Mutual Fund India

IT emerges as second best choice for fund managers

noreply@blogger.com (Mutual Fund India) — Tue, 24 Jan 2012 10:06:00 +0000

Fund managers are betting big on the information technology (IT) sector. Sharp currency depreciation against the dollar, witnessed in the December quarter, and relatively better macro economic numbers from the US market, have bolstered fund managers’ confidence of buying into the sector from the near-term as well from the long-term perspective.

Securities and Exchange Board of India (Sebi) statistics show for the month ended December 31, allocation of equity assets in software rose by double digits, 10.5 per cent, or Rs 17,871 crore. This made IT stocks fund managers’ second-best choice after banking.

Moreover, during the October-December period when the rupee depreciated 8.4 per cent against the dollar, fund managers increased their exposure in the sector by 200 basis points (one basis point is one-hundredth part of a percentage point).

Sadanand Shetty, senior fund manager (equity) at Taurus Mutual Fund, says, “In the benchmark indices, several IT stocks have a substantial weightage and fund managers did not want to lose out. Rupee depreciation, along with positive macro-economic numbers from the US, made IT stocks a must buy during the December quarter.”

Around two-thirds of IT companies’ revenues come from the US market. Interestingly, during the December quarter, economists had even talked about the rupee reaching as high as 58-60 against the dollar. This also propelled fund managers to go for a buy, the as currency movement could drive companies’ profitability.

However, fund managers say in such an uncertain global situation, their preference would be only with the large-cap IT counters - which have scalable capacity and have the US as the major revenue generator.

For instance, in software major Infosys, large mutual fund equity schemes and including HDFC Top 200, HDFC Equity, ICICI Prudential Dyanamic and Franklin India Bluechip have allocated between six and 10 per cent of their total equity assets.

Kaushik Dani, equity head, Peerless Mutual Fund, says, “There was skepticism till the September quarter about how the situation would pan out globally. But as the US economy started showing a relatively better situation, coupled with our depreciating currency, IT stocks became a natural hedge to overall portfolios. Though volume growth was stable, currency movement added an upside flip.”

Fund managers say despite weaker guidance from Infosys, it’s better to take buy calls in large-cap stocks, as pains in other sectors are deep. “Even with slow growth, IT looks relatively better,” says the chief investment officer of a foreign fund house.

Other fund managers agree. “IT still looks better. Stocks are available at decent valuations,” adds Dani. They add the rupee may continue to be in a weak zone, which will help IT companies. They see counters like Infosys, Tata Consultancy Services, Cognizant, Wipro and HCL scoring over mid-cap IT stocks.

Source: http://www.business-standard.com/india/news/it-emerges-as-second-best-choice-for-fund-managers/462647/

'H1CY12 favourable to pick quality stocks for long-term'

noreply@blogger.com (Mutual Fund India) — Sat, 21 Jan 2012 08:26:00 +0000

Market participants would rather leave behind the ghost of the past, especially the massacre of 2011, and welcome 2012 with new hopes and aspirations. While investors still stay wary of equity markets, mutual funds are gearing for a fresh start. Like they say, after all, experience does make you wiser!

Moneycontrol.com along with rating agency, Crisil embarks on a journey to uncover MF Superstars across various categories this New Year. Starting the year with focus on largecap funds, Moneycontrol.com spoke with the management of Fidelity India Growth Fund, a nominee to the MF Superstar.

Ashu Suyash, managing director and country head of Fidelity Worldwide Investment highlights the strategies of the open-ended equity fund that has a portfolio of over 50 blue chip stocks.

She says that the market volatility that one sees today should be seen as a time of opportunity rather than a time to stay away from markets or to redeem mutual funds.

According to Suyash, the key performance drivers for 2012 could be a steady improvement in infrastructure spending, progress on goods and services tax (GST), range-bound crude oil prices, and reasonable capital flows.

Below are the questions and answers of the interview. Wait for the video!

Q: Is this a good time to invest lump sum in equity schemes given the sharp correction in share prices over the past few months?

A: We believe in a long-term and disciplined approach to investing. The last few months have witnessed significant volatility over lingering concerns over rising fiscal deficits in the euro zone and the ability of the governments to deal with these. Indian equities too have seen a notable decline due to global headwinds and domestic factors such as sustained inflationary pressures and higher interest rates as well as slowdown in the reforms process. In such scenario, market volatility should be seen as a time of opportunity rather than a time to stay away from markets or to redeem mutual funds. History has shown that panic selling can crystallise losses, which are exacerbated when subsequent rebounds in the market are missed. This is because during volatile periods, markets can swing in both directions; remaining calm and taking a long term view is the key. This can be best achieved through regular investing, or the systematic investment plans, wherein monthly investment amount tends to be low. Longer term investors pay an average price for units over time and this helps beat volatility.

Q: What do you see as the key concerns for the stock market over the next 4-6 months?

A: Growth expectations for India have declined in tandem with the fall in industrial production, high funding costs, and slowing global economic growth. Nonetheless, a slower growth rate in India will still be considerably in excess of growth achieved in the developed world. We are hopeful that the policy environment will improve in light of the marked deterioration in the growth outlook, as that has historically acted as catalyst for the government to push through tough reform measures. Meanwhile, inflationary pressures have eased due to the higher base effect and a decline in food prices, although core inflation will continue to present a challenge and any renewed currency depreciation could offset softer commodity prices. This should be followed by monetary policy easing which could be supportive for equities. Amongst key performance drivers that we would look out for in 2012 could be a steady improvement in infrastructure spending, progress on goods and services tax (GST), range-bound crude oil prices, and reasonable capital flows. India's economy is domestic growth oriented which is likely to limit the impact of a slowdown in western economies.

Furthermore, to some extent the policy challenges, high inflation and global risk are already priced into the market. In general corporate balance sheets are healthy and quite a few top quality companies are currently trading at attractive valuations. Many companies are entering 2012 in much better shape than they did the financial crisis of 2008. As always, when economic conditions get tough, strong companies get stronger and our investment team remains focused, despite the macro uncertainty, on picking individually attractive companies from a long term perspective. We are finding some attractive valuations which give us an opportunity to buy long term growth businesses at cheap levels.

Notwithstanding the disappointment on the growth front, over time we expect India to continue to liberalise, offering a longer term supportive environment for the next round of economic expansion. Against this backdrop, the first half of 2012 is expected to present an opportunity to build positions in top quality companies that have a long-term competitive edge, whilst prudently managing portfolio risk. Recent hiccups notwithstanding, long term growth drivers remain intact. Favourable demographics, increasing urbanisation, low household debt and robust growth in domestic consumption are all ongoing favourable trends which increasingly the market has chosen to ignore - thereby offering opportunity.

Q: Will your bottom-up approach to stock picking work in the current scenario where certain sectors themselves are under pressure?

A: The premise of bottom up approach to stock picking is based on focusing on a company's fundamentals, its execution strategy, competitive advantage and quality of management team among others. This approach is the best way to identify a potential stock irrespective of market volatility and whether the sector is beaten down. A strong company will perform well even when conditions get tough. This disciplined approach has helped us both during good and bad times.

Q: Would you suggest that people stay minimum cash as your fund suggests or should investors wait a bit longer to get into equities?

A: As said earlier, investors should adopt a disciplined approach wherein based on their investment goals and risk appetite, amounts can be set aside every month than trying to time the market. Since our equity funds are 'equity' funds and form part of the 'equity' asset allocation from an investor point of view we do not encourage that our Portfolio Managers make big cash calls.

Q: How long do you think before the corporate investment cycle starts picking up?

A: The sovereign debt crisis in Europe has been a dent on business confidence. Added to this, domestic factors such as slowdown in domestic demand, high material prices which hurt margins, lack of policy reforms and volatility in financial markets have hurt the corporate investment cycle. Notwithstanding the unfavorable policy environment, declining inflationary risks coupled with lower interest rates could bode well for business sentiment and a revival in capex cycle.

Source: http://www.moneycontrol.com/news/mf-interview/39h1fy12-favourable-to-pick-quality-stocks-for-long-term39_653263.html

Expect 20% returns from equities in 2012 - Aviral Gupta, equities fund manager, Indiabulls Mutual Fund

noreply@blogger.com (Mutual Fund India) — Sat, 21 Jan 2012 08:22:00 +0000

Indian stocks could return about 20% in 2012 on the back of lower interest rates, improved reforms and cheap valuations, said Aviral Gupta, equities fund manager at Indiabulls Mutual Fund.

"There's negligible shock-value in the system now. We expect things to improve on both global and domestic fronts going ahead,"" Mr Gupta said.

Mr Gupta expects a slew of policy reforms post the Assembly elections. He expects the government to increase allocation to infrastructure sector and continue with its rural development programme, despite the huge fiscal deficit.

