Aug 25, 2012

Market Update 25/8/2012

The markets ended the week 0.4% above from last week. Technically the market looks like it has built a base so that it can rally. The indicators are all bullish and that should augur well for the markets in the near term. There could be some initial period of consolidation as some indicators are in the over-bought region.

The Dow index rallied more than 100 points last evening on indications that the Federal Reserve could usher in another round of Quantitative Easing in the system to boost growth. If this happens then some of that money should come in to India and should be positive for the markets. The key variables to watch will be Gold rates and the Dollar rates.

The dollar closed the week at 55.50 to the Rupee. It can be expected to weaken a bit in the days ahead but it should still be within the range of 54.8-56.2 in the near term.

Gold has risen to record highs on speculation that there will be high demand domestically for the metal with the upcoming wedding season and festival season. Gold closed the week at Rs 30,810 for 10 gms. We could see the price rise as investors globally will flock to the metal if any easing is announced.

The RBI is not likely to cut rates at its policy meeting on September 17th. Yields on debt instruments are expected to hold steady for the same reason.  

Aug 19, 2012

Your first savings

This article is intended as a guide to anyone and everyone, regardless of age, who has yet to start any savings.

Getting your finances in order is like constructing a building. First and foremost you need to ensure that the foundation on which it is built is strong, and only then do you build on it. Building a strong financial foundation means having enough cash for any and every eventuality. Only after you’ve created this foundation should you look to build any further.

Most people who don’t have any savings are prone to experience a cash crunch at some point of time. Having a strong financial foundation means having enough cash to tide over any cash crunch. We are not talking about those people whose expenses over-shoot their incomes. We are talking about those cash crunches that arise due to unforeseen situations like- a sudden medical expense, loss of employment, or any other sudden and necessary expenditure that needs to be taken care of immediately.

To tide over these exigencies we need to create an- ‘Emergency Fund’ for ourselves. What this fund will do is provide cash when we have an urgent requirement for it. This fund will provide for the smooth functioning of our lives even during times of financial pressure.

How much this fund should constitute is a subjective question, rather than an objective one, and will therefore differ from person to person. In most financial plans we look to build a corpus of around 6 months to one year living expense. That is we take the average monthly expense and build a corpus that is around 6 to 12 times that amount. The reader should be able to ascertain this amount for his/her self. 

Now the next question that comes is where to park this fund. For this fund the primary criteria is liquidity. That is you should be able cash this fund anytime you want to. Don’t look at any financial instruments with a lock-in period. Also don’t look at any instruments that have an exit-load that could affect your capital when you withdraw. Most tax-saving instruments don’t qualify on both those counts.

A bank savings account is one of the best places to park this fund. One could also look at building up this corpus through a recurring deposit in a bank. If the corpus is already created then one could look at parking it in a Fixed Deposit. However, in the case of both Recurring Deposits and Fixed Deposits please ensure that you can liquidate the amount at any time and be sure that you understand the charges for premature closure/ withdrawal. The more sophisticated investor can look to park this corpus in a liquid fund and also avail of tax-benefits. 

Aug 17, 2012

Market Update 17/8/2012

The markets ended the week slightly positive. The technical indicators are in the over-bought region. We could see some profit-taking in the next few sessions. The Nifty is expected to consolidate at these levels in the next few days. There are no significant triggers on the horizon.

The ruling German coalition’s support to the ECB has been a big positive for the Global Economy. Markets worldwide have rallied on the news. Back home the markets are looking to Mr. Chidambaram to deliver on the long promised reforms in the monsoon session of parliament.

In debt, short term funds are expected to do well as most analysts expect a rate cut from the RBI during the later part of this calendar year. However, inflation continues to persist and if the Govt goes on to de-regulate diesel and LPG (to reduce the fiscal deficit) then it will only add to the inflationary pressures.

The rupee tested 56.1 to the dollar before recovering a little towards the end of the week. It is expected to remain in the same range as the market consolidates.

Gold has crossed the important level of 30,000 for 10 gms in the local market. Internationally the metal has been in a range between 1600-1625 $/oz. Global factors will continue to drive the price of gold. For the short term the price is expected to rise marginally.

Aug 11, 2012

Market Update 11/8/2012

The markets made gains early in the week and looked to consolidate towards the end. Technical indicators suggest that there could be a period of consolidation ahead with a slightly positive trend. However, the moving averages are all within a few points of each other and a correction could easily reverse the trend.

The IIP data released this week was negative and that has investors worried. These are confirmations that the economy is slowing down. However, inflation data is also on the higher side and the RBI has little room to bring down rates in the near term. The markets will therefore continue to remain range bound in the short to medium term.

Globally also the markets were in a period of consolidation. Europe still remains the main worry.

The Rupee closed the week at 55.28 to the dollar. It is expected to trade in the 54.8 to 56.3 range for the near term.

Gold also remained range bound as it remains tied to the dollar for the time being. At these levels gold looks a bit expensive to enter in to. Investors already holding gold can continue to hold it.