Any market rally will be met by selling. The mood is bleak
With the second consecutive week of fall on the bourses, the Sensex and the Nifty hit their lowest level since 27 June 2013. On all trading days the benchmark indices closed in the negative. This is the eight consecutive fall for both Sensex and Nifty till Friday.
The Sensex lost 584 points (2.96%) to close the week at 19,164 and the Nifty settled at 5,678, down 208 points (3.54%).
On Monday, the benchmark continued the fourth day of decline, ahead of Reserve Bank of India (RBI) announcing its policy review on Tuesday, where analysts felt that there will not be any revision in key interest rates. On Tuesday, the RBI, as expected kept rates unchanged and reiterated that the recent measures to tighten liquidity would be rolled back in a calibrated manner as stability is restored in the forex market. Although this move was expected, stocks continued to fall. Even on Wednesday, the market remained negative, ahead of an announcement from the US Federal Reserve about the future of its stimulus programme.
On Thursday, the market again ended in the red, even as the Federal Reserve, after a two-day policy meeting, maintained its bond-buying program at current levels. The market was hit hard on that day by a 62% crash in Financial Technologies Ltd (FT) and Multi Commodity Exchange Of India Ltd (MCX) that tanked 20% hitting its lower circuit at Rs512.05. FT-promoted National Spot Exchange Ltd (NSEL) announced a suspension of trading and merging of settlement cycles of all one-day forward contracts, except e-series following an order from the Department of Consumer Affairs (DCA). There were fears that NSEL will end up defaulting on its obligations.
Even the easing of the FDI rules by the government for multi-brand retail did not help the indices to gain any strength and ended in the negative for the eighth consecutive trading session on Friday.
BSE Information Technology (up 4%) and BSE Consumer Durables (up 3%) were the top sectoral gainers in the week while BSE Realty Index (down 15%) and BSE Power (down 10%) were the top losers.
The top gainers on the 30-share Sensex were Wipro (15%), TCS (4%), Infosys (3%) and Bharti Airtel (2%), while Coal India (10%), I T C (10%), ONGC (9%), Hindalco Inds (8%) and NTPC (8%) were the major losers.
This week the RBI clarified that foreign institutional investors (FII) who have issued participatory notes (P-notes) can only hedge their currency risk if they receive a specific mandate from their clients. This move is likely to further curb speculation, making sure all P-note related derivative trades are done for genuine customer needs.
The 175th seminar of Moneylife Foundation focussed on understanding the key provisions of the RTI Act. Shailesh Gandhi, the former Central Information Commissioner, explained important dos and don’ts and how one can file effective application to ensure all the queries are answered
Moneylife Foundation has conducted a series of events and workshops in the past to empower its members to use the RTI (Right to Information) Act effectively. This was another session for beginners of the RTI series conducted by Shailesh Gandhi, former Central Information Commissioner (CIC). The session for beginners has received huge participation in the past and Saturday’s session as well had over 70 members.
In this seminar for beginners, Mr Gandhi gave an overview of the RTI Act, how it originated and where it can be used. He took the members through the important sections of the RTI Act in detail. The former CIC also covered various sections of the RTI Act where information can be sought and can be refused. He also explained the RTI application format and the format for filing an appeal.
For RTI users, the important part to remember while filing an application is that the information sought should not be vague and a reasonable timeline should be given. The applicant also should remember that the information she is seeking should be available on record.
Mr Gandhi emphasised that all information that is available as a record in any tangible form can be provided. Therefore, before filing an application, individuals should review if the information they are seeking is available as a record.
The application should be addressed to the right department, he added. If not done, it would create unnecessary delays. The RTI should be sent preferably through Speed Post, as you would get an acknowledgement that the public information officer (PIO) has received it.
The RTI Act lists special instances where the authorities can seek exemption from disclosing the information. Usually, Section 8 of the Act is commonly used by public authorities for claiming exemption from disclosure of information. Mr Gandhi explained this section in detail and offered advice on how one can phrase their queries in such a way that the information cannot be denied claiming exemption under Section 8.
Many times, the PIOs use Section 8(1)(e) for denying the information. Section 8 (1)(e) of the RTI Act exempts from disclosure 'information available to a person in his fiduciary relationship, unless the competent authority is satisfied that the larger public interest warrants the disclosure of such information'.