"Government will restart reforms post-election. We expect several infrastructure projects to be commissioned post March this year. The government will continue with its rural development programmes like NREGA... This will support the rural consumption story in a big way," Mr Gupta said.

Mr Gupta does not expect too much of negative news-flows from Europe and US. "Eurozone negative shock-value has come down significantly from last year... Data from US is largely positive. Their big worries - housing and unemployment - seem to be bottoming out already," Mr Gupta said.

Rate cuts and lower inflation numbers will drive up Indian shares in the coming months, Mr Gupta said. Falling commodity prices coupled with low interest rates and increasing demand will help Indian companies to improve their earnings, Mr Gupta said.

Mr Gupta is also comfortable with current stock valuations. The Sensex is currently trading at 11 - 12 times forward earnings multiple - much lower than historical average of 15 - 16 times forward earnings.

According to him, barring telecom and power, which will continue to face strong headwinds, investors can buy frontline companies in any sector. Mr Gupta is bullish on IT, banks, FMCG, pharma and other rate sensitives.

Foreign portfolio investors too, seem to have turned positive on Indian stocks. Strong third quarter results from private lender HDFC Bank and two wheeler makers - Bajaj Auto and Hero MotoCorp - contributed to the upbeat mood, boosted by foreign institutional buying to the tune of Rs 630 crore on Thursday. So far in 2012, these investors have pumped in over $1 billion (Rs 5,023 crore), compared with $385 million of net sales in the whole of 2011.

However, according to a recent survey conducted by Bank of America Merrill Lynch (BofAML), emerging market fund managers continue to remain underweight on India. About 61% of the fund managers polled said they were not comfortable investing in Indian equities. Emerging market fund managers have been underweight on India for 17 consecutive months, the BofAML survey said. Brazil, China, Indonesia, and Russia continued to be consensus 'overweight' among foreign investors.

Source: http://articles.economictimes.indiatimes.com/2012-01-20/news/30647358_1_aviral-gupta-indian-equities-fund-managers

Risk-reward ratio in favour of debt schemes: Saurabh Nanavati

noreply@blogger.com (Mutual Fund India) — Thu, 19 Jan 2012 04:46:00 +0000

Indian Mutual Fund industry has failed to attract retail investors and situation does not seem to be improving. Despite several efforts from the regulator and the industry body Amfi, fund houses continue to find it hard to bring in retail money. Saurabh Nanavati, chief executive officer, Religare Mutual Fund, talks about fundamental problems plaguing the industry. He says that it's better to have less investors but with right reasons. Edited excerpts from a conversation with Chandan Kishore Kant

Why is the industry unable to attract retail money?
Combination of factors is keeping retail away. We have very low level of financial literacy and this continues to worry in such volatile market conditions. Fundamentally, retail in India has always been taught that one should enter markets at times of initial public offers for equities or new fund offers in mutual funds at Rs 10 per unit or share and on listing, sell it. That's not right. Investors should fundamentally buy into a stock or a mutual fund because of the past track record, if convinced about the theme. Secondly, stay invested for a longer period. If one keeps doing ins and outs, I don’t think it is a good strategy to be adopted.

When do you expect retail investors to come back to equities?
There is a big difference from investors' perspective. In 2008, deposit rates were five-six per cent and people yet came back to the equity markets in 2009 for a short span. However, right now, coming to equities is not in favour of retail. Unless, fixed deposit rates come at least below eight per cent - a trigger point, it's hard to see retail coming back to equities. Safe return of 8-8.5 per cent is a big psychologically benchmark in retail investors' mind-set.

What went wrong? Are lessons learnt now?
Money is there with people, no doubt about it. However, statistics show that fresh money is fundamentally received through new launches. In other competitive financial products too, half of the folios or policies are getting lapsed after three years. Why? Because they have been wrongly sold. These are serious issues. The regulator is playing its role and we as a industry need to play our role. What I believe as an asset manager is, it's better to have two investors coming in for a right reason than 10 investors coming for a wrong reason. Else, we are not building up a good base. Unfortunately, we have never spoken about it for past years in our markets, both equity and mutual funds. We will go through these years of pain, which is a transition phase, before we see brighter future and investors come with a right reason.

Investors in equity mutual funds are not making money. Is debt category getting dominant?
True. Even, people investing through SIPs for last five years are making negative returns. This way, retail investors will not have confidence. On the other hand, with 10 per cent return in banks' fixed deposits, why would he take risk by investing in equities? In current scenario, equities may promise 12 per cent positive returns as well as negative returns too. The risk-reward-ratio is clearly in favour of debt schemes and FDs, that’s why last two year’s retail has been systematically moving towards debt. Clearly, debt is a no brainer for the Indian investors at this point of time.

How do you see this year panning out for the mutual fund industry?
Next one year is going to be tough. Last two months were probably the worst months and the trend is yet on the decline. It definitely looks like this slowdown will continue for at least next six months, both from the markets' perspective as well as clients' perspective. We are grappling with lot of regulatory changes, which have come up in a short span of time. This has thrown the industry's and the distributors’ business model out of gear in terms of acclimatising to new norms. Most important is what course of action our government takes on policy decisions.

Source: http://www.business-standard.com/india/news/risk-reward-ratio-in-favourdebt-schemes-saurabh-nanavati/462239/

Silence is a virtue for MFs

noreply@blogger.com (Mutual Fund India) — Thu, 19 Jan 2012 04:44:00 +0000

Like the average Indian citizen, mutual funds have a view on everything but do not take the effort to make it count by voting. The abysmal voting record of Rs 7 lakh crore Indian mutual fund industry has come to the fore in an analysis by Institutional Investors Advisory Services (IIAS).

An analysis of voting pattern of the 41 asset management companies (AMCs) whose voting patterns were reviewed, 11 have either completely abstained or not voted on any shareholder resolution in FY11. Of the remaining 30 AMCs, several voted only on a sub-set of resolutions put forth to shareholders for approval.

Of around 3,600 annual/ extra-ordinary general meetings (AGM/EGM)/ Postal ballots/ Court convened meetings voted by the mutual fund houses, over 61 per cent of the time fund houses abstained votes, 38 per cent of the time they voted ‘for’ the proposals put up, and the remainder (less than one per cent of the votes cast) were ‘against’ the proposals put forth for shareholder approvals.

UTI Asset Management, HDFC Asset Management and Morgan Stanley are the only fund houses to have voted against in the AGM. In EGM and postal ballots, foreign fund houses Fidelity and Franklin Templeton were active with eight votes each against key resolutions.

“A welcome beginning has been made,” said Amit Tandon, managing director, IIAS. “While funds have begun to vote, they now need to add more muscle to their voting.” he added.

IIAS found fund houses had voted for or abstained from voting even in a number of shareholder-unfriendly resolutions. For example, most fund houses abstained or voted for in the resolution on the proposed sale of Piramal Healthcare’s domestic formulations business to Abbot.

According to IIAS, “The slump sale instead of a demerger, restricted the cash pile to Piramal while increasing tax burden.” Similarly, fund houses did not demonstrate their concerns through votes in remuneration of promoters of Sun TV, issue of warrants to a promoter entity of Apollo Hospitals and reappointment of auditors in Hindalco, the agency said.

The AMCs cite a number of reasons for voting with the management. Many are of the opinion that they do not have the required percentage of votes to have a resolution against the management to be passed. Some are also of the opinion that this might limit their access to the corporate’s management and other legitimate requests for information required for investment analysis, thereby adversely affecting their business relationships with corporates.

“We are not arguing that investors become activist. But, it is important for investors to clearly spell out where they stand on issues, be it executive compensation, dilution, unbridled borrowings, mergers with unlisted companies, and a host of issues where the interests of institutional investors diverges from that of ‘promoter shareholders’,” the IIAS report said.

According to the agency, the most effective way of conveying this is not a one-on-one conversation but a shareholder meeting. “After all, the investors owe it to themselves that their voice be heard. But the investors also have a fiduciary responsibility, which will be fulfilled only if their vote is counted,” it said.

Source: http://www.business-standard.com/india/news/silence-isvirtue-for-mfs/462236/

Indian stocks have bottomed: Gopal Agrawal, Mirae Asset

noreply@blogger.com (Mutual Fund India) — Tue, 17 Jan 2012 13:15:00 +0000

Indian equities are unlikely to fall much further as they are already trading at a 15-20 per cent discount to 10-year average multiples, said Gopal Agrawal, chief investment officer at Mirae Asset Mutual Fund's Indian mutual fund unit.

A significant slowdown in China and further problems with bank funding in Europe are the only two factors that could lead to capitulation in Indian shares, he said in an interview.

