May Newsletter - 2019

Estimated reading time: 11 minutes 29 seconds


Symptoms - Investors put more weight on bad news than good and react to negative events in a more than a proportionate way to good events.

Examples - Investors do not feel confident to enter markets during/after a meaningful correction and fail to average out in that phase. They may also stop further exposure to a particular asset class/ instrument because of the past negative experience. Often, investors may feel overall unhappy about the portfolio even if the number of securities that are in gain is more than the securities in the loss.

Effect - It reduces the ability of an investor to appreciate the importance of riskiness in a financial decision. As riskiness increases, the asset gets priced on that risk and also present a risk-adjusted return. Negativity Bias invariably pulls the investor to lower risk, lower return products without fully realizing that volatility is a friend in the long term.

Steps to moderate the bias

Diversify - A diversified portfolio can reduce the effect of negativity bias because of the lesser concentration in any particular asset class

Not attempting to time the market - If there is no attempt to time the market, means there is no "definite time" objective to the return objective. This will reduce the disappointment if an asset class performs badly just after the investment.

Understanding that negative results in investments are part of volatility - Seeing a negative return as not more than being part of overall volatility will go a long way in not getting disappointed. It could also help towards accumulating the fallen asset thereby averaging the previous purchase price and also buying more units than before.


As per a report by ECA International, Japan offers the best pay packets for expats in Asia. The average expatriate pay package provided by companies in Japan to mid-level employees is $386,451 a year, eclipsing what's on offer anywhere else in Asia. As per the report, a rising Yen and rising housing costs contributed to the biggest increase in expats income as compared to anywhere in the region.

The Securities and Exchange Board of India (SEBI) has finally issued a circular allowing Mutual Funds to enter the commodity derivatives space outside 'sensitive commodities' which are Agri commodities. However, funds have been barred from taking physical delivery as a part of settlement beyond 30 days and must also appoint a custodian to handle physical stocks. They will not be allowed to take physical delivery and hold net short positions. In case of existing schemes deciding to participate in commodities, Sebi has asked funds to give all unit holders a time period of at least 30 days to exercise the option to exit at prevailing NAVs without charging any exit load if investors are not happy with the decision to invest in commodities. MFs have represented that only commodity-dedicated schemes will not help if they have to abide by the 10% limit on allocation to each commodity, as there are not more than 10 liquid commodities. Gold ETFs have also been given the go-ahead to participate in gold derivatives and in the Gold Monetisation Scheme.

SEBI has directed the debenture trustees (DTs) to disclose their compensation structure, maintain a calendar of interest payments and redemptions, and introduce additional covenants in case of issue of non listed debentures. The circular wants the issuer of the debenture to share details of debenture holders with the DTs at the time of allotment and follow it up by reporting before the seventh working day of every following month. This is done so that DTs keep their records updated and communicate effectively with debenture holders in case of default events. SEBI has said the issue details in the summary term-sheet for an agreement between the issuer and investor will have to include additional covenants in the term sheet stating a penalty of additional interest at the rate of minimum 2% per annum over coupon rate for the defaulting period in case of default in payment of interest and/or principal redemption on the due date and a penalty of 1% per annum in case of delay beyond 20 days towards listing of the debt security.

Modi 2.0 - What reforms await?

Some of the expectations on the steps that the Government will take to revive the economy can be traced back to the Election Manifesto of the winning party and the Niti Aayog's 100-day plan (Government's Think Tank after the removal of Planning Commission).

Few key points in the BJP manifesto that can be expected to be attempted by the Government are:

  1. 50 cities to be covered with Metro Rail and to construct 60,000 km of National Highways.
  2. Increasing the number of seats in Central Law, Engineering, Science and Management institutions by at least 50% in the next five years.
  3. To make a capital investment of Rs.100 lakh crore in the infrastructure sector over the next 5 years.
  4. Speeding up the purchases of outstanding defence-related equipment and weapons.
  5. To make an investment of Rs. 25 lakh crore to improve the productivity of the farm sector and provide short-term new agriculture loans up to Rs 1 lakh at a 0% interest for 1-5 years on the condition of prompt repayment of the principal amount. Every Gram Panchayat to be connected with a high-speed optical fibre network by 2022.

