June Newsletter - 2019

Estimated reading time: 10 minutes 40 seconds


Symptoms - This refers to a tendency to label investments as winners or losers on the basis of unrealised gains and loss.

Effect - Investors tend to sell their winners too fast and hold on to their losers. Studies have shown that on an average, the winners have performed much better than the losers. The portfolio return suffers over the long term because of selling the winners in an attempt to protect short term return. Also, the investor loses the chance to balance the tax on capital gains in a timely manner.

Steps to moderate the Bias - Over more than 2 decades, Value as a factor has not contributed to the Indian stock market returns compared to growth and momentum factors. This may continue and therefore it is advisable to hold on to the winners (mostly momentum and value) for a longer time while reviewing the losers. If there is no value in the losers, it is better to exit and use the losses to offset taxes on the gains made in the winners. Since, historically, growth and momentum stocks have done well which means the gainers in your portfolio are mostly growth and momentum stocks and so should be held longer after considering the valuation. On the other hand, losers should be evaluated for the reasons they performed negatively. If the stocks don't offer continuity on the initial reason for the investment, the stocks should be sold.


Facebook Inc. is planning to launch its digital currency, Libra, in the first half of Calendar Year 2020. To ensure separation between social and financial data Facebook has created a regulated subsidiary called Calibra which will not share personal or financial data with Facebook or any third party without customers' permission. Facebook states that Libra will be a stable currency built on a secure and stable open-source blockchain (Libra Blockchain), backed by a reserve of real assets like bank deposits and short-term government securities in stable currencies and governed by an independent body called the Libra Association.

The Finance Ministry cut interest rates on small savings schemes by 10 basis points for the July-September quarter compared to the previous quarter. Small saving schemes such as national saving certificate and the public provident fund will now fetch an annual interest rate of 7.9% for the second quarter of the financial year 2018-19.

The recent instances of defaults have made the Corporate Affairs Ministry of India consider tougher rules for audit firms including a cap on the number of listed companies that can be audited. The corporate affairs ministry is also weighing either a complete ban on non-audit services or limiting the revenue generation from consulting businesses such as advising companies on restructuring and valuing mergers. These may be introduced as early as the second half of 2019 through amendments in the Companies Act.

The Securities and Exchange Board of India (SEBI) introduces tightened norms for the mutual fund industry to revive the investor confidence that has got hit due to the recent NAV corrections in the debt mutual funds. The following proposals have been approved:

  1. All liquid schemes must hold at least 20% in liquid assets such as cash, government securities (G-Secs), treasury bills and repo on G-Secs.
  2. Sectoral cap in a debt fund has been reduced to 20% of its assets, previously, this was 25%. Also, the additional exposure of 15% to Housing Finance Companies (HFCs) has been restructured to 10% in HFC's papers and a 5% exposure in securitized debt on retail housing loans and affordable housing loan portfolios.
  3. The regulator has changed the valuation methodology for debt and money market instruments to mark-to-market valuation entirely.
  4. Liquid and overnight schemes to not invest in short-term deposits, money market instruments having structured obligations or credit enhancements.
  5. Exit load will be levied on liquid schemes on exit within 7 days.
  6. NCD's and Commercial Papers investments will have to be in the listed instruments.
  7. At least four-times security cover for investment in debt securities having equity-backed credit enhancements which are currently a cover of two times for loans against shares. Moreover, prudential limits on total investment by such schemes in debt and money market instruments having credit enhancements as a percentage of their respective debt portfolios are prescribed at 10%.


Individual Taxation

Introduction of a 10% tax in place of 20% tax for 5 to 10 lakhs income. Section 80C limit likely to be increased to 2 Lakhs which may see a grouping of 50k income deduction already available for NPS (National Public Scheme). Extending the last date for Pradhan Mantri Vaya Vandana Yojana beyond March 31st 2020, increasing the maximum investment limit and also tax benefit on the scheme.

Sector-based expectations


The wishlist for reviving investments in the housing and real estate sector includes

  1. Bringing stamp duty within the purview of GST to reduce the tax burden on the buyers.
  2. Rationalizing or doing away with registration charges, as well as stamp duties for affordable housing units.
  3. The Forum For People's Collective Efforts (FPCE) has asked for a 10000 Crore 'stress fund' to finish stalled housing projects on a pan India basis and also demanded that the home buyers should be categorised as primary secured creditors, currently categorised as unsecured creditors under the Insolvency and Bankruptcy Code, 2016.


  1. Expanding the cover under Ayushman Bharat to the next set of people from the current 10 crore + households which may be based on participation through co-paying the premium amount.
  2. Increasing tax deductions on the expenses of undergoing preventive testing under Section 80D

Financial Sector

Widening the scope of FDI in Banking and Insurance


  1. Reduction in the GST rate from 28% to 18%
  2. A scrappage incentive program for existing non-compliant vehicles to compliment the introduction of electric vehicles and BS-6 compliant vehicles.


India's foreign exchange reserves crossed the previous high of $426.1 billion reached in April 2018 as inflows into the Indian debt and equity markets remained strong. Data from the Reserve Bank of India shows that foreign exchange reserves hit $426.42 billion as of June 21, 2019.

India's Current-Account deficit narrowed in the first quarter of FY19. The shortfall was $4.6 billion in the January-March period or 0.7% of gross domestic product. That compares with a median of $6.1 billion deficit estimated in a Bloomberg survey.

The Fiscal Deficit crossed the 50% mark of FY20's budgetary estimate within two months into the financial year. The gap (Fiscal Deficit) between the government's expenditure and the government's income stood at Rs 3.66 lakh crores after May. That's 52% of the targeted Rs 7.03 lakh crore in 2019-20. Compared to the same time last year, India's fiscal deficit currently is lower as it stood at 55.3% of the FY19 target.

