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And history repeats itself… Overall RATE RATE (0.00)

In early march, we had highlighted historical behavior of the stock market. We had also highlighted how important it is to track reaction of markets to the events occurring at periodic intervals. Events trigger the momentum in equity markets. Moreover, one such major event that India is tracking currently is ‘election 2014’. We had briefed you in our last article (given below again for your reference) on how the markets move up or down in line with consensus on future results from an anticipated event.


As consensus on the probability of a favorable election outcome is building, the markets are improving their position with every passing day. As per our back testing on markets, they have shown a positive tendency to events such as elections 2014. As per our expectations, markets have moved up considerably. Further, they are looking strong enough to deliver above average returns, going ahead.


During our article dated March 6, 2014, the NSE Nifty 50 had recorded a low of 6340 with moderate trail P/E levels of ~18. As of today, Nifty is trading above 6700 with trail P/E levels ofaround 18.85. The P/E level is almost up by 1 point from the lows of Mar ’14, but it is still quoting at moderate levels just below 19.


Markets have moved up positively, as indicated by us in last one month. NSE Nifty 50 index delivered 5.7% absolute returns in just 1 month, marking a remarkable performance by equities. Nifty 50 has given average absolute returns of 1.3% in the last one month on a daily basis. Echoing the same performance, mutual funds have also delivered above average returns and even some top funds beating Nifty returns in the last month.


The positive momentum could be due to anticipation of an event, which is expected to deliver a positive environment. However, other factors that have also started supporting this momentum such as lower inflation, strong global markets, and expected downward movement in interest rates cannot be kept on the sidelines.



Performance of Nifty 50 - Since our article






Returns %

















































































































17 Days






17 Days






Despite the positive momentum, market (Nifty 50 index) is quoting at moderate trail P/E levels of 19, which creates ample scope for above average returns in coming months.

Thus, we can conclude that as per our early March article, history has repeated itself with a combination of an anticipated event-based trigger and the build-up of positive economic environment leading to positive momentum, which is expected to continue, backed by descent fundamentals. As advised earlier, investors could continue to hold above average allocation to equities and gain from the positive economic environment, as history continues to repeat itself.


Happy Investing

Manish Tawde
Product Research & Financial Planning




--------- Our previous article for the reference -----------


Will history repeat itself?

Events trigger the momentum in equity markets. Any big event such as budget or RBI policy could make or break the stock market. You may gain or lose on your investments post such events. One such upcoming event is the Elections 2014.


Equity markets work on expectations and it could turn out to be positive or negative. Markets try to position themselves as per the general consensus and at times, much before an actual event. They try to achieve valuations in relation to future expectations. Currently, the expectation is built on the formation of a new government in India and whether it will be a stable government.


Coalition governments in the last few years have proved to be unstable. It has been long since we have seen a government with a comfortable majority, without any post election tie-ups. The Indian equity markets still depend largely on FIIs and for this reason; stability of a government is one of the most important factors.


Therefore, it is crucial that India gets a stable government and one with a full majority. Unfortunately, the country is divided on regional levels with no clear choice of a single party. For example, people in the North and the West have similar opinions, owing to the fact that Hindi is a common language there and is understood very well. However, regional languages are prevalent in the South and the East and so the people have preference to regional parties. These regional parties give support to the government, but at times, they withdraw their support, which poses a threat to a stable government at the national level.


In this time though, there is hope that we will have a government with a full majority. This positive expectation in the election outcome has boosted the markets, which have registered all-time highs. As we write this article, the Nifty is trading well above its all-time high. Although this is a pre-election rally, it is also well supported by strong global markets and overall positive sentiments on the economy compared with the previous year.


On the valuations front, most of the market participants feel that markets are moderately valued. With slightly better results in the last quarter, the NSE Nifty trail P/E is still trading between 18 – 19 levels. These could be considered as moderate levels for investments with enough room to move up in case of positive news flow and further improvement in the economy.


Historically, the rally in equity markets is seen during election time in anticipation of a stable government, which is not impossible for India to achieve this time around. Considering descent valuation of equity markets with stable consumption, strong global markets, and expectations of a stable government, we could expect the markets to deliver above average returns compared with other traditional investment products.


We hope that history would repeat itself to deliver better returns pre and post election, if the expectations are met. Investors may have a 70% – 80% allocation to good quality equities to gain from moving markets.


Follow our ideal Equity SIP Portfolio as per your risk profile or talk to our experts to make your investment portfolio more effective.


Happy investing!!!

