5 Reasons Why Sensex Fell Over 550 Points

Indian stock markets fell sharply on Tuesday, with the BSE Sensex plunging 506 points to 27,000. The broader Nifty slipped 134 points and the rupee corrected over 0.5 per cent to 64.24. The decline in stock markets comes after two days of gains which saw the Sensex gaining over 900 points.

Here are the latest developments:

1) The Sensex, which rose 908 points in the last two trading sessions, succumbed to profit-booking. Analysts say the gains seen in the last two trading sessions were a mere technical pullback. Technical analyst Anil Manghnani told NDTV that the Nifty has stiff resistance around 8,300-8,310 levels.

2) The crucial bills such as Goods and Service Tax amendment bill and the land acquisition bill, which were supposed to be passed in the ongoing session of Parliament, got stuck in the Rajya Sabha. A K Prabhakar, an independent market analyst, said that it seems the government is compromising on these bills by referring them to the Select Committee of Parliament, and hence delaying the much talked about economic reforms as promised by the NDA government.

3) Correction in other Asian markets is also having its toll on the Indian markets. On Tuesday, most of the stock markets in Asia were trading with a negative bias and overnight, the Wall Street also edged lower as investors fretted about Greece's precarious financial condition and slowing growth in China while energy stocks fell on weaker oil prices.

4) The rupee, which rose to a high of 63.85 against US dollar on Monday, again slipped back to a low of 64.27, taking it closer to its yearly low of 64.28 hence raising worries that foreign portfolio outflows may create a vicious cycle between rupee and domestic shares, fund managers said.

5) FIIs or foreign institutional investors being net sellers: Despite gains in the equity markets in the last two trading sessions, FIIs were net sellers in the equity markets to the tune of Rs 270 crore in the last two trading sessions. And in the last 17 trading sessions, they have sold shares worth over $2 billion or nearly Rs 14,000 crore.

Source: http://profit.ndtv.com/news/market/article-5-reasons-why-sensex-fell-over-550-points-762409

Returns of mutual fund equity schemes turn negative

In the past 1 month, as key indices lost 5%, equity schemes' NAV fell 5-10%

The performance of several equity mutual funds (MF) has taken a severe beating. Most equity scheme categories have witnessed a fall anywhere between five and 10 per cent in their net asset values (NAVs) in the past two months.

These schemes have been among the top losers this year, under-performing other asset classes such as gold, liquid, debt and arbitrage funds. Thematic funds — pharma, technology, infrastructure and FMCG — are the worst performers, as NAV of these categories have nose-dived 6-10 per cent. Amid these categories, there are several individual funds, which have under-performed the category average returns.

For instance, the average return in technology funds for the last one month stood in the negative territory at 7.56 per cent; however, SBI IT Fund gave a negative return of 8.21 per cent. Similarly, in infrastructure fund category, the average negative return is 6.66 per cent; NAVs of funds like SBI Infrastructure and HDFC Infrastructure funds are down over eight per cent.

Rajiv Shastri, CEO & MD of Peerless Mutual Fund, says, “Since the underlying asset class, in this case stock markets, had a tough time; it is natural for equity schemes to see dip in NAVs. Markets have been quite volatile and are trading around 8-10 per cent down against recent peaks. It should not be taken as a deterrent by investors, they should keep investing.” S Naren, CIO, ICICI Prudential AMC, said, “We continue to believe that correction is an opportunity to invest. This phase does not affect the long-term compelling case for Indian equities with a moderated return expectation. 2015 is the year for investing in equities with a horizon of three years and more.”

As on 30 April, there are over 400 equity related schemes offered by the mutual fund industry managing an asset of Rs 3.45 lakh crore.

Source: http://www.business-standard.com/article/markets/returns-of-mutual-fund-equity-schemes-turn-negative-115051201046_1.html

International funds will gain from weak rupee

While they are a good hedge for expenses like children's education on foreign soil, limit your exposure

Investors of international equity funds, especially those that invest in US equity markets, have seen an increase in returns over the past few months, due to the weakness in the rupee. According to data from Value Research, in the past three months, the category average returns of international funds has been 7.96 per cent – the top performer.

The fortunes of these funds have turned around in the recent depreciation of the rupee by 1.5 per cent against the dollar since the beginning of December. And with the US Federal Reserve likely to increase interest rates, it is expected that foreign investors will sell investments in emerging markets, including India. This outflow of funds, if it happens, will put further pressure on the rupee.

According to Vidya Bala, head of Mutual Research at FundsIndia.com, the decision to invest in international equity funds should not be based on currency movement. It should be based on the need to diversify your portfolio and hedge your portfolio by investing in markets that have low co-relation with Indian markets. “Investors look to gain from currency movements by investing in international funds. But that involves high risk. The right way is to bet on currency itself, and not the market. Because, by doing so, you may end up taking a wrong call on both the market and currency,” she says.

