💸 US economy shrinks, MFIs vulnerable & International mutual funds
Orowealth Weekend Reads: May 3, 2020
LAST WEEK MARKET MOVES
|Sensex||Nifty||Nifty Midcap 100||Nifty Smallcap 100|
|33,717.62 (+5.82%)||9,859.90 (+5.86%)||13,502.00 (+4.14%)||4,078.00 (+0.99%)|
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NEWS WE HAVE BEEN FOLLOWING
Small Micro Finance Institutions (MFIs) have found themselves in financial trouble and because of loss of business activity, their default could be to the tune of Rs 3,000 crore. A group of around 100 MFIs with a loan portfolio of less than Rs 200 crore each have requested the finance minister to turn their bank loans into equity with a five-year lock-in as they do not have resources to pay back their outstanding dues. They have also asked banks to provide them with new loans which will allow them to pay salaries and rent. According to information by Sa-Dhan, these small MFIs cater to 25 lakh borrowers and employ 12,400 people. As an alternative to converting their outstanding obligations to equity, the MFIs have said that the loans could also be converted to long-term loans spanning 5 to 7 years with lower interest rates. Banks, on the other hand, are not confident to offer fresh loans to these distressed MFIs. Though RBI has provided a Rs 50,000 crore facility to SIDBI, NABARD, and NHB to help refinance lenders, only 30 of 212 members of Sa-Dhan would be eligible for this support.
Small MFIs would find it quite difficult to survive this difficult situation without direct support from the RBI.
Official data from the US showed that the nation’s economy contracted at an annual rate of 4.8% in the first quarter of 2020. Before the coronavirus pandemic gripped the world, the US was expected to grow around 2% for the year. This is its first contraction since 2014 and the most severe since 2008. But even this could be just a glimpse of the impending economic crisis as the country went into lockdown only in March. Both the federal government and the central bank have taken steps to soften the blow. While the government has announced nearly $3 trillion in new spending which includes direct payments to citizens, the central bank has reduced interest rates to zero apart from opening up liquidity facilities. Closure of businesses has resulted in massive unemployment in the US which has stopped the economic engine from running. Since mid-March over 26 million people have filed for unemployment.
Apart from the economy, consumer spending – which contributes to two thirds of the US economy – has taken a big hit in the US. Data from the Commerce Department showed that consumer spending dived 7.6% in the first quarter of 2020.
FROM OUR BLOG SECTION
Diversified mutual funds are funds with absolute diversification amongst all sectors of the economy. Generally, a mutual fund targets a particular sector depending upon its cap-size and earn benefits from the rise of that particular sector.
When Indian investors want to diversify globally, investing in international mutual funds domiciled-in-India is the default option available. In this blog, I look at these funds as a whole before I split the 36 available funds into 9 categories and then study each category in more detail.
QUOTE OF THE WEEK
“Nothing so fatiguing as the eternal hanging on of an uncompleted task…”
– William James (an American philosopher)
Chosen by Jaspal – Orowealth.