A Reserve Bank of India (RBI) committee has suggested the creation of a Rs.5,000 crore stressed asset fund for domestic micro, small and medium enterprises (MSMEs) in a relief to small businesses hurt by demonetization, the goods and services tax and an ongoing liquidity crunch.

As per a Crisil note on banking, higher recoveries and slowdown in fresh bad loans are likely to reduce the bank non-performing loans (NPAs) by 350 basis points to nearly 8% of the loan assets by March 2020 from the peak at 11.5% in March 2018 which then declined to 9.3% in March 2019.

Farmers are likely to see higher fertiliser prices in the current sowing season compared to the prices last winter due to a to a rise in global prices for potash which is the key raw material, and also aided by a weaker rupee. The Urea prices continue to remain steady but in the case of the latter, India imports about 25% of the 32 million tonnes (MT) annual consumption of urea but the entire requirement of potash is met from imports.

Total rainfall so far in June is 35% below average, improved from the deficit of 43% till the first 4 weeks in June. The crop planting which was 12% below normal in the first 4 weeks is now about 10% less than normal so far in June. The Indian Meteorological Department has stood by its initial forecast of monsoon rainfall being 96% of average in the June-September season.

India announced retaliatory trade tariffs against the US following their refusal to exempt higher taxes on steel and aluminium imports. India has said that, from June, it will impose tariffs on 28 US products, including almonds and apples.

India wins trade dispute with the US over solar panel incentives. The World Trade Organisation (WTO) ruled that a series of US renewable energy incentives violated international trade rules. A WTO panel upheld India's claim that seven US states illegally incentivised the use of local content, thereby discriminating against Indian and other imported solar suppliers.


Dewan Housing Finance Corporation Ltd.'s (DHFL) lenders have started work on a restructuring plan based on the Reserve Bank of India's new stressed asset guidelines. The restructuring plan could include conversion of debt in to equity along with options like carving out DHFL's loans to slum rehabilitation projects. The company recently received funding from two American PE investors of 1100 Crores from Warburg Pincus and 2700 Crores from Blackstone Group and has also received a binding term sheet for 11000 Crores from Oakbridge Capital.

Bharti Airtel Ltd.'s Africa operations traded lower to the IPO price at 67 pence per share, 16% lower than the offer price of 80 pence, the lower band of the IPO price range. The company raised about $750 million in the initial public offering which would be used in reducing the debt owed by the parent company in India.

India's Environment Minister Prakash Javadekar said that all new vehicles starting from next year will support BS-6 fuel only.

A consortium of Jet Airways employees and the U.K.-based AdiGroup announced a partnership to bid for 75% of Jet Airways (India) Ltd. through the NCLT process. Jet Airways became the first airline to go into bankruptcy after the Mumbai bench of National Company Law Tribunal admitted an insolvency petition filed by State Bank of India on behalf of 26 lenders on June 20. The airline owes Rs 8,500 crore to banks and around Rs 25,000 crore in arrears to vendors, lessors and employees.

L&T first bought 20.32% stake in Mindtree held by Café Coffee Day founder VG Siddhartha and two of his firms in March, and 8.58% from other shareholders over the next two months. Under the current open offer, which ended on 28 June, 73.9% of public shareholders sold their shares to L&T.

India's refining & marketing PSU's, Indian Oil Corporation (IOC), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) will collectively lay the world's longest liquefied petroleum gas (LPG) pipeline at a cost of Rs 10,000 crore. As per a statement released by IOC, the cross-country LPG pipeline stretching over 2,757 km, would start from Gujarat's Kandla to Uttar Pradesh's Gorakhpur and will connect 22 bottling plants owned by the three companies. The proposed pipeline would be implemented by a joint venture (JV). IOC will have a 50 per cent share in the JV with HPCL and BPCL having 25 per cent share each. Once completed, the single pipeline would be capable of transporting up to 8.25 million tonnes of LPG per year, amounting to about 25 per cent of India's LPG demand.

SpiceJet gets 43% of slots vacated by Jet Airways.

Travel planner Cox & Kings defaulted on unsecured commercial papers as it paid only Rs.50 crore of the Rs.200 crore due on June 26. The company's market capitalisation fell by more than 50% over the last two weeks following a downgrade by Care Ratings.


US Federal Reserve Chairman Jerome Powell said the US Central Bank is "insulated from short-term political pressures," as policymakers continue to argue with the Central Bank on the issue of rate cuts. Prior to this, St. Louis Federal Reserve Bank President James Bullard said he does not think the U.S. central bank needs to cut interest rates by a 0.5% cut at its next meeting in July.

At the G20 Summit held in Japan, US President Donald Trump and Chinese President Xi Jinping decided both sides would continue negotiations for trade tariffs and not levy any new tariffs against each other's products till then.

China continues to reduce its foreign reserve holdings in the form of U.S. government debt amidst recent trade tariff issues, adding gold reserves diversifying away from the dollar. The $7.5 billion dip in April on back of a $10 billion dip in March brought China's total Treasury holdings to $1.11 trillion, down $90 billion from the most recent peak in August 2017.

Gold touched lifetime high values as recent US Fed's statement hinted at future rate cuts. Low-interest rates reduce the opportunity cost of holding non-yielding bullion, and gold has gained nearly $100 in value.

Euro-Zone Inflation Holds at 1.2% as ECB Prepares More Stimulus while Core Inflation which excludes energy, food and tobacco, picked up to 1.1%. The ECB's target is to restore inflation to just below 2% over the medium term

Industrial production in Japan rose 2.3% from a month earlier, beating the 0.7% gain estimated by the economists.

The European Union cleared the $34-Billion IBM deal to buy software firm Red Hat. Upon completion, the deal would be the third-largest tech merger in history.


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