### 100% equity(NIFTY50) VS. dynamic allocation (65-90% equity, 35-10% gold)

Did some data crunching and used some calculation matrix so ascertain whether Equity (here NIFTY50) outperformed XAU * INR (Gold in \$ multiplied to INR). Below is the outcome.

Returns

 Asset Class Investment Date Investment Amount Current Date Current Value NIFTY50 19jul1996 100 17Oct2016 757 XAU*INR 19jul1996 100 17Oct2016 614 NIFTY+(XAU*INR)! 19jul1996 100 17Oct2016 892

!asset allocation based on-> IF(((40%-50D1YMA)/40%)>0.9,0.9,((40%-50D1YMA)/40%))

Risk (Standard Deviation)

Equity – 28.42%

XAU * INR – 15.65%

NIFTY+(XAU*INR)! – 23.11%

!asset allocation based on-> IF(((40%-50D1YMA)/40%)>0.9,0.9,((40%-50D1YMA)/40%))

Period wise Out performance

Out of 4821 days, 354 days only NIFTY portfolio would have yielded more where else 4467 days NIFTY+(XAU*INR)!would have outperformed.

!asset allocation based on-> IF(((40%-50D1YMA)/40%)>0.9,0.9,((40%-50D1YMA)/40%))

What data crunching? What analysis?

Data used (last twenty years; Total data points used 4821)

1. NIFTY 50
2. XAU Gold (in \$) * INR (MCX spot wasn’t available from 1996 also MCX spot would include duty impact as well which could tweak relation matrix.

Steps followed

1. NIFTY – Calculated 50D moving average and respective 1Y returns thereafter
2. XAU * INR – Calculated 50D moving average and 1Y returns thereafter

What about chart above? -> 50D 1YMA returns always mean revert

Assuming 40%, a higher end number, on 50D1YMA(50D 1 year moving average return for NIFTY50) I ran following calculation:

IF(((40%-50D1YMA)/40%)>0.9,0.9,((40%-50D1YMA)/40%))

Which says, a fund will not go below 65% and above 90% in equity at any point in time and higher the 50D1yMA nifty returns lower will be the allocation to equity. At 40% 50D1YMA equity allocation would be minimum, which is 65%.

My Myth which disentangled

Gold is not negatively, rather positively correlated to equity(On a long term basis – 20years)

 NIFTY 50 DowJ XAU INR XAU*INR NIFTY 50 1 DowJ 0.86 1 XAU 0.86 0.64 1 INR 0.75 0.84 0.61 1 (XAU*INR)! 0.90 0.75 0.97 0.77 1

!asset allocation based on-> IF(((40%-50D1YMA)/40%)>0.9,0.9,((40%-50D1YMA)/40%))

However correlation turns negative for most of the times when equity 50D1YMA moves northward of 20% and that is the reason why it is successful in generating alpha vis-à-vis NIFTY50 with relatively less risk(Standard deviation)

Again below is the returns matrix

 Asset Class Investment Date Investment Amount Current Date Current Value NIFTY50 19jul1996 100 17Oct2016 757 XAU*INR 19jul1996 100 17Oct2016 614 NIFTY+(XAU*INR)! 19jul1996 100 17Oct2016 892

Suggestion/Feedback is welcome

### Working Capital Limit Computation & Interpretation

Attaching a worksheet wherein one can calculate amount of working capital financing possible from banks. Need some more input on it. Would be glad if you can drop down your knowledge pertaining to aforesaid issue below in the comment box.

Working Capital Limit Calculation

### Liquidity Monitor – May 2014

Read my note on Currency,  India Macro & Debt

### Monthly : Currency, India Macro & Debt

Read my note on Currency,  India Macro & Debt

### Monthly : Currency, Opinion Polls, India Debt & Money Market

Read my note on Currency, Opinion Polls, India Debt & Money Market

### Monthly Liquidity Monitor – April 2014

Read my note on liquidity for April.

Interbank Liquidity APR 2014

### Monthly ; Currency, VoA, Debt & Money Market Update

Read my note on Currency, India Macro, VoA, Debt and Money Market.

### Nominal GDP & Tax Collection Target Ambitious ; Net Borrowing In-line With Expectation

Key points:

• The fiscal deficit for 2013-14 is contained at 4.6 percent and to be contained at 4.1% in FY15.
• The current account deficit is projected to be at USD 45 billion in 2013-14 down from USD 88 billion in 2012-13.
• Foreign exchange reserve will grow by USD 15 billion in this Financial Year.
• Food grain production estimated for the current year is 263 million tonnes compared to 255.36 million tonnes in 2012-13.
• Through the Direct Benefic Transfer (DBT) Scheme, a total of 628 crore (54,20,114 transactions) has been transferred directly to the beneficiaries till 31st January 2014 under 27 Schemes.
• The Excise Duty on all goods falling under Chapter 84 & 85 of the Schedule to the Central Excise Tariff Act is reduced from 12 percent to 10 percent for the period upto 30.06.2014.
• 10 per cent hike in Defense allocation has been given in comparison to BE 2013-14.
• 11,300 crore is proposed to be provided for Capital infusion in Public Sector Banks.
• Public Debt Management Agency Bill is ready with the Government. It is proposed to establish a non-statutory PDMA that can begin work in 2014-15.

Our Take

Finance Minister P. Chidambaram has kept up his promise to keep the deficit within the most reiterated red line of 4.8%. However the means by which he minimized the deficit is well known i.e. by rolling over the subsidy payments in the following year. Bond markets were more closely eyeing gross and net borrowing number which more or less were in line with market expectation however many doubt whether the same will be adhered to given high probability of India having someone else managing the finance ministry ahead. Demand supply dynamics at a net borrowing number of ~4.6tn seems favorable however above statement of increasing the FX reserves by USD15bn and RBI’s bias towards low SLR may dampen initial calculations. It wouldn’t be surprising if debt return outpaces equity in the next one year hereon.

Weak demand and reduced tax rate make the tax collection projections tad optimistic. The most watch and worrying factor, subsidy, is planned for INR 2.47lk cr. However unnatural movement in Oil and Fertilizer prices may bring up uncomfortable numbers.  FM pegged FY15 growth at 5% and nominal growth at 13.4% which tentatively prices in an inflation (precisely GDP deflator) of 7.6%.  Bond market’s reaction to budget is that of a non-event. Going forward, Fresh issuance & switch (500bn) calendar in addition to inflation and domestic currency will guide the markets.

### FY15 Borrowing and Fiscal Estimates

I am working with a gross borrowing of ~6.50tn. However note that I haven’t considered cash balance which government will carry next year. Cash balance may range anywhere between 400-550bn. Hence gross borrowing then, excluding cash balance, should come down to 5.95-6.1tn.

Gilts of ~1.68tn will mature in FY15. Incorporating redemptions, net borrowing should come at around 4.8tn. Conventionally RBI raises 90% of its net borrowing via Gsec. Hence total net Gsec supply could come at around 4.3-4.4tn considerably low vs. 4.69tn of net borrowing in FY14

Note – I haven’t incorporated switch effect anywhere above. If government, which had already bought ~120bn of FY15 debt, switches ~200bn by FY14 end then above figure of 4.3-4.4tn for net supply should fall by similar amount i.e. 200bn to 4.1-4.2tn.

I would add duration at current levels however on an incremental basis with a minimum 2 year horizon.