Mutual Fund NEWS Group: March 2011

Thursday, March 31, 2011

2011 should be the year of infrastructure sector: Nilesh Shah, Axis Bank

Paper stocks are going up after the AP Paper deal. Nilesh Shah, President, Axis Bank , speaks with ET Now on the trend and gives a list of sectors he thinks are a good bet for investment. Excerpts:

It is a small sector, but look at paper stocks the way they are going up after the AP Paper deal?

It is a classical trade where a strategic investor comes to buy a company and he pays a huge premium over the market price. He pays a non-compete fees to the promoter and then suddenly the investor realises that oh my God, the market was not valuing them properly and it tries to correct. Over a period of time obviously this company's share price will again come down because the market is a trading investor whereas the person who is buying the companies is a strategic investor. There is going to be difference between those two sets of investors.

What about the overall market though? What is the market so upbeat about at 5700 plus levels?

It is a combination of factors which is probably driving the market. It is always difficult to predict the short-term trend in the market, but during the budget time, I was bullish on the market based on the fact that everyone else was so bearish on the market. Very rarely I go right in the short term.

On the global side, in the US there are worries what happens after QE2 ends. There are worries whether the borrowing limit for the government of United States will be raised or not, will that result into disturbance in their market? If we come to Europe, the political issues in Portugal have again brought back the issues of sovereign defaults. The rating downgrades in the European community continue to occur. In Japan, we know what is happening unfortunately.

So if you put all these things together, suddenly you look at India and here the doubt is whether we will grow at 8% or 8.5%. Here the worry is on inflation which is running at 8%, but the growth is at 8% unlike in the UK where growth is at 2% and inflation is at 4%. So somewhere investors have now realised that probably it is worth investing in India where there is concern on the growth, but it is of 0.5% between 8% and 8.5%. There are worries on inflation, but the central bank is trying to do something to control it and the growth is still pretty robust, valuations are reasonable and we have seen over just last couple of days, reasonably good amount of buying on the cash market side as well as futures and options side. So all these things put together, the fundamentals which are there for to be seen and the flows which are improving and the supply which has not yet emerged, all combination has pushed the market up.

Are you surprised with the bout of liquidity Indian markets have experienced in the last 4 or 5 days about the billion dollar plus? That is large by any yardstick.

No, I am not surprised at all because if you see the behaviour of FII investors in 2010, we received one of the highest ever allocations above $30 billion in 2010 and most of the money came in chunks of just 4 months. So this kind of seasonality in terms of flows, where suddenly one set of investors realises that India is looking attractive, there are not many alternatives available and they all pump the money in. So we will have to bear with this kind of chunky investment and especially when fundamentals are with you and valuations are with you, there is no surprise that FII flows are turning around.

Fundamentally, which are the pockets sectorally looking the strongest to you, could it be banks, IT, what would it be?

IT will have to face the heat of the rising rupee. The rupee has appreciated on the back of FII flows and probably some year-end consideration whereas the banks provide a very good opportunity for investment. They are in a sector where regulator is very very solid, the fundamentals are pretty good and in the emerging market parlance, we have seen that banking and financial sector generally grows at a multiple of the GDP growth. So if GDP has to grow, banks and finance have to grow much faster than that. So you have earnings growth as well as potential re-rating and the possibility of what happened in western world in 2008 credit crisis is unlikely to repeat over here. A combination of that makes the banking sector fairly attractive.

I remember your big call for the year 2010 was to buy telecom stocks. What is your big contra call now for the year 2011?

What worked in 2010 was contra telecom call and what did not work was the infrastructure sector, especially related to construction, engineering and capital goods. I still believe this year the infrastructure sector related to construction, capital goods and engineering will probably work out. If we see in the month of February, where six core sector industries' growth numbers have come, they have come fairly positive. This is in contrast to the IIP numbers which are soft. So somewhere probably it is a harbinger to the fact that the core infrastructure sector is reviving.

