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RELAXATION OF THE FRBM Act AND CREDIT RATINGS
In the last Budget, the Government indicated that they would be relaxing the Fiscal deficit targets. If the Private Sector is unable to grow, it is up to the Government to step up expenditure. The Government has indicated that they will be concentrating less consumption and more on Capital Expenditure. Although Privatisation would pick up pace, the deficit could be met by printing if needed. This is likely to affect our Credit Rating. India's rating of BBB- is the lowest level for investment grade [ below this India's bonds will be junk]. India has more Foreign Exchange reserves than its debt - has never ever defaulted and yet its Credit Rating is below that of Greece which has defaulted 5 times.
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EQUITY
Markets have turned extremely volatile due to the rise in Covid cases which is dampening quicker economic recovery prospects. FII has turned sellers after 6 months of robust inflows. Stock markets are forward looking and are looking at a world when Covid is under control. Corporate earnings were at an all time high in December 2020 quarter - but that could be derailed
by the 2nd wave of Covid. It is during uncertain times that it would be best to remember what Peter Lynch said: "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections, than has been lost in corrections themselves."
Ultimately we are dependent on the Federal Reserve actions. Until the Federal Reserve starts raising interest rates and stops flooding the market with money and starts withdrawing - markets around the world will do well. However with our problems in India the markets are likely to be volatile and hence
look to invest your equity allocation on dips for the next 4-6 months.
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DEBT MARKET
Basically in debt funds you would be getting accrual yields less expenses. Hence looking at 4-5% returns. The risk is inflation coming back. Already metals have started their upcycle. At some stage rising inflation will force RBI to raise interest rates. With rising interest rates the returns on longer duration debt funds will fall.
However maintaining some debt allocation is essential. We can look at more alternate debt products like liquiloans, Perpetual bonds of highly rated banks, or even very conservative hybrid funds, etc.
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GOLD
Gold did recover a bit this month. Gold is used as a store of value and Cryptocurrencies have been taking its place for some investors. However Cryptocurrencies are very volatile. A weaker US dollar, further stimulus expectations, and rising inflation are supportive for gold. Talks around tapering will also be positive or gold.
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ACTION PLAN
- Maintain your Equity Allocation. For fresh investments would suggest investing over the next 4-6 months as the
markets will continue to be volatile.
- At least 10-20% of your equity exposure should not be in global funds. We are suggesting ICICI Pru Global Advantage fund as they will always maintain minimum 25% in US and invest anywhere in the globe where they see value. So rebalancing would be done by them.
- Although returns in debt will be low - maintain your debt allocation.
- Gold too needs to be a part of your portfolio as the global inflation would be positive for gold.
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Celebrate Your Financial Freedom
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AKURDI |
WAKAD |
WANOWRIE |
MAGARPATTA |
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Disclosure |
We are not registered as investment advisers and do not provide any investment advice. The information contained herein is for informational purposes only and does not constitute investment advice. We do not make any warranty (express or implied) as to information in this written material and do not assume any responsibility for, and shall not be liable for any losses or damages of any kind, resulting from investment in any investment product made on the basis of any information provided in this newsletter. Further, the information given herein is as of the date and time of this document/report/newsletter and there can be no assurance that future results or events will be consistent with this information.
Furthermore, certain data and other information may be obtained from a third- party feed, and we are not responsible for verifying the accuracy of the same. While we have taken due care and caution in the compilation of the data and the contents herein, no representation is made as to the reasonableness of the assumptions made within or accuracy or completeness of any data on past- performance of schemes or historical analysis and any other analysis of any investment products. We specifically state that we cannot be held liable for any damages (monetary, legal or otherwise) caused by any error, omission, interruption, deletion, defect, failure and that, we have no financial liability whatsoever to any user on account of the use of the information provided in this newsletter
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