Raghavendra Nath, managing director, Ladderup Wealth Management, also says that currency depreciation is not a reason to invest in international funds at all. That is only a myopic view. “International funds will reduce the risk of your portfolio and improve the predictability of your returns. One should look at international funds purely from risk diversification perspective. Depreciation will only add to returns,” he says.

The US market is currently doing well and will definitely give better returns in the near term, as it will not be as volatile as the Indian equity market. But over a longer term, Indian equities will give better returns. So, one can look at international funds, provided they have sufficient exposure to Indian equities.

Indian equity markets are relatively more volatile, even though they offer higher returns. As a hedge against the volatility, it is advisable to invest a part of your portfolio in markets that have low volatility and low risk, even if prospects of returns are lesser than Indian equities.

“Developed markets like the US and Europe offer this hedge as they demonstrate different risk characteristics from India. Investing in these markets will give your portfolio the required diversification,” says Supreet Bhan, executive director, head (retail sales) at J P Morgan Asset Management.

European equities look positive because earnings have gone up and companies have created efficiencies by cutting costs. Besides, with the European Central Bank starting its quantitative easing, liquidity will continue to be comfortable, which will support equities, Bhan adds.

International funds also allow investors to invest in dollar assets. So, if you have goals such as children's higher studies or foreign trip, you can hedge against currency depreciation by investing in international funds.

Source: http://www.business-standard.com/article/pf/international-funds-will-gain-from-weak-rupee-115051200197_1.html

Should you worry about the market's current volatility?

The stock market has been volatile. Should one follow the dictum: Sell in May and go away?

Indices tumbled during the week but picked up on Friday. In the midst of such volatility, investors tend to question whether or not it is the right time to get into the market or out of it. But frankly, they are asking the wrong question.

Such questions are based on the presumption that they can enter the market and exit at the right time. Let’s get this straight, this is much easier said than done. Look back at your own track record. You may be boasting about the fact that you did not invest in 2007 when the market was on a roll. But did you enter the market a couple of years before that when it was at a low? Did you buy stocks immediately after the dot com crash? In 2008, when stocks were available at dirt cheap valuations, did you buy?

That’s the double-edged sword of market timing – it’s not just about skipping the market highs; should you miss a crash, you miss riding the recovery that follows.

Not too long ago, in October 2014, volatility hit the Indian market begging an answer to the same questions raised today. The reason at that time was more global - a likely recession is Europe, compounded by slow economic growth in the U.S., fear over the spread of Ebola, and geopolitical hazards. VIX (Chicago Board Options Exchange’s index of volatility) hit its highest level since late 2011 and the India VIX Index also jumped. But we got through that phase.

Don’t forget the hit that stock markets across the globe took in 2011. Financial Times reported that global stock market capitalisation dropped 12% that year. The Indian market did not escape unscathed. The Sensex ended the year at 15,454. By April 2, 2012 it moved to 17,478 only to drop to 16,546 by May 8, 2012. Yet the annualised 3-year Sensex returns (as on May 8, 2015) are 17.88%

The point is that if you ignore market upheavals and stay the course, you end up making money.

If you want to be successful in the stock market, stick to your guns and don’t deviate from your investment plan. A successful investor is not one who accurately predicts the direction of the markets. To do so you would have to either be an astrologer with a very high success rate or God; chances are that you are neither. Stick to basics, which means you need to ignore the distractions and the desire to give way to your emotions and behave rationally.

I had started off by saying that investors are asking the wrong questions. What are the right ones?

The right questions should pertain to your portfolio. Are there any funds whose volatility is giving you heartburn? Then you could consider eventually dropping them from your portfolio. Have you reached your goals? For instance, if you were saving in an equity fund towards the downpayment of a house and you need to make the purchase soon, it would make sense to move that money out of equity now. Or, is it that you have a better alternative investment in mind? Do you want to invest in some property that is available for a song? Then you could consider offloading your stocks to finance this investment. Base your decisions on your goals and capability for risk. Not on the volatility of the market.

On a lighter note, the entire saying is "Sell in May and go away, don't come back till St Ledger Day" and its origins are not Wall Street, but London. Summer sporting events were considered major events and the St. Leger Stakes was the oldest of England’s five horse racing classics and the last to be run in the year. The rick folk who traded were distracted with the social events and volumes would plummet in the summer months, leaving share prices flat, falling or at least volatile.

The reasons for volatility now are very different, though an abbreviated version of the phrase is still thrown around.

Source:http://www.morningstar.in/posts/33006/should-you-worry-about-the-markets-current-volatility.aspx