On Tuesday data showed China's economy expanded at its weakest pace in 2-1/2 years in the latest quarter, with the sagging real estate and export sectors heralding a sharper slowdown in coming months.

Consensus estimates are already pricing in 10 per cent earnings growth for the fiscal year starting April 1, he noted.

"Chances of this going further down are lower on hopes of a revival in the economy, rate cuts and rupee appreciation," said Agrawal, who manages Rs 4.5 billion ($87.61 million) of Indian equities.

The extent and timing of rate cuts by the Reserve Bank of India will largely depend on tax collections and whether the rupee starts to appreciate after hitting a record low in December.

Mirae India is bullish on sectors that have rupee-linked costs and dollar-linked revenues, such as IT, pharmaceuticals and select metal stocks, as it believes the rupee's depreciation has not yet been fully taken into account.

The rupee was the worst performer among Asian currencies in 2011, losing nearly 16 per cent against the dollar.

On Tuesday the Indian rupee held on to a two-month high, buoyed by dollar inflows and a surge in the local equities as global risk appetite improved after better-than-expected growth data from China.

Over the past six months, the consensus estimate for earnings per share for India's benchmark 30-share index for fiscal year 2013 has fallen to Rs 1,250-1,260 from more than Rs 1,400, Agrawal said.

Mirae Asset's India Opportunities Fund, ranked fifth by Lipper for Indian Equity total return performance, has about a fifth of its total allocations in software and pharma stocks.

Its Emerging Bluechip Fund has about 17 per cent of its assets in those sectors.

The fund is bearish on select infrastructure and capital goods and telecom companies, which require heavy capital investment.

Mirae's India Opportunities Fund has 5.9 per cent of total assets in capital goods, construction and telecom stocks. Its Emerging Bluechip Fund has 2.14 per cent of its assets in those sectors.

The fund expects the RBI to cut the cash reserve ratio -- the amount of funds banks need to hold at the central bank -- as a way to boost liquidity, and then cut repurchase rate over the next four to five months, Agrawal said.

The central bank raised rates 13 times between March 2010 and October 2011 in its attempt to tame inflation.

Earnings by Sensex-30 stocks will boosted by Rs 100 billion if state-run ONGC, which has a 3.3 per cent weighting in the index, is not required to take on more than a third of the government's expected additional fuel subsidy.

India's oil ministry is seeking an additional subsidy of Rs 420 billion ($8 billion) from the government for the six months ending March 2012, Oil Secretary G.C. Chaturvedi said in December.

The subsidy is used to partially compensate state-run oil marketing firms for selling fuels at state-set cheaper rates.

Source: http://economictimes.indiatimes.com/markets/analysis/indian-stocks-have-bottomed-gopal-agrawal-mirae-asset/articleshow/11524409.cms?curpg=2

Kenneth Andrade: Look at firms that shrink balance sheets

noreply@blogger.com (Mutual Fund India) — Tue, 17 Jan 2012 10:36:00 +0000

He has worked in the Indian mutual fund industry for more than 15 years. He picks tomorrow’s blue-chip stocks from today’s numerous mid-cap companies.

Investment philosophy: He hitched his fund wagon to the theme of consumption and food inflation more than two years ago and his top picks too have remained the same over that period.

Other interests: Stays in Mumbai and is slightly partial to Toto’s, that classic of a pub in the queen of the Mumbai suburbs, Bandra.

What is your outlook for 2012?

The environment now is very challenging and I don’t expect it to change in 2012 either. Obviously, the smaller companies will face a number of challenges both in the near term and in building their businesses over a period of time.

The cost of capital is going to be a challenge for the end of this year and also the beginning of next year. Base rates today are at about 11 percent in the banking system. So your cost of capital to be in operation is anywhere between 13-15 percent.

That’s a very high cost to pay to be in business. Profitability is next to nothing.

How can an investor take advantage of this choppy environment, and do any thematic plays come to mind?

In an environment like this, markets usually consolidate. Either companies acquire additional assets or companies acquire customers. Let’s assume there’s an industry of 10 companies. Five won’t survive. The other five will double. They will take all the customers. That’s a big opportunity to tap. You have to identify the five companies who will survive! Look at cement. Ambuja, ACC and Ultratech had 60 percent of the market share in 2000. Currently they have 30 percent and all of them are debt free. All the other companies have huge amounts of debt. These guys will go back to 60 percent.

Some more examples please...

I don’t think one should look at companies from a capitalisation point of view. One should look at where the business is. If you want a large cap company in the FMCG space you only have three or four companies to choose from. There’s no number six or seven. But the entire business is dominated by smaller players. By capitalisation they are small. India’s largest retail company is a mid-cap company. That doesn’t mean it is a small company.

Where do mid-cap companies come from?

Let me give you an example. Education is a multi-billion dollar opportunity in India. The problem is that it is so fragmented. So we need one entrepreneur to only consolidate the business. From that we will get one of India’s largest companies. None of these guys will invent this space. They will only have a service offering that will consolidate the market share.

How important is it to consider scaling up as a factor for midcap companies?

We look at a fragmented space and look at one company that can scale up the space. That’s our approach. Take sugar and it is Shree Renuka Sugars. It’s a Rs. 85,000 crore industry, but you have around 360 companies in that industry. You have private sector mills then you have around 400-500 co-operative mills that are there. One guy has to come in and consolidate that entire space.

What special challenges to portfolio construction do you see in this difficult environment?

In constructing a portfolio we have two choices on how to buy. You either buy on valuation risk or you buy on solvency risk. We prefer to go with valuation risk because we don’t want our companies to die on us. Every company which is stress-free on its balance sheet is very expensive. The price earnings multiple of our portfolio is extremely high. What we have stayed away from is not to buy companies that have too much of debt. That is going to be our approach for 2012.

I think any company that can monetise its assets, i.e. put its assets into operation and can service its debt, will come out on top. The other option and opportunity is to take the assets that are there on their books and sell them in the market and reduce the cost of their balance sheet. Look at companies who are reducing the size of their balance sheets. They are the ones to buy. One parameter that I will be closely looking for, in the next financial year i.e. 2013 is any company which is going into 2013-14 with a smaller balance sheet. I think those kind of companies are going to come out on top.

In your view, is the idea of strategic consolidation relevant to financial services as well?

Today, everyone is worried about how the banks are going to manage the delinquencies in the banking system. Let’s look at 2013. If corporate India maintains the current debt-equity ratio, their banks will refuse to fund incremental stress. They’ll only lend to guys who are financially disciplined. And financially disciplined guys are people who reduce their balance sheet. It’s all about availability of capital or liquidity for the next round of growth. The guys who are completely leveraged will not get the money. This is how the equity business has behaved in the last three years; this is how the lenders will behave in the next three years because the lenders will become extremely risk averse. That’s probably my only parameter to watch in 2012-13.

You will grow, not because the sector is growing, but because you are gaining market share. The growth will not come because of incremental profitability. The cost of acquired market share will show in your margins. And in the next cycle you will show profitability.

Source: http://ibnlive.in.com/news/andrade-look-at-firms-that-shrink-balance-sheets/221614-55.html

Neighbours are not financial wizards

noreply@blogger.com (Mutual Fund India) — Tue, 17 Jan 2012 04:57:00 +0000

Love thy neighbour is a common adage, but most people extend it to include financial decisions as well. For instance, a sustained rise or a sudden fall in the stock market is often observed due to frenzied buying in bubbles and selling in crashes.

In fact, as a recent study by Ameriprise Financial India shows, Indian investor even used this ‘follow the neighbour’ formula for purchasing insurance, gold and other financial instruments as well.

There are strong preferences for certain products in specific cities. No wonder, every city has its preference for certain instruments. Mutual funds and gold are preferred by Delhi, stocks are favoured by Mumbai, Chennai wants real estate and Bangalore is into debt. The survey was done between the age group of 28-45 and with an average annual household income in excess of Rs 12 lakh.

TWO DIFFERENT FAMILIES: YOU AND YOUR NEIGHBOURS

Goals, time horizon will differ
Risk-taking ability will differ
Financial commitments will differ
Age group may differ
They share successes, not failures
...then, why follow them?

However, following the investment decisions of one's neighbour or friends or even relatives is not the best strategy. The culture of collaboration does not work while making financial decision for your family. There are a host of other reasons that should be considered while making investment decisions.

Your reason to save or invest may not be the same as your neighbour's. The other family may be investing for their child's school education, while you need it for higher education — clearly, the amounts required would be vastly different. For them, a 10-year debt instrument may work, whereas since the requirement is much more, you may have to opt for equity.

More importantly, your monthly outgo may be completely different. As financial planner Suresh Sadagopan says, individuals should count their priorities before copying. "When you have commitments, having cash in hand is important. And you have to account for it. But many don't," he says. Do not invest because somebody else is investing and he/she thinks you are missing out on something big.

