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Sensex Down Around 1%; Telecom & Metal Stocks Decline

Indian share markets are trading in the red presently. Sectoral indices are trading in the red with stocks in the telecom sector and metal sector witnessing maximum selling pressure.

The BSE Sensex is trading down 388 points (down 1.1%) and the NSE Nifty is trading down 137 points (down 1.3%). The BSE Mid Cap index is trading down by 1.8%, while the BSE Small Cap index is trading down by 1.7%. The rupee is trading at 64.58 to the US dollar.

Inflows through Systematic Investment Plans (SIPs) in Indian mutual funds (MFs) hit the US$ 1-billion mark in January.

Data by industry body AMFI showed that Rs 66.4 billion came into mutual funds in January, capping ten months of robust inflows as benchmark equity indices repeatedly scaled new heights.

The above development indicates sustained retail interest in equities and listed securities as an asset class against the traditionally favored real estate and gold investments.

Growing financial awareness has led to a rise in financial savings.

However, among financial assets, mutual funds still have a lot of catching up to do. The share of mutual funds in financial savings remains abysmally low at 2.9%. Currency and deposits, on the other hand, have a lion's share of 40% whereas insurance and pension contribute a quarter each to overall financial savings.

India has the lowest mutual fund penetration globally. The total Assets under Management (AUM) to GDP ratio of India stands at a mere 10%, way below the global average of 55%. Countries like Australia and the US have AUM to GDP ratios of over 100%. This is evident from the chart below:

India Fares Poorly in Mutual Fund Penetration

So, the mutual fund industry in the country provides huge scope for growth and development. Real estate and gold have become less attractive forms of investments post notebandi. Even the reduction in bank deposit rates in the past year has led to a shift in investment to mutual funds and the stock markets.

Going forward, the real test would be to see if the fund flow continues in the ongoing volatile market. Should the inflow slow down, it will impact MF investment flowing into Indian markets. It will be interesting to see how mutual fund investors react under these conditions.

In other news, as per an article in the Economic Times, the government may soon unveil a Rs 150 billion plan to ensure farmers get the minimum support price (MSP) for their crops even when market prices fall below the benchmark rate.

Accordingly, Niti Aayog will soon call a meeting of central and state governments to discuss this issue and find a suitable mechanism to compensate farmers and ensure MSP.

Note that Finance Minister Arun Jaitley, in this year's Budget, had announced that the government has decided to fix MSP for kharif at at least one and a half times of their production cost.

How the above decision pans out need to be seen. We'll keep you updated on all the developments from this space.

Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. ...