Re sinks to 6-month low of 55.42

 

Mumbai: Even as the rupee fell 31 paise to a six-month low of 55.42 in the foreign exchange market, bankers said that nearterm support for the domestic currency was visible on the back of capital flows and profitbooking by exporters.
   "Today's fall was a function of a three developments. There was some dollar buying by a large corporate which had gone long on the rupee. There was also a dollar rally in Europe and coupled with this there was a fall in equities," said Ashish Vaidya, head of trading at UBS India.
   According to Vaidya, in the short term, the rupee would find support on the back of capital flows, including expected capital infusion by Unilever which has announced a $5.4-billion open offer for Hindustan Lever shares
which starts on June 21. This would cap the rupee in the 54-55.6 range in the short term, he said. "But six months from now, at a fundamental level, I see the rupee depreciating against the dollar given the current account deficit and other macro factors," he added.
   Other bankers too are forecasting a recovery for the domestic currency in the near term. "We will see some correction in the rupee tomorrow. There will be support from capital inflows. I also expect that exporters will start booking profits given that they would have gained a rupee in a few weeks," said K N Reghunathan, general manager, Union Bank of India.

GURUSPEAK Gold reduces portfolio risk, acts as a hedge against inflation, turmoil

Akshaya Tritiya means infinite, immeasurable, 

endless – something that never diminishes. It is believed that whatever is started on this day will be successful and bring prosperity. So the belief is if you invest in gold on this day, it will multiply continually. While earlier this festival was celebrated by fewer people, today Akshaya Tritiya is observed across the country by different faiths. 
    The highest sales of gold and silver across the country take place on Dhanteras and Akshaya Tritiya. Traditionally, people buy jewelry but the last few years have seen increasing interest in gold coins, gold bars and even investments in e-gold and exchange traded funds (ETFs). Investment in gold via ETFs, whose units are backed by physical gold, has been an increasing trend and people even open new demat and trading accounts with brokers on this day to add gold to their portfolio via this route. 
    The heightened popularity of gold ETF was reflected by last year's turnover in trades in ETFs on the stock exchanges on Akshaya Tritiya, which was a little over Rs 600 crore. This year, it is expected to cross Rs 1,000 crore. Similarly, systematic investment plans (SIPs) in gold using ETFs are also gaining in popularity. There are currently about a dozen asset management companies that offer investments in gold via ETFs. 
    In addition to ETFs, there are several interesting ways to invest in gold. If you do not have a demat account, you can easily buy gold mutual fund units. If you want the flexibility to convert gold units in to physical gold or keep them in demat form as long as you wish, then buying via National Spot Exchange's E-Gold platform is the best way. And if you want leverage, then the commodity exchanges are the most suitable ones. Several companies also offer gold accumulation schemes which are effective vehicles for forced gold accrual. 
    While Alan Greenspan once said that "Gold still represents the ultimate form of payment in the world", it is also the definitive symbol of wealth and prosperity in India. And we buy gold on auspicious days to have continuing good fortune. 
    On an average, a little less than 2 tonnes of gold is imported into India every day, but the sales on Akshaya Tritiya this year is expected to be more than 20 tonnes. While this will be 20% more than the previous year, it is less than half the gold bought on Akshaya Tritiya day in 2008. It is also possible that if prices remain weak, demand may exceed 25 tonnes. And this does not include ETFs. This is also the reason why jewellers as well as stock and commodity market intermediaries look forward to this day and frequently have specific marketing campaigns tailored around Akshaya Tritiya. Due to the religious genesis, coins with impressions of gods and goddesses are most popular. Besides, the World Gold Council also focuses on this event and it is a major milestone on their marketing calendar. 
    So, should you buy gold this Akshaya Tritiya? The unambiguous answer is yes and it not just because the prices have fallen to relatively affordable levels or because they may rise again. The real reason to buy gold should be to ensure scientific asset allocation to reduce risk and volatility in your investment portfolio. It is not just an investment but also a hedge against inflation and turmoil, apart from being an effective financial security which is highly liquid. 
    So go ahead, buy gold today and make it part of your investment basket – there is a 5,000 year history to back your decision. 
    The writer is president, retail distribution, 
    Religare Securities NEXT WEEK 
    Systematic investment plans, or SIPs, have become popular among retail investors. For a good financial plan, along with SIPs, systematic withdrawal plans (SWPs) and systematic transfer plans (STPs) also play important role. Next week, we will look at STPs and related issues.