Your neighbourhood uncle at 50 may be looking to earn 8.5 per cent on a 10-year NHAI bond, because it means a nice little safe corpus at the age of 60, when he retires. For you, at 30, it makes little sense. If the stock market falls further, there may be a good opportunity to enter and stay invested for the next 20 years.

Conversely, if you are 50, it makes more sense to stay away from high-risk, high-return products, because capital erosion is the last thing you want. Going with the good old bank fixed deposits or post office deposits may keep the corpus safe with steady returns.

Random investment is something that one should be wary of. The Ameriprise study talks about most individuals investing through real estate, insurance, gold and so on. But, none of these investors know if the asset class suits their profile.

However, you need to match your requirements to an asset class before investing. "For instance, real estate and start-ups could work wonders for some individuals, while it may end up being disastrous for others," explains Bimal Gandhi, chairman of Ameriprise Financial India. Therefore, do not pick a scheme just because good friends have done so.

Most important: It is unlikely that many will discuss their investment failures with you. Most will tell you about their successes. Certified financial planner Anil Rego says individuals see how their friend(s) have made money in an asset class/scheme. And then invest. "But, they fail to understand that this may or may not be the right time to enter that scheme. A classic example is gold and many are more than willing to enter gold now just because many have gained from it in the past year," he explains.

Source: http://www.business-standard.com/india/news/neighboursnot-financial-wizards/462019/

Go for corporate bonds, not gilts, in 2012

noreply@blogger.com (Mutual Fund India) — Mon, 16 Jan 2012 05:06:00 +0000

Government securities may yet see prices dip, as their supply over the next few months is expected to be high. Corporate bonds, especially those from top-rated companies, may deliver better gains.

For most of 2011, interest rates were on the rise, whetting the appetite of investors for debt investments. With rate cuts expected after March, what's the outlook for the bond market?

Interest rate outlook

The RBI has clearly indicated that it will stop raising interest rates. So markets are now betting on policy rates coming down. The recent moderation in inflation and slowing economic growth have supported this view.

The markets are expecting the RBI to cut repo rates by 50 to 75 basis points over the next 12 months. The cuts are expected to begin after July but we think the cuts may not be as steep as in 2008-09 when rates fell by 4.25 percentage points over six months.

This is because India's troubles with inflation, the key metric that the apex bank is watching, may not yet be over.

First, although food and primary inflation have abated recently, manufacturing inflation has not. Pending increases in coal prices and electricity tariffs may also feed into manufacturing inflation.

Second, though global commodity prices have cooled off recently, rupee weakness has offset much of this correction for Indian importers.

Third, crude oil prices, a key inflation driver, have not corrected by much. Any oil price hikes post-election may further fuel inflation.

Time not right for gilts

Based on the expectation of rate cuts, benchmark 10-year gilt yields that hit a high of 9 per cent in November have cooled to 8.26 per cent now. But this may not be an opportune time to enter gilts for two reasons.

One, the supply of gilts is likely to rise over the next three months owing to a slippage in the fiscal deficit targets. This may pressure gilt prices and push up yields.

Debt markets early in 2011 cheered the lower borrowings announced by the government. But a fall in small saving inflows and lower disinvestment income has already led to government hiking its borrowing target by close to Rs 92,872 crore for this fiscal (a good 22 per cent more than the budgeted market borrowings).

Two, banks are today heavily invested in government bonds as the credit off-take continues to be subdued. If demand for credit increases in coming months, banks may reduce gilt investments, also pressuring prices.

These factors suggest that this may not be a good entry point into long-term gilts.

The only liquid avenue available for retail investors interested in government securities is through gilt mutual funds.

Returns on these have been quite volatile. Ten-year gilt yields have swung from 5.2 to 9.4 per cent in the last five years. In addition, because of their longer-term investments, these funds register higher capital gains or losses on their NAV based on whether interest rates fall or rise. The average returns on gilt funds over the last five years have been 6.6 per cent. Timing your entry well is quite important while investing in gilt funds.

Investors seeking safety, however, can instead get exposure to top-rated quasi government entities through some ongoing bond issues. For instance, upcoming tax free bonds of Indian Railway Finance Corporation, HUDCO and infrastructure bonds of REC, PFC and IDFC can be considered.

Interest rates on such bonds are linked to government security yields. Interest rates of close to 8 per cent for tax-free bonds are attractive for investors in the high-tax bracket.

Corporate debt better

While long-term gilts don't appear attractive now, bonds from top-rated corporates do. From here, top-rated corporate bonds may outperform gilts for two reasons.

One, as Ritesh Jain, Head of Fixed-Income at Canara Robeco says, the balance sheets of top-rated corporates are in much better shape than the government. While the government is on a borrowing spree, top Indian companies have been cutting back on their investment plans, reducing debt on their balance sheets and hoarding cash.

Any issuances by them are, therefore, likely to be quickly picked up by institutional buyers.

Two, thanks to the same cautious mood, the supply of paper from them is also not likely to be high. In fact, this appears to be the reason why since March 2011, yields on AAA rated corporate bonds have not risen as much as government security yields.

Focus on the short-term, play it safe

Agreed, corporate bonds now appear a better bet than gilts. But should investors buy short-term (1-3 years), medium-term (3-5 years) or long-term options (5 years-plus)?

Those considering these options would essentially have to take the mutual fund route, which offers all three kinds of products. The short and medium-term funds appear better bets today.

Flat yield curve

While interest rates are expected to moderate from current levels (See accompanying story on Interest rate outlook), the fall in policy rates this time around may not be as steep as in 2008-09.

Gilt and long-term income funds, which bet on 5-year-plus instruments, usually make the most capital gains from a fall in interest rates. Shorter-term funds benefit more from interest rate accruals.

This suggests that moderate falls in interest rates would make for limited gains on bond and gilt mutual funds. Investors, therefore, can continue to look at short-term bond funds.

The other big reason why short and medium-term funds appear good options is the flat yield curve. Essentially, short-term bonds (1-2 years) today offer much the same yields as long-term bonds.

Under normal circumstances the yields on short-term bonds should be lower than long-term investments, as one takes the additional risk of interest rate volatility in the long term.

This suggests potential for yields at the shorter end to come down (and bond prices go up) once the rate cuts are effected.

Dhawal Dalal, Head, Fixed-Income, DSP Blackrock Mutual Fund, suggests investing in either short-term debt funds or the dynamic bond funds to play this trend in 2012. Dynamic bond funds have flexibility to increase or decrease duration based on the prevailing interest rates.

Look beyond returns

Fund managers, however, also warn it is best to play it safe when it comes to corporate bonds.

AAA bond investments are the preferred choice. While AAA- rated bond yields may decline to close the gap with gilts, bonds that enjoy lower ratings may not see an equivalent dip in yields.

In fact, bond issues from NBFCs with credit ratings ranging from AA+ to AA-, which offered high yields last year, are now trading lower than their par value.

Highlighting the riskiness of these bonds, Canara Robeco's Ritesh Jain says, “Slowing investment activity, deteriorating currency, lack of clarity in Euro Zone and high cost of debt will continue to put pressure on sub-prime corporate balance sheets. Hence the chances of credit downgrades increase.”

This suggests that while choosing a debt fund too, investors shouldn't merely look at the returns. Portfolio risk is a key factor. Under normal circumstances, the risky portfolio may give good returns as interest receipts flow in, masking the risk.

But during periods of crisis, where corporates are facing the risk of falling interest coverage and debt refinancing woes, these funds may take a hit.

Dalal points out that given the open ended-nature of DSP's debt funds, investors can exit anytime. This means the investments have to be liquid to meet the demands of investors. Therefore, they predominantly invest in banks' certificate of deposits and AAA bonds.

Source: http://www.thehindubusinessline.com/features/investment-world/article2801356.ece?ref=wl_companies

SEBI wants AMCs to launch pension products.

noreply@blogger.com (Mutual Fund India) — Mon, 16 Jan 2012 05:03:00 +0000

Market regulator Securities and Exchange Board of India today said fund houses should launch pension products, so that retirement money can be brought into the capital market.

Noting that retirement and pension money is not coming to the market, Sebi Chairman U K Sinha wondered why asset management companies (AMCs) are not launching funds aimed at attracting pension money.

"Retirement and pension money is not coming into the market. It is legally possible that retirement money can be invested in the markets ... why are AMCs not able to launch pension funds?" Sinha said at India Investment Conference here.

"We are passing through very difficult times. Margins and volumes and flow of fresh money are coming down. What you do in such a situation? We need to start taking measures," Sinha said, adding that level of participation in the markets by households is very low.

In future, Sinha said, Sebi will be regulating alternative investments. "Currently we are looking at regulations on distributors and investor advisers."