It is no-brainer that unless until India invests in infrastructure, the solid growth story cannot be sustained. We need to invest in infrastructure. There is no debate about it. So somewhere what we liked was in terms of execution capability and this was partly compounded by the prevailing very tight liquidity, partly compounded by environmental clearances and bureaucracy and lack of immediate execution on the ground. Now the demand is there, the liquidity is easing off, ECB is being made available and hopefully something will happen on the execution side which in turn will make this sector positive from investors' point of view and then suddenly we could see re-rating as well as earnings growth in this sector. So 2011 should be the year of the infrastructure sector.

So let's divide the infra space into two or three large pockets. Within the infra space, what do you like, do you like builders, asset owners or machinery makers?

We will have to create a bottom up analysis over there. There are certain construction companies which have really come down heavily, their order books are not getting converted into actual turnover and their margins are getting squeezed because of cost push inflation. The market has discounted most of the negatives about them and that could be surprise. Not all construction companies will deliver return, but if you choose your construction companies well, certainly there will be opportunity. Similarly, there could be certain asset owners which have been discounted or neglected by the market.

What is your view on NBFCs? Do you like NBFC stocks? If yes, which NBFC business to your mind looks attractive?

I think it is difficult to kind of go on this sector as a subset of banking and financial services sector. We have seen many NBFCs blowing out in the past because of aggressive business practices. Experience has taught us that you have to invest in companies which are very very conservative. If they are showing fast growth, it probably is coming at the cost of NPAs in future and try to avoid them. Go for companies which have gone through the cycle and who are very very conservative. Within that space you have various businesses which are niche and which gives solid return on equity like two wheeler financing, like rural financing. So there are hosts of NBFCs which are available, but only one factor which investor is to keep in mind that they should be conservative and not aggressive risk takers. If they are growing too fast, be suspicious about it.

Many of the midcap names have been witnessing high delivery base buying. Would you say that the midcaps in the near term or rather in the long term have more upside vis-a-vis the large caps?

If we see the performance of midcap indices over large cap indices, on a longer term basis midcaps have done far better than large cap and small caps have done better than midcaps. However, this performance comes at a reasonably high cost in terms of very few winners which actually make this happen and there are as many losses. So when you are buying into midcap stocks, try to be as diversified as possible rather than concentrated. While it make sense to be concentrated, but in the hindsight only people can figure out which are the winners and which are the losers. For an average investors it is far better to have a diversified portfolio in midcaps rather than concentrated bet.

The second thing, time to buy midcap is when everyone else is selling and when midcaps are available at a discount to the large cap, which is the current situation. Today the midcaps are available at reasonable discount to large caps of about 28% to 30% and this is the time to add madcap. Do not be an aggressive buyer. Buy when markets are falling rather than when the markets are rising, but this is the time and the increase in the delivery of midcap shares is kind of showing that smart money is already accumulating midcaps stocks while the market is focussed on large caps, it is time to go for the next winners and that is available in the midcap space.

Are there any individual pockets that you may have identified in the midcap space?

I cannot comment on a stock basis, but I think the companies where the management has a good track record, they are not too much dependent upon debt and who are generating free cash flow and who are giving generous dividend. If you apply the standard sets of principal you will find enough opportunities within the infrastructure space and other related space.

Tell us the sectors?

I think in construction companies it is worth paying to be contra. In capital goods and engineering it is worth paying to be contra. In technology space if you can find the niche companies which are focused on certain segments of business and which are available at, let's say, less than ten times forward earning, I think they are worth investing right now.

In your new avatar as the President of Axis Bank, are you telling your HNI clients to still buy ICICI Pru Mutual Funds or now the option is open to buy other mutual funds also?

It is a tough question, but obviously as a distributor of products, we are open to all mutual funds. ICICI Prudential Mutual Fund will be always there in my heart, but as a professional I have to work with my brains and will be open to all the manufacturers whosoever is the best for our client, we have to sell that.

Broadly speaking for the year 2011, would you buy companies which are commodity owners or would you buy companies which are commodity consumers?

