Sei sulla pagina 1di 1

20 MARKETS & FINANCE

mint money

mint money

FRIDAY, SEPTEMBER 9, 2011, DELHI ° WWW.LIVEMINT.COM

Monthly market commentary

D omestic economic shortfalls aside, the financial markets were in a state of chaos in August. After Standard & Poor’s downgraded US sovereign debt, doubts of global growth

slowing faster than expected translated into risk aversion by global investors; India bore this pain too. Indian markets were already under pressure due to slowing gross domestic product growth on account of monetary tightening, aimed at controlling inflation. Its effect on inflation is yet to be seen. Headline inflation stood at 9.22% in July; its been nearly 9% or above for the last 13 months, barring two months. The pressure of higher interest rates is visible in the Index of Industrial Production data, which has

Equity Equity markets in India were synchronized with global equity markets, which fell sharply after
Equity
Equity markets in India were synchronized
with global equity markets, which fell
sharply after the US sovereign debt
downgrade announcement. The markets
fell unabated for more than a week after
which small periods of pull back seemed to
suggest some resilience. Overall in August,
CNX Nifty declined 8.77%; at its lowest
point in the month, the index was down
13.39%. High interest rates are now hurting
growth in industry and consumption, but
prices are still moving up. While most
experts are talking about a pause in rate
hikes in the next two-three months, how
production activity picks up after is to be
seen. This uncertainty is playing into the
market. Rate sensitive stocks continue to
be impacted the most on account of
interest rate uncertainty in the months
ahead. The BSE Bankex declined 12.4%;
that’s more than it declined in the last one
year. Even the BSE FMCG index, which held
out so far, declined 3.51%. BSE IT, BSE
Bankex, BSE Metals and BSE Realty index
recorded double-digit decline. Information
technology (IT) and commodity sectors
were particularly hard hit with the
expectation that slower global growth will
affect the revenue of IT companies and pull
down commodity prices as demand falls
off. Mid-cap stocks are the worst hit, CNX
Midcap has corrected 15.95% in the last one
year compared with 7.43% for the Nifty and
10.99% for CNX 500.
Sectoral indices performance
One year
One month
-4.74%
BSE
AUTO
-4.14%
BSE
-17.06%
CAPITAL
GOODS
-7.30%
16.68%
BSE FMCG
-3.51%
-5.84%
BSE IT
-13.26%
-19.23%
BSE
METALS
-13.70%
BSE
-47.79%
REALITY
INDEX
-14.78%
BSE
-10.55%
BANKEX
-12.40%
-40%
-20%
0%
20%
-50%
-30%
-10%
10%
30%
Source: Bloomberg
Debt
Short-term rates, as reflected by three-month certificates of deposit (CDs), moved in a narrow
range in August. The optimism in short-term rates cooled down somewhat at the prospect of
slower global growth. Three-month CD rates moved from close to 9.15% to levels of 8.9% or so
and back. While most experts are expecting a pause in monetary tightening, many think that
will happen after another hike of at least 25 basis points in policy rates. At the longer end,
however, 10-year government securities yield moved down close to 8.32% from a high of around
8.45% at the start of August. Over the last few months, this long-term bond has maintained an
average of around 8.3%, more or less flat, signalling little in terms of direction. It is to be seen
what happens in the September policy. While slowing global and domestic growth is a deterrent
to another rate hike, the Reserve Bank of India (RBI) has repeatedly pointed out that lowering
inflation is a priority over growth as of now. There has been some criticism about RBI’s pace of
rate hikes. Higher policy rates have certainly translated into higher loan rates. Liquid funds,
short-term income funds and fixed maturity plans are giving higher returns compared with the
last month. Interest offered on one-three year fixed deposits, however, is still in the range of
8.5-9.5%. If you hold a pure income fund, chances are the returns will be volatile since it is not
clear whether the tightening cycle will see a pause. Higher interest rates for debt securities
means lower prices, which results in lower returns for debt funds that trade in securities.
Interest rate trend in July 2011
9.4
3-month
9.13
certificate
9.13
.
9.2
of deposit
9.0
8.8
8.6
10-year
G-sec yield
8.4
8.46
8.2
8.32
8.0
1 Aug
30 Aug
G-sec: government securities
Source: Bloomberg
Gold
Cash
The gold rally has picked up pace, thanks to
uncertain financial markets. In August, gold
prices rose 15.86%, taking its annual rise to
41.44%. In the last five years, gold prices
have risen at a compounded annual growth
rate of 23.5%. Experts are divided on
whether or not it is a price bubble. However,
it’s unlikely gold prices will go down given
high risk in other financial instruments.
In August, for many cash was king. If
your cash is in a savings bank account
you are earning 4% per annum. Instead if if
you have chosen to shift your idle cash
to liquid funds, you could be earning in
excess of 8% annualized returns.

begun to show slower activity. Even commodity prices suffered; gold was the only asset that continued to move higher. On the global front, things are reportedly worse. While motives behind the downgrade of US sovereign debt are being questioned, it’s clear that the world’s largest economy has grave issues to deal with—be it sovereign debt, unemployment or recessionary indications. Fund flow data published by EPFR (Emerging Portfolio Fund Research) shows investors moved out of risky assets such as equities. Surprisingly money market funds saw sharp outflows in first few days of August, mainly due to fears that the US and European debt issues could spur another global

Real estate

(Residential properties)

liquidity crisis. Funds returned to this category once the situation was better assessed. Also, export driven markets were under stress. As a result, emerging market funds struggled to attract fresh funds. EPFR data says that redemptions from emerging markets’ equity funds, global equity funds and bond and balanced funds hit levels last seen in 2008. Other than money market funds, the major groups to attract fresh money were commodities sector funds specializing in gold and precious metals, emerging markets local currency bond funds and Japan equity funds. Among the asset price and growth turmoil, crude oil prices fell with Brent crude price registering a 2.6% decline in August.