About 50 per cent of mutual fund business is done through distributors who are not regulated at all, he said.

On the proposed new IPO norms, Sinha said, "We are looking at a review of the entire IPO process, as to who would participate, and in what manner and how to reduce the timelines."

Replying to query on insider trading norms, Sinha said, "We will take strict action against market manipulators."

Source: http://articles.economictimes.indiatimes.com/2012-01-13/news/30623887_1_pension-funds-pension-money-pension-products

CFO Rahman named UTI AMC acting CEO

noreply@blogger.com (Mutual Fund India) — Fri, 13 Jan 2012 05:17:00 +0000

The Board of UTI Asset Management Company (UTI AMC) has appointed its Chief Finance Officer Imtaiyazur Rahman as the acting CEO with immediate effect till the appointment of a new chairman and managing director. The company has been headless for nearly a year since its former CMD UK Sinha quit in February 2011.

"Rahman will look after the day-to-day operations, working closely with the rest of the senior leadership team," the company said in a statement. The Board has also appointed PN Venkatachalam, retired managing director of SBI, as an independent director. Rahman is a member of the four-member management committee of the mutual fund. The shareholders of UTI AMC were on a collision course over the selection of a new CMD, with LIC, State Bank of India, Bank of Baroda and Punjab National Bank on the one side, and the US-based global investment management company T Rowe Price on the other.

The bone of contention between the state-owned financial institutions and T Rowe Price was the inclusion of Jitesh Khosla, a 1979-batch IAS officer, in the panel of prospective candidates to be interviewed by the shareholders. It is learnt that Khosla, who is the brother of Omita Paul, adviser to Finance Minister Pranab Mukherjee, was not in the shortlist prepared by the Board’s human resources committee. Khosla, who was until recently with Indian Institute of Corporate Affairs, an institution under the Ministry of Corporate Affairs, is currently additional chief secretary of Assam.

T Rowe Price which holds 26 per cent stake in UTI AMC was in favour of bringing a professional from the mutual fund industry to head the company.

As market regulator Sebi also directed the UTI AMC not to launch any scheme till it gets a chief, the company was unable to come out with any product since last February. Sebi allowed the company to launch a new scheme only recently. Two independent directors — Anita Ramchandran (who was the acting chairperson of UTIAMC) and Prithvi Haldea — have also recently stepped down from the board citing personal reasons.

Source: http://www.indianexpress.com/news/cfo-rahman-named-uti-amc-acting-ceo/899174/0

Bonds Beating Gold for Funds on Slowest Inflation Since ’09: India Credit

noreply@blogger.com (Mutual Fund India) — Fri, 13 Jan 2012 05:16:00 +0000

Investors in India are shunning gold while adding to holdings of government bonds, betting that policy makers will cut borrowing costs as inflation slows to the least in two years.

Assets managed by funds that buy bullion shrank 4.3 percent to 91.5 billion rupees ($1.8 billion) in December, while those that trade in rupee-denominated sovereign debt increased 17 percent to 31.2 billion rupees, according to the Mumbai-based Association of Mutual Funds in India. Gold imports by the world’s biggest buyer may slump 48 percent in the three months ending March from a year earlier, the Bombay Bullion Association said this month.

Government notes are rallying before data next week that economists predict will show wholesale prices rose 7.4 percent in December, compared with 9.11 percent in November, a sign that seven interest-rate increases last year are taming price pressures. The nation’s 10-year bonds yield 8.23 percent, 83 basis points more than the inflation forecast. China has so- called real interest rates of minus 70 basis points, while South Korea’s are minus 41.

“Indian investors’ sacred affinity toward gold will be tested by factors like real interest rates and investment opportunities in other assets,” Ritesh Jain, the Mumbai-based head of investment at Canara Robeco Asset Management Ltd. that oversees $1.3 billion, said in an interview yesterday. “Demand for gold in India may fall 25 percent to 30 percent in 2012.”

Borrowing Costs

The metal was being perceived as a hedge against inflation through last year, Jain said, as increases in wholesale prices held above 9 percent for 12 consecutive months through November. This was especially so in rural India, where banking facilities “continue to be dismal,” he said.

Funds that buy gold managed 2 percent of total assets invested by India’s investors in mutual funds at the end of December, compared with 20 percent overseen by those that trade in bonds due in less than 12 months. Debt securities with maturities longer than a year accounted for 49 percent, while equities made up 23 percent.

The nation’s interest-rate swap market suggests that borrowing costs will decline. The cost to lock in interest rates for 12 months dropped one basis point, or 0.01 percentage point, to 7.9 percent yesterday. That’s 60 basis points below the Reserve Bank of India’s 8.5 percent repurchase rate. Goldman Sachs Group Inc. predicts policy makers will cut the repo rate by 1.5 percentage points this year, while Deutsche Bank AG estimates a one percentage point reduction.

Rupee Advances

Global funds are adding to holdings of the nation’s debt securities before the central bank reviews borrowing costs on Jan. 24. International investors bought more rupee-denominated notes than they sold for a seventh consecutive trading day on Jan. 10, boosting their ownership this month by $1.8 billion to $27.8 billion, according to exchange data.

The purchases are spurring a rally in government bonds and the rupee. Yields on the nation’s benchmark 8.79 percent notes due in November 2021 have slumped 32 basis points this year after increasing 65 basis points in 2011. The yield rose two basis points to 8.25 percent yesterday, according to the central bank’s trading system.

The rupee, Asia’s worst-performing currency last year following a 16 percent slide, gained 0.6 percent yesterday to 51.585 per dollar, according to data compiled by Bloomberg. The currency has strengthened 2.9 percent in 2012, the best performance among the region’s 10 most-traded currencies.

Gold Slumps

Gold for immediate delivery, which gained 10 percent in 2011, has slid 14 percent after touching a record $1,921.15 an ounce on Sept. 6 and traded at $1,656.88 in Mumbai yesterday.

Imports of the metal may decline to 150 metric tons in the three months through March, from 286 tons a year earlier, as the rupee’s 2011 decline boosts prices, Prithviraj Kothari, president of the Bombay Bullion Association, said in an interview.

“If gold were to correct, especially in the near term, and the rupee were to remain sideways, it wouldn’t augur very well for the investor,” Lakshmi Iyer, head of fixed income and products in Mumbai at Kotak Mahindra Asset Management Co. that oversees $5.7 billion, said in an interview on Jan. 11. “Sentiment is biased toward investing in fixed income over any other asset class for now.”

The cost of protecting the debt of State Bank of India, which some investors consider a proxy for the nation, is climbing as Europe’s debt crisis dims the allure of emerging- market assets.

Cultural Factors

Credit-default swaps on the lender cost 392 basis points yesterday after touching a two-year high of 405 on Jan. 9, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The swaps pay the buyer face value for the underlying securities should a company fail to adhere to its debt agreements.

With Europe’s sovereign-debt crisis spreading “like a plague,” gold will continue to attract investment in 2012 because of its appeal as a haven, according to Reliance Capital Asset Management Ltd.

Demand will also be supported by cultural factors as gold is an important part of family occasions in India such as weddings, Sundeep Sikka, the Mumbai-based chief executive officer at Reliance Capital, said in an interview on Jan. 6. Hindus, who account for about 80 percent of the nation’s population, also consider buying gold auspicious during religious festivals.

‘Extremely Bullish’

“Demand for physical gold has always been strong in India,” Sikka said. “The current global macroeconomic environment is very conducive for higher gold prices. The fundamental outlook for gold remains extremely bullish.”

Slowing growth in Asia’s third-biggest economy will damp demand for bullion, according to Canara Robeco’s Jain.

Sales of passenger cars in the nation fell almost 7 percent from November to 159,325 units last month, according to data from the Society of Indian Automobile Manufacturers. Gross domestic product will rise about 7 percent in the year ending March, Prime Minister Manmohan Singh said on Jan. 8, less than a prediction of 7.5 percent he made in December.

India’s bonds have returned 1.2 percent this month, the best performance among 10 Asian local-currency debt markets monitored by HSBC Holdings Plc. The difference in yields between rupee-denominated notes due in a decade and similar-maturity U.S. Treasuries has narrowed 31 basis points in January to 631.

“With easing of inflation, people aren’t thinking of buying gold,” Chirag Mehta, Mumbai-based fund manager at Quantum Asset Management Company, a unit of Quantum Advisors Pvt. that manages about $1.1 billion, said in an interview yesterday. “Investors are thinking that bond yields have peaked and it’s a good time to invest in government bonds.”

