As expected, another downleg of the ongoing decline has started. The support has shifted down to 5,400 on the Nifty
The market opened lower, tracking the weak Asian markets in early trade and concerns about the industrial output data for March and weekly food inflation numbers, which were expected today. The Sensex opened at 18,525, down 60 points from its previous close and the Nifty was 27 points lower at 5,538.
The subdued trend prevailed till the mid-morning session, when a small bounce-back was noticed taking the market to the day's high. At the intra-day high the Sensex touched 18,610 and the Nifty was at 5,573. However, even after the Index of Industrial Production (IIP) data turned out better than expected, the market dipped into the red.
An easing of the food inflation numbers for the week ended 30th April also did not help the market. The slide continued through the post-noon session with the pressure on metals, banking and capital goods sectors. A weak opening on key European bourses also added to the woes.
The indices touched their intra-day lows at around 3.05pm with the main indices at 18,314 and 5,476. With the exception of the BSE Realty index, all sectoral indices were in the negative today.
At the end of trade today, the Sensex closed 249 points lower at 18,336 and the Nifty was down 79 points at 5,486. The advance-decline ratio on the National Stock Exchange was a dismal 504:1198.
With today's decline, a fresh downturn has started that may take the Nifty to 5,400 and in case of extreme selling to 5,250.
Among the broader markets, the BSE Mid-cap index declined 0.91% and the BSE Small-cap index settled 1.06% lower.
BSE Realty (up 0.48%) was the only sectoral index in the green. Rate-sensitive sectors led the decline. BSE Metal (down 2.99%), BSE Capital Goods (down 1.42%), BSE Bankex (down 1.39%), BSE Power (down 1.20%) and BSE IT (down 1.16%) were all down.
ONGC (up 0.58%), Hindustan Unilever (up 0.52%) and DLF (up 0.18%) were the gainers on the Sensex, whereas Sterlite Industries (down 4.76%), Hindalco Industries (down 4.66%), HDFC (down 2.77%), TCS (down 2.31%) and Jaiprakash Associates (down 2.25%) were the major losers.
Growth in industrial production for the year 2010-11 fell to 7.8% compared to 10.5% in the previous fiscal. The government attributed the poor performance to a slowdown in manufacturing and mining.
Factory output in March also witnessed lower growth of 7.3%, compared to 15.5% in the period a year ago. However, the performance in March was an improvement from the 3.6% growth registered in February this year.
Food inflation dropped to 7.7% for the week ended 30th April, the lowest level in 18 months. The rate of price rise in food items, as calculated on the basis of the wholesale price index (WPI), was 8.53% in the previous week and 21.46% in the comparable period of 2010.
The decline in food inflation is seen as a breather for the government, as the rate of price rise has stubbornly remained high despite its fiscal measures and the Reserve Bank of India's (RBI) monetary tightening.
Asian markets, barring the Taiwan Weighted, settled lower on concerns that China might go in for another rate-tightening round as early as this weekend. Material and energy stocks ended lower after crude oil for June delivery plunged 5.5% to settle at $98.21 a barrel yesterday in New York. Copper fell to the lowest price in five months after China's inflation topped the government's target, signalling further monetary-policy tightening that may curb metal demand.
The Shanghai Composite declined 1.33%, the Hang Seng fell by 0.94%, the Jakarta Composite was down 0.77%, the KLSE Composite fell by 0.24%, the Nikkei 225 tanked 1.50%, the Straits Times retraced 1.47% and the Seoul Composite tumbled 2.03%. On the other hand, the Taiwan Weighted added 0.15%.
Back home, the equities segment saw a meagre participation from institutional investors on Wednesday. Foreign institutional investors were net buyers of stocks worth Rs125.07 crore while domestic institutional investors were net buyers of shares worth Rs89.12 crore.
The ETFs that focus on energy, metals and FMCG are the first of their kind. But investing in these funds may not give the returns one hopes for. Because, while the idea of focusing on a sector is good, picking the right sector is easier said than done
Axis Mutual Fund is all set to enter the growing market for exchange traded funds. It has filed offer documents to launch Axis Metal ETF, Axis FMCG ETF, Axis Banking ETF and Axis Energy ETF. Currently, there are no ETFs linked to energy, metals, and FMCG indices and these ETFs from Axis are the first of their kind.
All these ETFs are sector ETFs and will focus on stocks of just one sector. The theoretical case for sector funds is strong, because it can be based on two very strong tenets of investing. One, the focus and concentration on a few stocks works wonders. Two, identifying the right sector is the key to stock market success.