Manish Tawde
Product Research & Financial Planning


Written by : manish tawde

Exchange Traded Funds (ETF) Overall RATE RATE (0.00)

Buying gold on the stock exchange?? Is it possible?? It's a commodity, so we could purchase it only from a commodity market. Well, but buying gold on the stock exchange is now possible with the eminent introduction of Exchange Traded Funds that will invest in Gold only. Accumulation of gold for a marriage in the family is a popular Indian custom. Instead of physical acquisition of gold or Demat the same, we go a step forward and buy shares that represent gold. Let us first understand the concept of Exchange Traded Fund (ETF) then understand about the advantages of buying gold ETF.


ETF is defined as a security that tracks an index, a commodity or a basket of assets like an index fund but trades like a stock on an exchange and experiences price changes throughout the day as it is bought and sold. ETF were first launched in 1993 in United States. Their popularity as a structured product has grown immensely because of the benefits it provides to investors and traders. The issuance of ETF is just like a primary market IPO or a mutual Fund NFO. Shares are issued by the Fund manager and listed on the exchanges. Investors can buy and sell these shares from the secondary market through their brokers.  ETF often called index shares, are a hybrid of index mutual funds and stocks. Some popular funds are


ETF name

ETF Symbol

Underlying Asset which it tracks

Street Tracks Gold Shares








S&P 500


The advantages of a traded fund shares are:


Tradable and diversifiable: ETF offers a unique advantage as they are diversifiable like mutual funds and also can be traded like stocks. Mutual funds cannot be traded each day like a stock.

Low cost: ETF like an Index fund, it does not require active fund manager and is therefore cheaper as passively managed.


Transparency: ETF is a very transparent instrument, as everyone knows the underlying asset. It makes multiple trading strategies possible. Arbitrage opportunities between cash and futures market can be availed at low cost. Trading strategies can be applied with stop loss orders.


The disadvantages are:


Broker and commission costs:  ETF are traded through brokers and hence every time brokerage has to be paid which becomes costly affair if regular trades are done.


Premiums and discounts: An ETF might trade at a discount to the underlying shares. This means that although the shares might be doing very well on the bourses, yet the ETF might be traded at less than the market value of these stocks.


There are different types of ETF unlike close-ended funds can create or cancel units as investors enter or leave the fund. The size of the ETF, rather than the price, will fluctuate based on the demand and supply for the ETF.


There are several ETF launched till date which can be broadly categorized as follows:


Global ETF: There are ETFs tracking indices beyond the domestic markets. Ex-specific regional funds that track fast growing markets in China and Korea.


Fixed Income ETF: ETF tracking fixed income products. ETF in this case may declare and pay dividends.


Commodity ETF: ETF that track commodity or commodity indices take advantage from the gains in the commodity market.


Currency ETF: ETF tracking currency or currencies. Ex ETF- Euro Currency Trust (FXE) was introduced in Dec 2005, which trades on the NYSE.  Hence investors can take exposure in Euro through this fund.


It is also important to understand the difference between a Mutual Fund and ETF. Trading in ETF takes place on the stock exchanges during trading hours. The Mutual fund units are however purchased from the Mutual Fund at NAV at the end of the day. The expenses are low in an ETF since there is no active fund management involved as in case of mutual funds.  The costs in mutual funds are higher in short term since they are subject to load fees, annual management fees, exit fees etc. These are intended to discourage frequent trading. Dividends are rarely made in ETF whereas there are frequent dividends made depending upon the mutual fund holding. As per Indian tax laws, the redemption amount received from mutual fund units are not subject to tax, however in case of ETF if representing gold, which is a commodity and not stock there would be tax payment in event of appreciation. ETF are regulated by the same authority, which regulates mutual funds. In the Indian context SEBI is the regulator.


ETF is not a new concept in India. There have been two ETFs launched in India; one is based on Sensex that was called SPICE and another was launched with Nifty as an underlying asset, it was gold Nifty BEES. However both these instruments failed to attract the attention of investors. These instruments allowed the investors to buy index in the form of shares. The investors apparently preferred to buy shares included in the index directly by buying index baskets or purchased index in derivatives markets.


Falling interest rates has forced Indian household to look at other classes of assets to hedge their portfolios as well as improve the yield on their basket of assets. Given the fascination for gold among Indians the current launching of gold-based ETF has obvious advantages. Gold can be bought like a share on stock exchanges; storage will be done by the Fund manager, no security risk, no impurity risk, and no cost of making charges. Costs will be low and same channel of trading and delivery like shares will be used.  Innovation of products in Indian markets is welcome. Time will tell whether despite obvious advantages Indian savers will continue to buy gold from jewelers and banks or from the stock exchanges.



Written By:

Deena A. Mehta

Managing Director

Asit C. Mehta Investments 


Written by : blog admin

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