Source: http://www.bloomberg.com/news/2012-01-12/bonds-beating-gold-for-funds-on-slower-inflation-india-credit.html

Mark to market losses lead to YoY decline in mutual fund assets

noreply@blogger.com (Mutual Fund India) — Fri, 13 Jan 2012 05:11:00 +0000

The Indian mutual fund industry's year-on-year (YoY) assets fell over 2% in 2011 to Rs 6.11 trillion as of end December 2011, due to mark to market losses in the equity category, despite net inflows of Rs 197 billion over the year, according to a study by ratings firm Crisil. This was the second consecutive year of decline in assets with the industry having logged a 6% (YoY ) decline as of December 2010. The decline in the previous year was on account of net outflows of Rs 907 billion from mutual funds.

For the calendar year 2011, assets of equity funds fell around 23% following mark to market losses in the underlying markets where the benchmark S&P CNX Nifty was down by over 24% in the year. Despite this trend, equity funds witnessed net inflows of around Rs 77 billion in 2011. In 2010, equity funds' assets had risen over 5% to Rs 2.08 trillion on the back of mark to market gains despite net outflows of over Rs 158 billion in the category. The S&P CNX Nifty had risen around 18% in 2010.

Source: http://economictimes.indiatimes.com/markets/stocks/market-news/mark-to-market-losses-lead-to-yoy-decline-in-mutual-fund-assets/articleshow/11464609.cms

Where should NRIs invest their gains from a weak rupee

noreply@blogger.com (Mutual Fund India) — Thu, 12 Jan 2012 05:08:00 +0000

The rupee was quoting at 44.8001 against the US dollar seven months ago, and has depreciated 18.28% since then. A falling rupee is not the best news for us, but it definitely is for exporters and NRI investors who will receive more rupee funds on conversion. Given the current scenario, NRIs have some good investment options to park their surplus funds.

Short term (6 months to 1 year)
Fixed income mutual funds: A range of fi xed income mutual funds offer customers the combined benefi t of attractive returns with full repatriability, low cost, convenient processing and ease of portfolio tracking. Safe investors should opt for liquid plus funds.

Bond funds/longer-duration gilt funds: They are meant for investors who are comfortable with some price uncertainty. "They can benefit from any potential capital gain arising out of any reduction in future interest rates. Also, any appreciation in the rupee over the investment period would imply additional returns," VISHAL KAPOOR, Head, Wealth Management, Standard Chartered Bank, India.

NRE deposits: "They are clearly the best option after the deregulation by RBI. Short-term deposit rates are attractive due to tight liquidity conditions in money markets while being tax free," SUTAPA BANERJEE, CEO - Private Wealth, Ambit Capital.

Medium term (1-3 years)
Balanced mutual funds/NRE deposits: You can opt for either of these instruments depending on whether the horizon is one or three years, respectively. "The choice depends on the kind of price volatility and whether the investor is seeking a guaranteed return or not," JAYANT PAI, CFP, Vice-President, Parag Parikh Financial Advisory Services.

Fixed maturity plans: They are an attractive option for customers looking to locking in at prevailing high rates. For risky investors, Indian equities may offer significant long-term opportunities. "Investors could participate through selective stocks or through a wide range of equity funds with good track record. The quarter ahead may offer selective buying opportunities for active investors, or one could choose to simply stagger investments through a defi ned period, using systematic transfer from debt to equity funds," says Kapoor.

Long term (3 years or more)
Diversified equity funds (through SIPs): They are good options at the current rates. FDs are not a good option as the uncertainty of foreign exchange movements may not be fully compensated by interest rates. "However, risk averse depositors may chits. Gold ETFs are also a oose long-term NRE deposgood option," says Pai. Investors should allocate their funds using a strategic allocation model tailored to their individual risk profi le. This should normally combine debt, equity as well as alternative assets. Clearly, debt offers a very attractive opportunity in the near term but one should also keep in perspective the attractiveness of Indian equities over the medium to long term.

Realty Check
Real estate as an investment option makes sense if you plan to return to India after some time. However, you should choose a location that is familiar to you and stick to a reputed builder, given that proximity is an issue.

From a pure investment angle too, the same caveat applies: Familiarity and reputation. Also, there is greater chance that projects of reputed builders will appreciate more than others'.

Also, as NRIs are not permitted to purchase plots of land/plantations/farm houses. Even commercial real estate is subject to a plethora of limiting regulations. Purchasing apartments or bungalows maybe the only options available.

It is difficult to give a ballpark estimate regarding returns, as it will depend on the location and various other factors.

However, as an investor you have to be cautious in the near-term since it is an interest rate sensitive sector and demand may be impacted by relatively high interest rates.

"It is imperative to find out whether one is allowed to invest in an instrument by RBI as well as by the country of their residence. For example, several bonds don't have separate clauses which allow for NRIs to invest in them," says Banerjee of Ambit Capital.

Choosing The Right Investment
Liquidity, post-tax returns, price volatility and credit risk are the crucial factors that should determine the choice of the instrument you invest in.

The amount of foreign exchange risk one is willing to undertake is also a crucial factor. Of course, the forex risk is always present in all options other than FCNR deposits.

Convenience and trust need consideration. One may choose those options where he/she can transact online. This enables easier portfolio tracking.

Suitability of the product/asset based on endogenous factors such as age, economic situation, liquidity considerations etc. are the same as those for resident Indians.

Source: http://economictimes.indiatimes.com/news/nri/nri-investments/where-should-nris-invest-their-gains-from-a-weak-rupee/articleshow/11453671.cms

US-based financial planning major enters India

noreply@blogger.com (Mutual Fund India) — Thu, 12 Jan 2012 05:05:00 +0000

With rapid increase of high net worth individuals (HNWI), India has emerged as an attractive market for wealth management. The latest entrant is Ameriprise , the largest financial planning company of the US. The 117-year old company has a client base of over 2 million in US.

At present, the company manages assets of over $600 billion through its mutual funds and life insurance companies in US and Europe. However , in India, it will start operation with financial planning for individuals having annual income of over Rs 20 lakh.

Most of the large companies that are operating in the financial planning space are either banks, life insurance companies or mutual funds. Ameriprise will be the first multi-billion dollar company which will operate only in financial planning space in the country. "This shows our commitment and seriousness to financial planning space,'' said Kim M. Sharan, president - financial planning and wealth strategies.

"With its trilliondollar economy, India is not only an important market from a business perspective, but also one where our unique approach to planning could truly transform the way consumers manages their finances," said James M Cracchiolo, chairman and CEO of Ameriprise Financial.

Sharan said, "As a financial planner we give complete solution to our clients so that they can meet their requirements when they arise.'' On the issue of slowing down of the economy and poor returns of the investments from the various class of assets, Sharan said when the market is not performing , investors need advises to maximize their returns. When the market is going up, anybody can make money and advisors are not required.

Chairman of Ameriprise India Bimal I Gandhi said to begin with, the company would start its operations from Mumbai and Delhi. Later it will expand its operation in the other parts of the country. Gandhi said before starting its operation, it has customized various models of investments . It would not copy the American model for Indian market, he said.

Source: http://timesofindia.indiatimes.com/business/india-business/US-based-financial-planning-major-enters-India/articleshow/11456573.cms

Optimism won't come back in a hurry: Anand Shah

noreply@blogger.com (Mutual Fund India) — Wed, 11 Jan 2012 05:36:00 +0000

The next three months would continue to be challenging for Indian shares, but there is a possibility of positives emerging from both local and global markets thereafter, says Anand Shah, chief investment officer at BNP Paribas Mutual Fund, in an interview with Mehul Shah. Edited excerpts:

Looking at the domestic and global events, where are the markets headed for in the next six-nine months?
From the last year to this one, while the challenges on the macro front remain, valuations have turned favorable. However, valuations alone cannot be a trigger for the markets to rally. Beyond three-six months, there is a possibility of positives emerging from both local and global markets. On the global front, we expect the uncertainty surrounding the European crisis getting resolved to a certain extent. On the domestic front, inflation is expected to decline, leading to interest rates being cut, along with measures taken by the government (we will have a Budget in between) to kick start investments and keep the consumption momentum going. In short, the next three months would continue to be challenging. But, given the current valuations, investors looking at India from a 5-10 year perspective may want to start investing.

What key positives are you expecting for the markets in the next few months?
We are not really expecting the optimism to come back in a hurry. But, one needs to be watchful about when the pessimism peaks. That would be the first step when the market would stop falling and show the first bounce. Because, today, the news flow, be it the local or the global front, isn’t getting better. We do not have a specific time horizon, but eventually, interest rates are expected to fall. Commodity prices should fall. Oil and metal prices should fall. That’s when the Indian consumption story will start kicking again. As the environment globally gets stable, even the foreign funds will start trickling in.

