UPCOMING GLOBAL FOCUSED INDIA NFO'S & THE U.S STIMULUS ANALYSIS

 

Indian financial market and Mutual funds are getting matured but we need to be cautious and very well define our long term objectives otherwise it can be goof up.  In this research insight, we will be highlighting the U.S focused NFO’s coming, the rationales favoring and the risk within these U.S focused funds, and also what the financial advisor of the U.S is currently doing with their client's portfolio. Lot of these funds will pull significant money from the investors but we need to know the behavioral risk being investors and well prepared for the blue moon surprises form the U.S markets.

 The number of NFO which are a pipeline to come up based on U.S markets are as follows:

1. Mirae S&P500 Top 50
2. DSP US Growth FOF
3. Mirae HangSeng ETF
4. Edelweiss Global Equity FOF
5. DSP Global Innovation FOF
6. ABSL Nasdaq100 FOF
7. Edelweis MSCI Domestic Financial & Global Fintech50 Index
8. IIFL Global Innovation Fund

 

These are funds are betting on the liquidity which is on the table from the U.S market. U.S markets are scaling new highs and so as the Indian markets. Global liquidity is at its all-time High (ATH). There the $1.8 trillion in excess savings accumulated by high-income households during the pandemic is the key driver of the GDP but this will end up soon. Well the U.S GDP recovery is based on the credit for the economic recovery that goes to American households and fiscal easings, such as the $1.9-trillion American Rescue Plan, which placed $1 trillion in the hands of lower-income families in the form of checks, unemployment benefits, and tax credits.

 Well before we have a big smile we need to understand few more things to get an idea of how long term and how much one should take exposure in these funds. Before we move ahead please remember that Mr.Trump favored corporate America and the wealthy through taxation etc.

 Those who are betting the U.S Infrastructure stimulus package will bring growth for U.S markets alone and thinking simultaneously that Indian markets are overvalued well I am sorry to disappoint that U.S market valuation is overpriced and created on buyback of shares whereas Indian markets are much on a clean slate.

 Further when the U.S infrastructure stimulus package will be announced the real benefit goes to those countries from whom the U.S will buy steel, cement, and other infrastructure material. This brings revenue growth for exporting countries and hence significant growth in profitability and increase in forward earning.

 If you are thinking that the U.S will set up its factories well so fast and such a significant cost of setting up is a time-consuming act. Now if you think about employment creation well the infrastructure stimulus will create millions of jobs out of which 85% of positions will not require a four-year college degree.

Now coming to the outline for the $3.5 trillion proposals from Biden it is being found that that the plan would provide billions in what the White House calls human infrastructure – childcare support, home healthcare, education, and other expenditures. Till now we have been speaking and focusing on the spending and easy money coming from the pockets of the U.S economy. Well, now we come to the part where the shoe will pinch the U.S citizens where the market’s reaction will change. This money will be paid for by higher tax rates for corporations and the wealthy. Capital gain taxation and Investment taxation is the hidden trigger behind the funding of this stimulus.

 U.S. President Joe Biden’s administration has put forward a handful of changes focused on getting wealthier U.S. persons to pay more taxes. The main proposals include:

• Increasing the top income tax rate to 39.6 per cent from 37 per cent for U.S. persons with personal worldwide annual income of more than US$400,000.
• Increasing the top capital gains rate for people with an annual income of more than US$1-million to 39.6 per cent from 20 per cent. (That’s not including the 3.8 per cent “Obamacare tax” on investments, which takes the capital gains rate to 43.4 per cent from 23.8 per cent.)
• Removing an existing tax break at death (known as the “step-up in basis”) that allows appreciated assets to pass to heirs tax-free.
• The proposal is that any gain of more than US$1-million per taxpayer is subject to taxes, plus an additional gain of US$250,000 for a principal residence.
• Restoring the U.S. estate tax exemption to US$3.5-million, where it was in 2009, from the current US$11.7-million, a rate that expires in 2025; and decoupling the lifetime gift-tax exemption from the U.S. estate tax and set the exemption at US$1-million.

 

Already many financial advisors of the U.S are getting their wealthy client's portfolio shifted to that asset class where the risk of taxation will come up. Estate planning attorneys are getting busy in the U.S to safeguard and guide their clients from any taxation hikes. Wealthy clients along with attorneys and other financial advisors and professionals are busy formulating a strategy to save-guard the clients.

Hence the whole play of U.S markets will come to profit booking which cannot be ignored. We have seen only easy money and stimulus but what we ignored is the benefit of the stimulus and where investors are doing.

 Coming back to the NFO's one can invest but not more than 10% to maximum 15% of the total investable corpus or portfolio. Diversification is good but with limits. 2ndly we have a long way of recovery without easy money which is going to be a touch for the global economy and particularly for the U.S economy. We have many bad memories of the Referendum, Greece's bailout, and Athens and those times when Greece banks were shut down and then unemployment.