Mr Gandhi said, "An equally important characteristic for the relationship to qualify as a fiduciary relationship is that the provider of information gives the information for using it for the benefit of the one who is providing the information. All relationships usually have an element of trust, but all of them cannot be classified as fiduciary. Information provided in discharge of a statutory requirement, or to obtain a job, or to get a license, cannot be considered to have been given in a fiduciary relationship."
In addition, information provided by an individual in fulfilment of statutory requirements is neither covered by the exemption under Section 8 (1)(j) of the RTI Act nor can it be called an unwarranted invasion of his privacy, the former CIC said.
While seeking information related with third party, the PIOs often cite exemption. As per Section 11 of the RTI Act, the PIO, as per the case, should give a written notice to the third party and invite the third party to make a submission regarding whether the information should be disclosed or not. There are several instances, where the PIOs have denied information citing objection from the third party.
However, Mr Gandhi said, Section 11 does not give a third party an unrestrained veto to refuse disclosing information. It only gives the third party an opportunity to voice its objections to disclosing information. "Section 11 is only a procedure which requires the PIO to inform the third party of his intention to disclose the information if the information was received in confidence. After receiving any objection from the third party if the information is exempt as per the provisions of Section 8(1) or 9 the information may be denied by the PIO after giving reasons," he said.
The former CIC also explained to the audience the relevant section on complaints and second appeals and how one should go about it.
We have also compiled a list of important judgements in cases where the information sought has been wrongly refused. Read here.
Gold prices have fallen. Bond prices have tanked. And now equities are sliding downwards with no end in sight. All those who wanted returns from market-linked products are running scared
The prevailing mood among Indian savers who want to take a bit of a higher risk for higher returns is bleak. All major asset classes are taking a beating and falling over like dominoes over the last few months. First, it was gold, which crashed in April. Then, bond prices got squeezed in June and July. And now, it is the turn of equities to cause heartburn to Indian savers. In the midst of all this, the rupee has pummeled, causing worries to importers, investors and policy makers alike. All those who looked to invest risky assets for higher return have been suffering one setback after another. The mood is truly despondent.
First, it was gold prices, which crashed in April. The average monthly price of gold was Rs30,520/10 gms in January which crashed to Rs26,768/10 gms by the end of May. During this period, panic ensued and a lot of investors started to take money out of gold and put it into bonds, which seemed the asset to buy because “everybody” expected the Reserve Bank of India (RBI) to reduce interest rates. Meanwhile, the equity markets rose as RBI cut interest rates twice, once in March and once in May, from 7.75% to 7.25%.
In the beginning of the year, the sentiment was bullish after RBI cut interest rates, in January, to boost spending. This happened after the central bank was “satisfied” that inflation levels had moderated and time was ripe for growth. The Sensex reacted briefly, and moved up from 19,714 and punctured 20,000. At the same time, prior to the budget in February, the finance minister P Chidambaram, went shopping abroad to placate foreign institutional investors (FIIs), who were worried that no reform measures were undertaken. The markets started tanking in anticipation of a populist budget (rather than one with “reforms”). The budget turned out to be a total dampener. FIIs started withdrawing money in droves (Having believed in the FM’s promises, foreign brokers suffer a rude awakening) and this took the market to new yearly low, when Sensex touched 18,144 in mid-April.
Then, in late May, the US Federal Reserve announced that it would “taper” bond purchases (i.e. wind down its quantitative easing program). (Check out our article 'Quantitative easing myths debunked'). This sent not just the equity markets into a tailspin, but also emerging market currencies, particularly Brazil’s Real and Indian rupee. Riots ensued in Brazil while Indian policy makers were in a tizzy. The rupee depreciated from Rs54 levels and breached Rs60 levels. This caused RBI to panic and introduce a host of measures to stem the rupee decline, particularly tightening liquidity on banks, and kept interest rates the same. Investors, who had moved into bonds, suffered a massive blow. Bond prices fell. Food inflation returned to haunt the RBI.
Meanwhile, thanks to the rupee, price of gold, in rupee terms, became dearer. Concerns about fiscal deficit and current account deficit resurfaced. And rating agencies were concerned about India’s fiscal position. This caused short term bond yields to shoot up. Investors were worried about the government’s ability to service its debt, especially after the Cabinet approval of the controversial Food Security Bill which will dent long term fiscal deficit.
Equities are back to the levels seen after P Chidamambaram became the finance minister again last year.
The above graph shows the volatility in equity market this year. Gold, bonds, equities… all have disappointed investors so far this year. Many investors are uncertain about the direction of any of the markets. The fear is well and alive on risk street.
Check out our cover story: Turbulence ahead for equity, bonds and gold!