Analysts have been cutting the Sensex earnings estimates for FY13 and there could be further downward revisions. Do you think valuations have become really attractive?
Definitely, the markets are not at rock bottom valuations. While they corrected last year, we have segments that have appreciated and became more expensive. So, overall, price-to-earnings (P/E) ratios have not shrunk to levels for us to say we are at the extreme bottom. At the same time, the earnings downgrade cycle continues. So, while we are optimistic from a 6-12 month perspective, it doesn’t mean the market can’t correct further, given there is a room for valuations to shrink.

Which sectors you are betting on right now?
We like select companies and segments within the consumption space from a longer-term perspective. For example, telecom, which has continued to do well on the volume front, has now the pricing also looking up. Private sector banks and a few non-banking financial companies (NBFCs) that have their non performing assets under control may do well if interest rates were to fall.

Within the FMCG space, we are looking at some companies that have a significant pricing power, especially in the consumer staples space. We also like quite a few consumption companies, where the raw material pressures are coming down. With the depreciation in rupee, there may be segments within information technology (IT), pharmaceuticals, textiles that would benefit. There are stock picking opportunities in this market and we are trying to benefit from them.

Given the severe correction in stock prices, do you think there are opportunities for investors in the capital goods/engineering/infrastructure space?
Even as there are no blanket opportunities in the infrastructure space, there exist selective ones. Very clearly, what’s happening in the infra sector has a lot to do with the slowdown in the government or private capex, along with debt on their balance sheet, rising interest rates, global uncertainty, environmental issues, rising commodity prices, etc. Hence, a variety of factors have led to the correction in stock prices.

So, we are looking at all the factors that may have hurt the sector. We are definitely looking at select utilities and companies with assets on ground. Quite a few road projects look interesting.

Which kind of sectors/companies are a strict no-no in this environment?
Very clearly, we don’t like companies with stretched balance sheets — those that are undercapitalised and would need to raise money in this market. Such companies would be avoided at this point in time. Within sectors, we are looking at global commodities which are off our list. We have minimal exposure to metals. We are very selective within the banking space. Real estate is another segment we do not have exposure to. Also, companies with a huge exposure to capex cycle, like capital goods, are off our list.

Source: http://www.business-standard.com/india/news/the-optimism-wont-come-back-inhurry-anand-shah/461397/

MFs want breather amid spate of regulatory changes

noreply@blogger.com (Mutual Fund India) — Wed, 11 Jan 2012 05:32:00 +0000

Consistent regulatory changes over the past few years have started taking a toll on the Indian mutual fund industry. Though, most executives at fund houses admit that the steps are aimed at growing the industry, they complain in private that "there is no breathing space left ".

Earlier, soon after taking over as chief executive at Association of Mutual Funds in India (Amfi), HN Sinor had acknowledged the fact that regulatory changes were "too many and too soon", making industry unsettled.

"We have an astute regulator who understands the problem of industry and is concerned how to grow it. But problem lies when new circulars are issued and we wonder how to go about it," says chief executive officer (CEO) of a mid-sized fund house, who did not wish to be named.

UK Sinha, who took over Sebi's chairmanship last year in February, headed UTI Mutual Fund as CMD.

Adds another fund manager. "We are grappling with changes which have come in a very short span of time. The changes have thrown the whole industry's business model out of gear. We are trying to acclimatize with the new norms but it needs time and (we) cannot expect overnight improvement," he says.

Abolition of entry load on equity schemes was the turning point making distributors wary of selling MF products. Thereon followed stringent KYC norms, new debt valuation norms on weighted average market price, due-diligence of distributors, guidelines on transaction charges, mandate to banks to reduce their exposure in liquid funds to not more than 10% of their networth, KYC norms for foreign investors and the consolidated account statement.

Other chief executives, Business Standard spoke to, say it is hard to keep a count of changes. "I get confused amid so many changes and cannot keep track of them at a given point of time," explains a restless top official.

To a large extent it sounds true. For instance, different versions, conflicting interpretations, lack of understanding whenever Securities and Exchange Board of India (Sebi) puts up a circular has become too often. One of latest norms of single account statement is a clear example when fund managers had conflicting interpretations of the circular.

Industry's top CEOs, in a recent meeting with Sebi, requested that instead of continuous regulatory changes, a proper road map should be drawn up so that the industry is aware of the shape of things to come.

According to Dhruva Chatterjee, senior research analyst at fund tracker Morningstar India, "Fund managers are feeling the heat because of the bad year for equity markets and mutual funds. Most of the regulatory changes are in favour of investors. Primarily, barring a few, all are on marketing and distribution front which have hit the balance sheets of several fund houses."

Industry needs stability in terms of regulations rather than issuing circulars one after another, says CEO of one of the oldest fund houses. There should be cajoling and hand holding as these are initial times for the industry to grow, he further adds.

Another issue which fund managers cited and have recently apprised the regulator too is discussing the pros and cons before issuing statements. "Once circular is issued, it is hard for the regulator to take it back for whatever reason. Our point is, industry should be told and discussed with before any regulatory changes come up," he says.

Source: http://business-standard.com/india/news/mfs-want-breathing-space-amid-spateregulatory-changes/154893/on

Investing in fund of funds

noreply@blogger.com (Mutual Fund India) — Mon, 09 Jan 2012 05:01:00 +0000

When markets behave like they have in 2011, the one who loses less is called a winner. Fund of Funds by their very design are meant to lose less. Still, only 1 per cent of the Indian mutual fund industry's AUMs are made up of Fund of Funds (FoF). One would think there must be a good reason for it. Actually, allow me to give you three. But first, what is a FoF?

At its simplest - a mutual fund that invests in other funds is a fund of funds. Conceptually it does what you do, create a portfolio of funds. The difference being, when you buy funds yourself, you buy them individually and hold and track them separately, while when you buy a fund of funds, you hold just one fund which in turn holds other mutual funds inside it.

Coming back to the reasons; first is plain boring mathematics. Because it holds many funds in it, a fund of funds will not deliver performance equal to or better than the single best performing fund that it has invested in. The return of a fund of funds will always be closer to the weighted average returns of the funds it has invested in, quite like the return of your own portfolio of funds.

And by the very same logic, a FoF will not go down as much as the worst performing fund it holds inside it. For this very reason, fund of funds are known to give superior risk adjusted returns.

Secondly, FoF until very recently were perceived as competition by distributors. If one single fund of funds itself can buy, hold, sell, over-weight, under-weight the funds it invests in, then how will a distributor add value to the investor. This misplaced perception has begun changing in the last one year. FoF AUMs have more than doubled in the last 15 months to over R 8,000 crore as of Oct'11.

Thirdly, the larger share of fund of funds currently available in India actually invest in funds of only their own fund house. This limits the diversification benefits an investor aims for when he himself buys mutual funds from different fund houses. Globally, several fund of funds pick the best of breed funds from across different fund houses and put them together into one. These are called Multi Manager fund of funds. It's like putting together the best cricket players from across the world into one team.

Fund of funds bring several advantages too. Briefly, it's a great way to start investing into mutual funds for a first time investor. No need to worry on how to pick, retain or change a fund. If you are an SIP investor, just a Rs 1,000 SIP could actually give you access to 4-5 best of breed managers in one funds of funds Vs you having to take out Rs 1,000 minimum subscription for every manager you will invest in separately by yourself.

And for those who already hold too many funds and see managing them a hassle, they too can simplify and consolidate their holdings through a fund of funds, as long as they can find one that is similar in objectives to the funds they hold. And the good news is that options do exist.

Amongst the least known but significant advantages of a fund of funds is the short term capital gains tax that you can save. If I assume that you do change some if not all the funds you hold at least once within the first 12 months of investing in them, the gains you make on them become taxable.

However, when a fund of funds manager changes any fund it has invested in, there is no tax liability that

accrues on to you.

Now if you combine all of the above benefits, it becomes easier to appreciate the rapid growth of FoF in India recently. FoF are now available here for single asset classes and for multiple asset classes too. Globally, fund of funds are often preferred by super HNIs for just two reasons - their superior risk adjusted returns and equally importantly, their convenience.

Source: http://www.indianexpress.com/news/investing-in-fund-of-funds/897338/0

Link for AMFI refresher or CPE program

noreply@blogger.com (Mutual Fund India) — Sat, 07 Jan 2012 06:08:00 +0000

Kindly click the below mentioned link to have details about the Training program for NISM CPE Program being conducted across India at various dates:

http://ciel.co.in/index.php

You will find Training calendar at left side bottom of the web. Just click on alert me and get registered you self for CPE program.

Mutual funds’ AAUM falls 4.35% in Q3

noreply@blogger.com (Mutual Fund India) — Sat, 07 Jan 2012 06:00:00 +0000

The Indian mutual fund industry saw fall of over 4.35% in its average assets under management (AAUM) for the October-December quarter following a lack of participation from retail investors.

