rs2,750 per quintal. However, green chillies are being sold at Rs60 per kg by vegetable vendors and hawkers in the city, a hike of 118%.
The situation is same for almost all vegetables, even outside the APMC market in Vashi that serves as wholesale grain and vegetable market for Mumbai and surrounding areas.
The main reason for this daylight loot is the APMC Act that prevents farmers from selling their produce directly to retailers or the consumer. The farmers can only sell their produce in government-mandated markets (mandis) to licensed middlemen. This also means, it is both the farmer and consumer who continue to be looted by the middlemen.
According to Goldman Sachs, middlemen have become monopoly buyers of agricultural produce, allowing them to take advantage of any shortage in supply, or spurt in demand, but they will not pass on the benefits to farmers or consumers.
In a report, published in July 2011, Goldman Sachs had said, although demand has remained strong due to rising incomes, which allows the middlemen to raise prices, there are some structural factors contributing to food inflation dynamics. The report said the unorganised nature of the distribution chain makes for multiple layers of inefficiency and rent seeking. At each stage, there is some loss of produce due to multiple hands the product goes through and inadequate infrastructure.
The middle class population spends a bulk of their income on discretionary items like TVs and ovens and therefore benefit from the price decline across these categories. Low-income groups, in contrast, have lower discretionary income to spend on consumer durables, and hence, have not really gained from this trend. Given that poor households spend a higher proportion of their income on food-related articles, WPI inflation understates inflation faced by poor households.
According to Dharmakirti Joshi, chief economist, CRISIL, "The middle and high-income groups benefit more from falling prices of non-food manufactured items, particularly durable goods, as they have higher disposable income to spend on other goods and services including consumer durables, and for savings. The poor, with limited discretionary income to spend on consumer durables, do not benefit much from their lower prices. In contrast, rising prices of food items strain their discretionary spending".
Coming back to inflation, as per official data released last week, WPI inflation declined to 4.7% in May from 4.9% in last month. This is the lowest since December 2009. While inflation in manufactured items and non-food items witnessed sharp decline, the same for food category rose to 8.25% from 6.1% in April 2013. The rise in food inflation was on account of increase in prices of onions, vegetables, cereals and protein-based items. Inflation in vegetables stood at 4.85% in May, against (-) 9.05% in the previous month. The rate of price rise in onion was high at 97.40% for the month, as against inflation rate of 91.69% in April.
Excess grain procurement by the government over the past year is partly responsible for creating artificial scarcity and pushing market prices higher. Cereal price inflation rose to a peak of 19% year-on-year (y-o-y) in December 2012 from a low 1.7% due to higher rice and wheat prices. There has been some moderation recently, but cereal price inflation remains elevated at 16% in May, leading to high food inflation.
According to KV Thomas, the minister of state with independent charge of the ministry of consumer affairs, food and public, the government is planning to sell around 17.5 million tonnes (mt) of grains, largely wheat, from its existing food stock. In June, rice and wheat stocks held by the government stood at over 77 mt, substantially above the prescribed buffer norms.
"The government’s decision to offload its excess grain stock, therefore, should be positive for cereal prices. This should also be buttressed by a likely favourable monsoon this year. However, this expected fall is largely cyclical as the medium-term trend in cereal prices will be determined by many factors, including the likely outcome of the Food Security Bill, " said Sonal Varma, economist, Nomura Financial Advisory and Securities (India) Pvt Ltd in a research report.
Investing in a few stocks means high risk and depends more on the fund managers’ views of a particular sector and stock. A wrong call would mean sub-standard returns
Most equity diversified schemes invest in a portfolio of over 40 stocks. The new scheme—Union KBC Focussed Equity Fund—planned to be launched by Union KBC Mutual Fund proposes to invest in 20-30 equity stocks. Other diversified equity schemes on an average invest in a portfolio of 40 or more stocks. The more diversified a portfolio is, the lower is the systematic risk. Investing in a few stocks increases the risk associated with individual assets. Therefore, if a few stocks fail to deliver, the returns of the entire portfolio is affected. In a well diversified portfolio the underperformance of few stocks has a little impact on the overall performance of the scheme.
In our analysis of the April portfolio of equity diversified schemes having a corpus above Rs100 crore, out of the 111 schemes we found that just 14 schemes invest in 30 stocks or less. Six of these schemes have underperformed the benchmark over the one-year period as on 30 April 2013. The schemes which underperformed the benchmark included HDFC Focussed Large Cap Fund and DSP BlackRock Focus 25 Fund. ICICI Prudential Focused Bluechip Equity Fund which has a corpus of above Rs4,000 crore was able to outperform its benchmark. The other ‘focussed’ scheme present on the list was Axis Focus 25 Fund. This scheme is recently launched and has a track record of less than a year. HDFC Focused Large-Cap Fund and IDFC Imperial Equity Fund which invest in 20-25 stocks underperformed the benchmark by over 3%. The above performance just goes to show that it is a difficult task to produce benchmark beating returns by investing in a small basket of stocks.
The scheme would invest 75%-100% of its assets in equities and the rest in short-term debt and money market instruments. The performance of the scheme would be benchmarked to the S&P BSE Sensex. Selecting a few winning stocks is a skill very few have mastered. Picking the right stock at the right time would be crucial for the performance of the new scheme. Union KBC MF has a fund management history of less than three years. Its first and only open-end equity diversified scheme— Union KBC Equity— was launched in June 2011. The returns of the scheme over the period have been in line with its benchmark. Over the year it has delivered a return of 15.57% whereas the S&P BSE Sensex has delivered a return of 15.07%. However, the equity management of the fund house has a short track record of performance.
The scheme would be managed by Ashish Ranawade who has 14 years of experience in investments.
Minimum Application Amount:
Rs25,000 and in multiples of Re1 thereafter
For Systematic Investment Plan (SIP):
Rs1,000 and in multiples of Re1 thereafter (for monthly frequency)
Rs3,000 and in multiples of Re1 thereafter (for quarterly frequency)
Minimum additional amount for purchase/switch in:
Rs1,000 and in multiples of Re1 thereafter
Maximum total expense ratio (TER) permissible under Regulation 52(6)(c)(i) and (6)(a): Up to 2.50%**
Additional expenses under Regulation 52(6A)(c): Up to 0.20%~
Additional expenses for gross new inflows from specified cities under regulation 52(6A)(b): Up to 0.30%#
1% if redeemed/switched out within one year from the date of allotment. Nil thereafter