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China Looses Shirt, Greek Retreats, D-St Abuzz

As the China’s bourses took a plunge in the recent weeks, the concerned departments immediately went into action for intervention. The government initiative also included halting a IPO setting up a stock buying fund of $19.3 billion and also slapped a ban on the state owned companies selling shares of the listed units.

The probe is going on under  the  public security ministry sniffing some foul short sellings and following could be the reasons for the Chinese leaders to take the action, the rising capital, shielding the broader economy, the political stability, stability of the Yuan and last but not the least the  reputation factor  as China has been pressing ahead globally with an infrastructure bank that rivals existing institutions and pressing the china’s claims in the south China sea and the Chinese Prez has taken the responsibility for the country’s economy by appointing himself at the couple of key positions in the policy committees and on the other hand the collapsing market would counter the China’s claims that it deserves more say in the global market

The global stock markets heaved a sigh of relief and rallied briefly after the European Union leaders cracked a deal with Greece to keep the bankrupt country in the euro zone, and in the Indian bourses the markets were led by banks, auto and tech. As of now the investors will focus on the corporate earnings and the further cues will be generated progress of the monsoon and the monsoon session as well as the how this deal amongst the Greece and the European Union emerges in the Greece parliament.

We may not relate to Greece but China is one of the materially giant market, but still the flavor of the emerging markets will be back on the Indian market as the Greece and the Chinese headwinds are way behind us, as less money could be chasing the stocks in the upcoming months with Rs40K crores worth of the tax free bonds to gush the financial markets , so many clodhoppers investors are waiting to fish for the long term risk free interest returns will park fresh funds in these securities.

The continuous inflows from the local institutions and the HNI as well exhibited a high degree of resilience in the last two months. If a chunk of this slice flows into the tax free bonds and inflow from the FIIs end continues to be muted than in this condition the stocks would face the brunt. On the other hand in the case of the structurally sustainable inflows into the equity mutual funds remains intact but in the second half of the 2016 the inflows of the equity mutual fund may abate mainly due to a very sturdy pipeline of the colossal 40K crores of the tax free bonds, but the strong undercurrent in the transition of the household savings from the physical to the financial assets moderation will be somewhat short-lived.

At the present scenario of the bond yields an investor can earn as much as 7.5% by going for the tax free bonds which maturities of 1 or 2 decades, since they are non taxable and so they appear to be more attractive than the taxable debt instruments, here the timing of the issuance is utmost important because if in one year the equity returns during the bond issuance is lesser than the yield  than some of the HNIs fund may move into the tax free bonds, and if on the other hand the equity markets picks up on time than  a major change is expected in the allocation. In the June 2015 the domestic mutual funds have bought equities worth Rs10,320 crores which is the highest ever since the April of the 2007, and with the persistent  inflows the domestic mutual funds have continued to remain as net buyers of the Indian equities, they have flushed in to the tune of Rs33,600 crores this year. 

The Sensex since this June has  dipped by mere 1% point as compared to 9% drop in the (Morgan Stanley Capital International)MSCI emerging market index  which is the key benchmark tracked by the global fund managers during the fund allocation in the various emerging markets.

The ministry of finance has mandated some seven large state owned companies to sell tax free bonds to raise Rs40k crores and so some minor impact is expected on the equities in the latter half of the current fiscal year as the tax free bonds with no tax liability on the interest earnings are very enticing investment bet not only for the HNIs but also for the institutions. India is all set to remain the most lucrative markets amongst all the emerging market peers.