Compiled by Lisa Pallavi Barbora

Rising interest rates are beginning to take a toll on demand for housing. With bank base rates at 10% and above, investors are wary of taking on fresh loans. Those with existing

housing loans are paying higher EMIs. With this demand backdrop, it’s no wonder that property prices in some cities are increasing at a dismal rate and in a few even decreasing. Reportedly, as per a recent survey by the National Housing Bank, out of the 15 cities it tracks, residential prices in 12 have increased. Out of these there are also a few that have seen very small increase in prices in the range of 1-4%, including Mumbai at 3.4%. This month we focus on details of residential property market in Kolkata and Hyderabad.

Kolkata
Kolkata

The rapid growth of the outsourcing sectors along with the development of the IT/IT-enabled services sectors is driving the residential market of Kolkata. The market has remained buoyant so far, but recent developments in the larger economic scenario may lead to a slowdown in Indian residential market, including Kolkata. In the second quarter of FY11, Kolkata’s residential market witnessed the launch of four projects, offering a total of 711 new units. Residential property capital values across most micro-markets of the city have appreciated by around 3-6% over the last two quarters. A dip in the absorption rate is anticipated due to the steady upward movement of capital values, which are likely to rise by another 2-10% during the upcoming festival season. Rental values are also likely to increase marginally by end-2011.

Prevailing residential prices for apartments in key locations in the city

Locality Capital value (per sq. ft in R) Alipore 12,000-15,000 Ballygunj 12,000-16,000 PA Shah Road
Locality
Capital value
(per sq. ft in R)
Alipore
12,000-15,000
Ballygunj
12,000-16,000
PA Shah Road
6,000-8,000
EM Bypass
5,000-7,500
Salt Lake
3,000-5,500
Lake Town
2,500-4,000
Behala
2,500-3,500
VIP Road
2,500-4,000
Rajarhat
2,000-4,000
2,000
7,000
12,000
17,000

Base rate

Top 10 banks by advances in FY11

Hyderabad
Hyderabad

After remaining subdued for a long time, improvement in residential sales has been observed, especially in projects nearing completion, and prices are rising, according to Real Estate Intelligence Service, Jones Lang LaSalle India. However, projects in the early stages of construction are not finding enough buyers and, therefore, prices are stable. The premium residential segment in Hyderabad is still more affordable compared with prime locations of other major cities. Market sentiment continued to be low due to the political turbulence in the state.

Prevailing residential prices for apartments in key locations in the city

Locality Capital value (per sq. ft in R) Banjara Hills 6,000-7,000 Jubilee Hills 6,000-7,000 Shaikpet
Locality
Capital value
(per sq. ft in R)
Banjara Hills
6,000-7,000
Jubilee Hills
6,000-7,000
Shaikpet
4,500-6,000
Begumpet
3,000-4,500
Kondapur
3,500-4,500
Hafeezpet
2,800-3,300
Kukatpally
3,000-3,300
Miyapur
2,500-2,800
Hyderguda
2,500-2,800
Nizampet
2,200-2,800
Chanda Nagar
2,200-2,800
Nanakramguda
2,800-3,600
Gachibowli
3,200-3,600
Gopanpally
2,800-3,100
Tellapur
2,300-2,800
2,000
4,000
6,000
8,000

Source: Real Estate Intelligence Service, Jones Lang LaSalle India

Axis Bank Bank of Bank of Canara HDFC ICICI IDBI Punjab State Bank Union Bank
Axis Bank
Bank of
Bank of
Canara
HDFC
ICICI
IDBI
Punjab
State Bank
Union Bank
Baroda
India
Bank
Bank
Bank
Bank
National Bank
of India
of India
10.00%
10.75%
10.75%
10.75%
10.00%
10.00%
10.75%
10.75%
10.00%
10.75%
10.75
10.50
10.25
10.00
9.75
9.50
9.25
9.00
Base rate as on 31 Aug
Source: Apnapaisa.com
Mint Money take Equity markets in August took a spin for the negative, which may
Mint Money take
Equity markets in August took a spin for the negative, which may have put many investors on the backfoot. However, long-term
investors should have utilized these sharp falls to bump up equity allocation closer to original levels and to load up on any existing
systematic investment plan of a mutual fund. Given the shadow of uncertainty from global markets and our own issues of monetary
tightening and persistent inflation, markets are likely to exhibit volatility for a longer period than desired. Additionally, till interest
rates remain high, fixed-income products are also priced attractively. One- to three-year bank fixed
deposits are giving around 8.5-9.5%, short-term income funds are giving 8.5-9.5% annualized returns,
one-year fixed maturity plans offer 10-11% and for those who are not averse to taking some risk
and locking in money for three-five years, recent non-convertible debenture
issues are attractively priced at 12-12.5% per annum. A word of caution: Even
if you are tempted to buy gold, don’t load up your portfolios and keep the
allocation to 5-10%. Also, given its recent rally, it is prudent to wait for 5-7%
fall in prices before you buy.
41.44%
One-year returns as on 30 August
8.14%
3.63%
Equity
(S&P CNX Nifty)
Cash
Debt
Gold
(Savings bank
(10-year government
-7.43%
account)
securities yield)
Source: Mint research
Graphics by Sandeep Bhatnagar/Mint