Sector funds incorporate both these aspects of investing. They focus on just one sector at a time and if the sector does well, the fund’s performance can be among the best. Therein lies the catch—accurately picking a winning sector, just in time, is easier said than done. It is known only in hindsight. Fund managers have always been bad in selecting the winning sectors. They were caught unawares by the tech bust of 2000 and the sluggish pace of infrastructure development since 2006.
That is why we believe that while the theoretical logic of sector funds is attractive, in practice, it is best to avoid them. They cannot beat the best of diversified equity funds.
Axis Energy ETF
As per the offer document, Axis Energy ETF can invest 95%-100% of its corpus in stocks covered by the CNX Energy Index, and up to 5% in money market instruments. The CNX Energy Index constitutes stocks like BPCL, Cairn India, Gail (India), NTPC, Reliance Industries and Tata Power. The fund aims to be fully invested in equity at all times. The CNX Energy Index has given a compounded return of 12.68% in the last five years.
Axis Metal ETF
This will invest 95% of its corpus in stocks in the BSE Metal Index and up to five per cent in money market instruments. The BSE Metal Index comprises 13 stocks, among them Tata Steel, Hindalco, Jindal Steel & Power, Sesa Goa and JSW Steel. Tata Steel has the highest weight in the index at 22.38% (as on 9 May 2011). The BSE Metal Index has given a compounded return of 12.74% in the last five years.
Axis FMCG ETF
The fund will invest 95% of its corpus in the CNX FMCG Index and up to five per cent in money market instruments. The CNX FMCG Index constitutes 15 stocks which include Britannia, Colgate Palmolive, Dabur and ITC. The CNX FMCG Index has been able to give a return of just 9.61% in the last five years.
Axis Banking ETF
Currently, there are three bank ETFs—Bank BeEs, Kotak PSU Bank ETF and Reliance Banking ETF. Axis Banking ETF will invest in stocks that constitute the CNX Bank Index. CNX Bank Index has stocks like Axis Bank, Bank of Baroda, Bank of India and HDFC Bank. CNX Bank Index represent 14.79% of the free float market capitalisation of the universe of stocks traded on the National Stock Exchange as on 31 March 2011. The CNX Bank Index has given a return of 20.21% in the last five years.
A bigger problem with ETFs in India is that they are illiquid. You pay more than the NAV to buy them and if you are forced to sell in panic for whatever reason, you pay an even bigger price, because the purchase bids may be much lower than the fair value.
Several major banks have not updated the savings account interest rate on their websites even a week after the Reserve Bank of India hiked it to 4%
All the major banks, which are usually prompt in updating their websites with the changes in interest rates on loans and other schemes, don't seem as interested in updating their customers about the recent hike in the savings account interest rate.
On 3rd May 2011, the Reserve Bank of India (RBI), issued a notification to all banks, including state and central co-operative banks, primary (urban) co-operative banks, scheduled commercial banks, saying that "it has since been decided to increase the interest rate on domestic and ordinary non-resident savings deposits as well as savings deposits under the Non-Resident (External) Accounts Scheme by 0.5%, from 3.5% to 4% annum, with immediate effect." The savings account rate has been hiked after 19 years.
However, it has been more than a week and yet most banks, including state-run banks, have not updated the data about the savings interest rate on their websites, Moneylife found after checking the websites of banks which come under the RBI's regulation.
While it is not mandatory for banks to update their websites regularly, this indicates how much the banks are actually interested in updating their customers, when this involves an increase in the cost of funds for the banks.
State-run banks, including the Central Bank of India and the State Bank of Hyderabad, still show the savings account interest rate as 3.5% on their websites. Although some like the State Bank of India, State Bank of Patiala and State Bank of Travancore, have changed this to 4%.
Axis Bank, Bank of Maharashtra, City Union Bank, Coastal Local Area Bank Ltd and Karnataka Bank Ltd still show the savings account interest rate at 3.5%.
Among the foreign banks that have not bothered to change the rate on their websites are Abu Dhabi Commercial Bank Ltd, Barclays Bank India, BNP Paribas and Chinatrust Commercial Bank.
It was also observed that officials at some of the banks were not aware about the change in the savings account rate announced by the RBI last week. When Moneylife contacted an executive at BNP Paribas to find out the latest savings interest rate, she said that "the general savings account interest rate is 3.5%".