100 Days Big Bang Reforms as per the Niti Aayog

  1. The aggressive push for the adoption of AI by states for public service delivery and planning to launch an AI index to rank states on their capacity to adopt the AI technology.
  2. It has proposed banning the sales of all internal combustion engine (ICE) three-wheelers by March 2023, and two-wheelers below 150 cc by 2025.
  3. The complicated labour laws are likely to see reforms as it aims to combine 44 central laws into four codes - wages, industrial relations, social security & welfare, and the fourth - occupational safety, health and working conditions.
  4. To create an inventory of unutilised land that is controlled by Public Sector Enterprises and then offers land to foreign companies.


Equity Markets were given an initial surprise when the newly elected NDA government chose Mrs Nirmala Sitharaman as Minister of Finance. She takes over charge of the finance ministry in quite a challenging situation with pressure from industry on the government to provide some stimulus to halt consumer demand slowdown and tackle strong headwinds like negligible private capital expenditure, declining exports, liquidity freeze for non-banking financial companies.

The former Defense Minister and the new Finance Minister has the educational and professional qualifications:

  1. She obtained a BA in economics at the Seethalakshmi Ramaswamy College in Tiruchirapalli and a master's degree from Jawaharlal Nehru University, Delhi in 1984.
  2. She worked as a salesperson at Habitat, a home décor store in London's Regent Street.
  3. She has served as an assistant to Economist in the Agricultural Engineers Association in the UK. During her stay in the UK, she has also served as a Senior Manager (R&D) for PwC and briefly at BBC World Service.
  4. She has also served as a member of National Commission for Women. In 2017, she was one of the founding directors of Pranava in Hyderabad.
  5. The New Finance Minister has served as minister of state with independent charge for finance and corporate affairs, in addition to being the minister of commerce and industry for three years.


The Wholesale Price Index (WPI)-based inflation for April stood at 3.07%, down from 3.18% in March and 3.62% in April 2018. WPI Food Inflation rose to 7.37% in April from 5.68% in March, while Manufacturing Inflation was down to 1.72%, showing a likely slowdown in the economy.

Consumer Price Index inflation stood at 2.92% in April compared to 2.86% in March. Low inflation throughout 2018-19 was driven by food prices, which fell more than anticipated. While this helped bring down headline inflation, core inflation, which excludes volatile food and energy prices, remained high. While inflation in food and beverages was at a nine-month high on account of rising prices, core inflation, according to Bloomberg, dipped to an 18-month low of 4.55%. Falling core inflation also reflects the recent slow-paced growth in the Indian Economy.

Annual Foreign direct investment (FDI) flows into India declined for the first time in the last six years as it fell 1% in FY19 to $44.37 billion. FDI inflows in telecommunication, construction development, pharmaceuticals and power sectors declined significantly in 2018-19, while FDI increased in sectors like services, computer software and hardware, and automobiles.

India's trade gap (the gap between India's imports and exports) in April widened to a five-month high due to lower growth in exports, amid weakening global trade and rising concerns over tensions between the U.S. and China. The gap was reported at $15.33 billion in April compared with $10.89 billion in March. Overall, taking services along with merchandise exports-imports, the trade deficit for April 2019 is estimated at $8.78 billion as compared to $7.07 billion during April 2018.

As per a Business Standard report, RBI is working on creating a credit line to help the liquidity strapped NBFC's and is likely to send a draft guidelines report anytime after the election results seeking comments.

RBI has decided to extend the last cut-off timings for customer transactions through Real Time Gross Settlement Systems (RTGS) on all working days from 4:30 pm to 6:00 pm effective from June 1st. While Immediate Payment Service (IMPS), which is also an instant money transfer service, has a maximum limit of Rs.2 lakh per transaction, a customer can transact instantly above a minimum limit of Rs.2 lakh with no upper limit, availing the RTGS service. There will be three window period for transactions, 8 am to 11 am, 11 am to 1 pm and 1 pm to 6 pm. While customers who conduct transactions in the first window won't have to pay any additional fee over and above the fixed processing charge, the additional fee for the second and third window has been set at Rs.2 and Rs.5 respectively.