Commodity slide continues for a while

The age-old saying 'all that glitters is not gold' may have lost some of its impact in the minds of gold investors, especially after the battering that the precious metal recently received. Gold received its ultimate bear hug in mid April 2013, as the international gold price saw its biggest one-day decline since the 1980s, crashing by around 25% from its peak in August 2011. Indian gold prices also corrected heavily, but their fall from the peak has been less severe due to the depreciation in the Indian rupee. In India, the price of gold is dependent on its international market price, which is quoted in US dollar, as well as the rupee-dollar exchange rate.      Though this correction was long overdue, it must have taken several Indians aback. After all, we are the largest consumers of gold worldwide, and have got used to double-digit returns from this asset class over the past few years. With the free-fall in gold prices, the gold mongers pitching gold as a safehaven asset class have also magically disappeared overnight.      Most of the gold demand in India is through the jewellery route. However, the investment demand for gold has also been building up slowly and steadily over the years through the medium of gold ETFs and gold funds. Gold ETFs have been around in the Indian market since early 2007 but they started gaining traction in 2010, after seeing two consecutive years of 20%-plus returns in 2008 and 2009. At the end of 2007, there were only four gold ETFs with total assets of just Rs 467 crore. The years 2008 and 2009 together pulled in a net Rs 570 crore into gold ETFs. However, flows picked up to Rs 1,727 crore in 2010, and total assets managed by gold ETFs swelled to Rs 3,516 crore. The inflow in 2010 as a percentage of beginning assets (also known as organic growth rate) was a handsome 128%, indicating that the net inflow during the year was higher than total assets managed at the beginning of the year.      The year 2011 saw the introduction of gold funds, which became a popular vehicle of investing into gold ETFs for those investors who did not have a demat account. Gold ETFs registered a strong inflow of Rs 4,046 crore (organic growth rate of 115%) during the year, despite these ETFs posting returns in excess of 21% in the previous year. However, inflows tempered down in 2012 to Rs 1,826 crore (organic growth rate of 20%), and the category closed the year with around Rs 12,000 crore in assets. A bulk of the inflows in 2012 came in during the second half of the year, and the recent fall in gold prices must be pinching these investors hard.      The big question now is will gold prices recover and bring some glitters back on the face of those who have invested in gold, or will it continue with its southward trend? Frankly, my guess is as good as yours. Commodities tend to have a long cycle, and once the cycle turns-the downtrend tends to continue for a while. Common sense suggests that you are not likely to see the same sort of blistering returns that gold has seen in the past, at least for a while now. You may see some buying support on dips initially, like being witnessed lately, but the precious metal seems to have lost its lustre for now. So if you are a late bloomer who came in seeing the past returns in gold, read the writing on the wall, and carefully.      The writer is senior research      analyst at Morningstar India

ETFs Score Over Buying Physical Gold

Exchange-traded funds offer all advantages of yellow metal at a lower cost

Akshaya Tritiya is just a few days away and along with jewellers, gold traders and gold buyers, even investors are gearing up to buy some amount of the precious metal on the auspicious day. The significance of buying or investing in gold on this day comes from the belief that anything bought on this day remains forever. This belief comes from the meaning of Akshaya, a Sanskrit word for something that never diminishes. 

    In India, on this day, people usually buy gold leafs, coins, biscuits and bricks. In addition, thanks to innovation by two Indians about a decade ago, a relatively new way of buying gold has emerged: exchange-traded funds (ETFs) for gold. And the good news is that gold ETFs, which come with several advantages over buying physical gold, is gaining popularity. Through innovative financial engineering, gold ETF combines the popularity of gold buying without holding it in physical form, making it possible to be traded on the bourses like stocks, and still giving investors to realize nearly the full value of physical gold. 
Working of gold ETFs 
In India, a mutual fund house is allowed to introduce (sell) gold ETFs to investors. The mutual fund approaches an authorized bank to arrange for some physical gold. It then approaches Sebi with a prospectus to mobilize funds from prospective investors. Once the prospectus is approved by the regulator, the fund collects money from investors and gives the investors ETF units equivalent to the amount invested by the investor. Each ETF unit could be equal to a fixed amount of gold, say one gram, 10 grams or so, or a particular value, say Rs 100, Rs 1,000 or something. 
    Once the offer closes, and the ETFs are listed on a bourse, investors holding gold ETFs units can buy and sell those units on the exchange, which is like trading in shares. The fund house, on its part, is responsible for ensuring the quality of gold it is holding with the bank against the money it mobilized from investors and also buys insurance for the physical gold held by the custodian bank. The custodian, on the other hand, is responsible for the safe keeping of the gold that is in its custody. 
    Looking at the popularity of trading in gold ETFs, every year on Akshaya Tritiya exchanges extend trading hours for only for gold ETFs, usually till 8 pm in the evening while the regular trading for shares closes at 4 pm. 
    The popularity of gold ETFs could be attributed to several of its advantages over holding physical gold. These advantages include high level of affordability, no risks of theft,lower costs of holding,high liquidity and nearly no discounts to market price of physical gold while selling and several others. 
    A new innovation in the gold investment space through the mutual fund route has been the gold fund of funds (FoF) route. This has been introduced in the market mainly to tap those investors without a demat account but still willing to invest in gold ETFs. Under this type of investing, mutual funds mobilize money from investors, and then invest the same in gold ETFs, either in the ETF floated by the same fund house or floated by different fund houses. 
    Gold FoFs have some advantages and some disadvantages as well. Among the advantages is the ease of investing, that is you can invest in gold ETFs without a demat account. Of the major disadvantages are higher costs, which could be as high as 1.50% compared to about 0.75-1% for direct investments in gold ETFs. Another disadvantage is the double tracking error: First for gold ETFs in which a the FoF invests, and then its own tracking error.