Posts Tagged ‘ Interest rates ’

Economic Indicators – IIP or PMI data..

Thursday, February 6th, 2014

Economic data or indicators provide measurements for evaluating the health of the economy. They also give us a fair view of the current business cycles, Investment and consumption patterns.

Economic Indicators are broadly categorized as Leading Indicators & Lagging Indicators.

Leading Indicators : These Indicators indicate a change even before the economy factors the adjustments. They are based on current data & are forward looking , discount the current values according to future expectations. Stock Markets are the perfect example of a Leading Indicator.

Lagging Indicators :  These Indicators reflect the economy’s  historical performance and confirm the trends with a time lag. They provide us a confirmation of where we are and where we have been.  Unemployment data is a lagging indicator. The unemployment rate may show increase even if the economy is recovering. Historically data suggests the Markets turn much before the Unemployment rate peaks.

Today we are going to discuss two important manufacturing data points

(more…)

Park your surplus Funds with Liquid/Ultra short term funds

Wednesday, January 22nd, 2014

Save more than others

If you have surplus funds in hand, which you do not want to lock-in with Fixed Deposits, we have a solution for you. The funds can be parked in Liquid/ Ultra short term funds instead of holding those funds in the savings or current account with the bank.

In the current high interest scenario, the liquid funds can do far better than your savings/current account. The Average return of a Liquid Fund has been close to 9% p.a. , which is equivalent to return from a Fixed Deposit.

(more…)

Identifying Opportunities in the Debt Mutual Funds

Tuesday, January 21st, 2014

Fixed Income Investments serve to diversify your portfolio, help to stabilise your over all return and create a predictable income stream to support your desired lifestyle.

Bonds can provide excellent Risk-adjusted returns. Let’s evaluate where we should invest in the current market scenario.

  • The 10 year G-sec Yield has cooled off to 8.52% after moving above 9% last month.
  • Largely led by primary articles, Inflation at both wholesale and consumer levels have shown a large down-tick.
  • On Account of fall in food inflation the Retail inflation dropped to 9.87% in December.
  • WPI fell to 6.16% the lowest level of Inflation in last 5 months.
  • The fall in inflation is in line with RBI expectations.
  • For the month of January the inflation number may come even softer driven by further cut in agri inflation and base effect.
  • The Inflation data coupled with weak demand and possible fiscal cuts may signal a plateau for interest rates.Please go through the movement of Yields in last few days.

(more…)

Understanding RBI Steps to Arrest Rupee Decline

Saturday, November 16th, 2013

RBI

The RBI Governor had a Media Briefing on last Wednesday. The Governor tried to calm market fears on major two issues. One, the Impact on the Rupee as the Oil Marketing Companies (OMCs) Dollar Demand is back into the market and Second the concern on RBI Policy rates.

The Key takeaways from his briefing are as below:

  • The Governor Expressed satisfaction on the fact that the trade deficit has been quite in control and he estimated current account deficit at USD56 Billion for the current year. This estimate stands USD32 Billion lower than last year and well under 3% of the GDP. The Exports over the last five months have been growing in double digits. Additionally RBI has already raised USD 18 billion through recent initiatives of FCNR (B) and banking capital.

(more…)

Accrual v/s Duration Strategy – Where to Invest ??

Thursday, September 5th, 2013

Debt Fund Investors are usually confused as whether to go for Duration-based funds or funds with Accrual Strategy. Let’s understand the basic rationale of the strategies.

Duration Based Strategy:

The funds which follow the Duration based strategy invest in long term bonds and benefit from the fall in interest rates. They earn from capital appreciation along with the coupon of the bond. These funds are exposed to interest rate risk and if the interest rates move up these funds bear capital losses.

All long term Income and Gilt Funds follow the duration based strategy.

These funds are advisable for investors who can ride with the volatility associated with the fund.  The Funds can generate better return in a time when the interest rates are set to move downwards.

Accrual Based Strategy:

The funds which follow accrual strategy generally buy short term instruments and prefer to hold till maturity, this reduces the interest rate risk. Corporate bond funds invest in high yielding corporate bonds which have a shorter maturity period.

FMPs, Ultra Short term bond funds and Short term bond funds follow this strategy.

If an investor needs a steady return from his Debt portfolio and is not ready to take higher risk he should invest in Accrual based funds.

An Investor can also adopt a combination of both the type of funds in his debt portfolio as per his risk profile.

How to decide

Both the strategies have their own merits and have different risk reward proposition for the investor.

Let’s compare the performance of Income Funds of both the categories:

Duration vs accrual

 

Looking to the returns of last one year we find that both the categories have earned similar returns, but as we move to the most volatile period i.e from 15th July 2013 till date we find the Accrual funds have flared well compared to the duration ones.

The Accrual funds benefited because of  two reasons, first they  generally carry a shorter maturity of around 1.5 to 3 years and interest rates in India at the shorter end are quite attractive compared to longer end secondly these funds have not faced redemption pressures as the investors were restrained by heavy exit load in some of the funds.

The current scenario depicts a risk reward in favour of the shorter end of the curve. The RBI shocker has disproportionately impacted the short term curve and we feel the investor should choose a mix of funds few with extreme shorter maturities and few with longer maturities. The strategy will effectively give a balanced duration to the portfolio and capture the opportunities given the inverse yield curve.

 

Opportunity in the Troubled Times

Monday, August 26th, 2013

Time to Invest in Debt Funds.

Recently the RBI imposed Liquidity tightening measures to curb Rupee Volatility. The liquidity tightening has resulted into higher bond yields. The shorter term as well as longer term interest rates have spiked up. This provides us an entry point to Invest in Debt Funds.

(more…)

Understanding the Yield Curve

Thursday, July 25th, 2013

The recent upheavals in the Debt market have left the investors puzzled and frightened about the debt markets. Let us understand some of the basic concept of debt markets.

What is a Yield Curve?

Interest rates typically vary with maturity.

The graph or figure which depicts the yield on bonds of the same credit quality and liquidity against maturity is called a Yield Curve.

Ideally, yield curve should be plotted for bonds that are alike in all respects other than the maturity; but this is extremely difficult in practice. Bonds that have similar risks of default may be different in coupon rates, options etc.

(more…)