According to data from the Association of Mutual Funds in India (AMFI), the total AAUM of 44 fund houses at the end of the October-December quarter stood at R6,817,07.83 crore, a fall of R31,033.89 crore against R7,127,41.73 crore for the July-September quarter.

HDFC Mutual Fund continued to retain its number one slot with an AAUM of over R88,628.02 crore. However, its AAUM for the December quarter was down by 3.48% against that in the previous quarter.

According to Crisil, as many as 24 out of 44 fund houses logged a fall in the average AAUM in the December quarter with Reliance Mutual Fund registering the highest fall in average AAUM in absolute terms by around R8,354.79 crore or 9.22% toR82,305.80 crore in the December quarter.

SBI Mutual Fund saw its average AUM falling by nearly R6,179.88 crore or 12.95% to R41,551.51 crore in the latest quarter. In percentage terms, Union KBC Mutual Fund saw the highest fall at around 37.87% to end with assets of R54,015 crore.

Among gainers, JP Morgan Mutual Fund registered the highest growth in average AUM, with its AUM rising R2,011.02 crore or 42.36% in the quarter to R 6,758.71 crore.

Deepak Chatterjee MD and CEO of SBI MF says, “Overall, the trend in the assets is declining, which is very dissatisfying and distressing. Also there is no fresh money flowing into the equity schemes , following weak equity markets. We are witnessing some growth on fixed income side, where retail investors are coming in fixed maturity plans (FMPs), but in the last few months they have remained out of equity funds.”

Crisil in its reports also states that mutual funds AAUM was down by 4.4% in Q42011 on withdrawals by corporates, banks and weak equities. The fall can be attributed to redemption by corporates and banks besides the ongoing slide in the equity market.

“Corporate withdrawals were on account of quarter-end advance tax payments, which were reported at around R30,000-40,000 crore for the December quarter, much lower than R68,000 crore in the September quarter. As per inflow-outflow trends seen in the past, corporates typically reverse these outflows in the month following the quarter end,” says Crisil report.

The report further adds “Banks withdrew due to two reasons; on account of balance sheet capital adequacy requirements for the quarter end and secondly due to Reserve Bank of India (RBI) circular to reduce banks’ exposure to short maturity mutual funds to 10% of their net worth by end-January 2012.

Banks’ investment in mutual funds fell to R49,300 crore as on December 16, 2011 as compared to R65,800 crore as on September 23, 2011.”

Source: http://www.financialexpress.com/news/mutual-funds-aaum-falls-4.35-in-q3/895878/0

Foreign investor participation likely to be limited: Experts

noreply@blogger.com (Mutual Fund India) — Sat, 07 Jan 2012 05:58:00 +0000

After allowing qualified foreign investors (QFIs) to invest in equities indirectly through the mutual fund (MF) route in August, the government on Sunday paved the way for QFIs to invest in Indian equities directly as well. Individual QFIs will soon be allowed to invest up to 5% of the paid-up capital in any company and up to 10% of the paid-up capital on aggregate basis (all foreign individuals put together). These limits are over and above the cap earmarked for foreign institutional investors (FIIs) and NRIs who can directly invest in the Indian equity market.

The government hopes that the move will help in widening the class of investors and reduce market volatility. It also hopes to attract more foreign funds. Amid slowing economic growth, FIIs pulled out as much as around Rs 2,800 crore in 2011 from the Indian stock markets.

Will QFIs invest?
Experts are of the view that the step is in the right direction but it would only have a meaningful impact in the long run. "A big chunk of investment in the stock market is driven by perception," said Aseem Dhru, MD and CEO, HDFC Securities Ltd. "Due to a slowing economy and lack of policy initiative, the perception about India is not very bullish overseas. Hence, not much investment will be made in the short run. But as Indian growth story is likely to attract investors in the long run, the move may counter the volatile behaviour of FIIs."

"Investment by foreign nationals would depend upon the way Indian growth pans out," said Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities.

The limited impact the move may have in the near term can also be gauged from the fact that none of the MF firms have taken any initiative to expand their reach outside India despite government allowing QFIs to invest in equity schemes of MF houses last year. And probably this is the reason why the capital market has not reacted much to the news.

The other factor that could deter foreign investor from investing in India is exchange rate fluctuation. "While, it is relatively easier to evaluate a particular company, predicting currency movement would not be easy," said Vinay Agarwal, executive director, equities brokerages, Angel Broking Ltd.

Source: http://www.hindustantimes.com/business-news/Features/Foreign-investor-participation-likely-to-be-limited-Experts/Article1-792461.aspx

2012 will be a good year for debt funds: Dhirendra Kumar, Value Research

noreply@blogger.com (Mutual Fund India) — Fri, 06 Jan 2012 05:11:00 +0000

In an interview with ET Now, Dhirendra Kumar , CEO, Value Research, shares his outlook for mutual funds. Excerpts:

2011 has been a sort of write off for equity investors. What should they be doing with their fund portfolios right now? Is this the time for a cleanup and if yes, which funds should be done away with?

No, I do not think investors should be behaving in an erratic manner because one is faced with a declining value of the scale. One has to look at it, one should not lose the sense of proportion here. If you look at funds on an average, in fact 2011 was a year of contractions because we normally expect that large caps will be able to withstand a market decline much better followed by midcaps and small caps will see a massive erosion.

What we find is that small caps and midcaps were able to withstand the market decline much better than the large caps and large caps on every possible occasion or they were looking for an excuse to fall primarily because most of the big declines in a brief period came from FII actions. So that impacted large caps and that was visible.

That is why we see a little difference but investors need to really take lessons from 2011. If investors sided with funds, the emphasised funds in their portfolio which were not mainstream, for example the most popular fund in 2010 was the banking funds. Likewise in the year before that, investors still kept patience with an infrastructure fund which showed no symptoms and people are expecting for the good time to be back with those.

Investors have not exited these funds as aggressively as they should have in the hope that they will be able to recover even the money which came before 2008, that money stays there. So keeping away from anything which is stylish, fashionable and has lost its charm, investors need to really get out of those, but with a mainstream fund, it is time to stay on course and investors have largely remained that way. It is reflected in the consistent inflows into equity fund through 2011.

Whereas there is a serious case that via equity allocation, they need to be increased for 2011. Is there a case to also increase allocation to debt because if interest rates they correct which they will in 2012, debt funds will also surprise you?

Yes, it is going to be another good year for debt funds. Of course internal dynamics of debt funds will change. It will be unreasonable to expect the same kind of return what investors got from the liquid fund or the short term fund or the ultra short term fund. Those returns are unlikely to be met, but what I feel is that income funds will come on the forefront.

There will be an appreciation component and that gain will start or has already started in a certain sense with the change in outlook for the interest rates, but I do not think investors should behave, Indian investors typically they work in a fairly binary fashion. They either are fully into equity or fully into debt.

That is very undesirable way of allocating because you normally do it at the wrong time. Once the equity values are down, then you move to debt. I do not think one should behave that way. Fixed income should be part of anybody's allocation, but should one be heavily into debt because there are good times ahead? No, equities turn around when you least expect it and be prepared for the unexpected.

The positive surprise last year came in from global schemes run by several AMCs like a Birla Sun Life International gave an 8% return in 2011. How much allocation should investors have to such funds in their portfolios considering that local markets are likely to remain bearish at least towards the start of this year?

International funds do present a case and the fundamental case for international fund is that the reason why you invest in a mutual fund is to diversify and with these funds, you will be able to diversify across geographies. It just takes one step ahead. But the problem has been that the kind of funds available to Indian investor, the absence of a diversified vehicle.

We hardly have only the Birla Sun Life or the Principal Global Opportunity Fund. They are the only diversified vehicle. Otherwise everything is something exotic. You get a Brazil fund, you get a Latin America fund or you get specific geography or specific commodity, agriculture fund and things like that.

The absence of generic diversified vehicle which helps investors diversify across geography is not available, but it presents. Why it has not taken off so far in all these years, they have been available. Because Indian markets have done consistently well, have been through a bull phase ever since these were made available, but 2010-2011 is a reminder that you need to diversify and it could well be up to 25-30-40% and not necessarily from the viewpoint that outlook is bleak for India. It should be a fixed component. You just need to diversify for your returns to be more consistent.

What about gold ETFs because they have jumped a good 31% last year? What should be the percentage in the total corpus when gold has already surged each year for the past 11 years?

It was very difficult to resist gold and it should be a very small component, not exceeding 5-7%, but so far it has been that investors, what to see of investors even politicians in Tamil Nadu had needed gold in their manifesto to win.

Source: http://economictimes.indiatimes.com/opinion/interviews/2012-will-be-a-good-year-for-debt-funds-dhirendra-kumar-value-research/articleshow/11375646.cms