Transactions on the Unified Payments Interface (UPI) touched 1.42 Lakh Crores in April'19 with 3 companies accounting for 90% of the transactions. Google Pay has quietly taken the lead above others with the transaction on its platform reaching 49.7k Crores, while PhonePe a distant second at Rs. 42.6k Crore and Paytm, third at Rs. 35.5k Crore


Tata Group-controlled Indian Hotels Co. Ltd. has joined hands with Singapore's wealth fund, GIC Pte., to invest as much as $600 million over three years in buying fully operational hotels in the luxury, upper scale and upscale segments in India. The equity contribution of Indian Hotels amongst the two in this separate SPV will be 30%.

RP Sanjiv Goenka Group's Spencer's Retail will acquire Godrej Industries Ltd.'s groceries and fresh food store chain Nature's Basket for a consideration of Rs 300 crore. The deal will give Spencer's Retail access to Nature's Basket's 36 stores in the cities of Mumbai, Pune and Bengaluru.

The TATA Group has decided to consolidate its FMCG business under Tata Global Beverages Ltd. (TGBF), and as a part of this initiative, Tata Chemicals Ltd. (TCL) will demerge its food business to TGBF. Shareholders of TCL will get 114 shares of TGBF for every 100 held in TCL. Valuing the formers consumer business at nearly Rs. 5,800 crore

Indigo's promoters Rakesh Gangwal and Rahul Bhatia were in the news as they had issues on the "executive control" and have engaged law firms to sort out their differences. Gangwal has reportedly engaged Khaitan & Co, and Bhatia has contacted JSA Law. In the company's 4th Quarter earnings conference call on May 28, IndiGo's Chief Executive Officer Ronojoy Dutta said that there's just one issue pending resolution in the ongoing spat between the promoters of India's largest airline. As per Bloomberg Quint, this could be related to third-party transactions between Interglobe Aviation Ltd. and private entities of Rahul Bhatia as InterGlobe transacts with several companies connected to Rahul Bhatia for services like ticketing, crew accommodation and simulation training the value of which has increased from Rs. 31 Crore in FY11 to Rs. 315 Crore in FY18.

The US Visa rule changes are likely to impact Indian IT companies' profit and margins in FY20. The US has reduced both the no of visas available and has also set a minimum floor of salary and requires a higher number of local hires.


The United States raised tariffs from 10% to 25% on $200 billion worth of Chinese imports effective from May 10 onwards. The Chinese President Xi Jinping and US President Donald Trump will meet at G20 summit in Japan in June on 28th and 29th. China is taking steps to respond to the recent American ban on doing business with Huawei by restricting exports of rare earth minerals to the US and also preparing a list of its own "unreliable entities" blacklist. Meanwhile, Japan's SoftBank has chosen Nokia and Ericsson as an equipment supplier for building its 5G network dropping Huawei.

Japan's consumer price inflation rose 0.90% in April from a year earlier, the fastest pace in three years, however, the inflation still remains well below the Bank of Japan's 2% target. Core inflation, which is inflation without energy and food prices, rose by a more modest 0.6%, up from 0.5% in March, the fastest rate since 2016.

The Trump administration announced plans to overturn current DHS regulations that allow H-4 dependent spouses of H-1B Indian visa holders to obtain employment authorization. Since the implementation of the rule, over 100,000 workers, mainly women have received employment authorisation, and the H-4 Employment Protection Act prohibits the Trump administration from revoking this important rule.

Saudi Energy Minister Khalid Al-Falih urged members of OPEC+ gathered in Jeddah to not increase the supply of oil and continue the crude oil output cuts.

The leader of Britain's main opposition Labour party Jeremy Corbyn who has been criticised recently for failing to take a clear position on the Brexit issue said that the only way out of the political crisis was to hold a general election or a second "public vote on the Brexit deal."


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