I will be more biased towards commodity consumers. We will see fair amount of volatility in commodity stocks and even if they make money, the market will not give as much value to them. So if you can move towards the commodity consumers I think that cycle is going to play out well and which is where I am saying that one should focus now on the infrastructure sector. They have taken the worst hit in terms of liquidity, in terms of cost push, in terms of execution delay, in terms of demand restrictions. Now probably all these things are about to turn. Demand is there, execution delays are going to get resolved, liquidity is coming back and hopefully cost push inflation except for salaries and wages may also come under control. Put all these things together, commodity consumers probably are a little bit more biased toward commodities.

One sector which surprised everyone on the upside for the year gone by was the entire consumption space. Your thoughts on that?

I think consumption has done extremely well, because of the fiscal incentives provided by the government during the 2008 crisis. Thereafter it was supported by the farm loan waiver and the rural side NREGS on the rural side. It was also related to pay commission hike to the government employees and then overall private salaries also jumped up significantly. We have seen one of the situations where monetary policy was loose, fiscal policy was loose, it resulted into consumption stocks doing well and today consumption stocks are available at a very very high valuation. Partly this valuation is also reflecting the limited flow which is available in these companies. Putting things together, yes, on a longer-term basis, the consumption sector looks good, but valuation looks expensive.

Source: http://economictimes.indiatimes.com/opinion/interviews/2011-should-be-the-year-of-infrastructure-sector-nilesh-shah-axis-bank/articleshow/7824291.cms

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Hedge funds find India toughest BRIC to crack

Hedge funds are finding India the toughest BRIC country to beat consistently in falling stock markets, raising questions if the high fees they charge for all-weather outperformance is justified.

Profiting from short-selling, or when share prices fall, is a key factor that differentiates them from traditional funds and allows them to charge much higher fees.

But India-focused hedge funds have fallen more than the country's benchmark Sensex index in nearly one third of the 40 negative months recorded by the index since 2002, a study by the New York-based industry tracker HedgeFundNet (HFN) shows.

By comparison, Brazil and China funds have underperformed only in two and three down months, respectively, although their benchmark indices have recorded more down months than India. Russia funds have underperformed only in two down months.

The failure to deliver in down markets can hurt growth prospects and make investors question the performance fee of about 20 percent and management fee of 2 percent charged by hedge funds. Traditional funds only charge management fees.

"I think the Indian hedge funds really have to re-prove themselves," said Richard Johnston, head of Asia-Pacific at hedge fund advisory firm Albourne Partners.

Grouped under the 'BRIC' moniker coined by Goldman Sachs' Jim O'Neill in 2001, Brazil, Russia, India and China have gained popularity in recent years as an asset class.

Reliance on relatively more volatile mid-cap and small-cap stocks to generate outperformance, long portfolios and limited shorting opportunities are factors behind the underperformance of India-focused hedge funds, portfolio managers said.

"Part of the reason is structural because India does not have dedicated stock lending mechanism to facilitate shorts," said Mumbai-based Vijay Krishna-Kumar, advisor to TCG IndiaStar hedge fund that has about $50 million under management.

His fund, founded by ex-Soros adviser Purnendu Chatterjee, was down 1.64 percent in January, compared to the 10.6 percent drop in India's benchmark share index that month.

Fund managers also lack experience in shorting, or betting on falling share prices.

"Stylistically, Indian managers don't know how to short," Kumar said. "They are usually from the mutual funds world so they don't really understand the short side very well."

MID-CAPS' LURE India-dedicated hedge funds managed about $3.9 billion at the end of June 2010, some $5 billion short of their pre-crisis level, after losing about 50 percent in 2008, according to data from industry tracker AsiaHedge.

With about 5,000 listed firms and only about 650 of them covered by research analysts, according to data from Thomson Reuters StarMine, mid-caps in Asia's third-biggest economy still present a fertile hunting ground for tomorrow's bluechips.

However, while they have rewarded funds in a booming market and lured portfolio managers to bet on them, mid-caps have also led to sharper losses in falling markets.

For instance, the BSE Mid-Cap index lost 67 percent in 2008 when the Sensex was down 52 percent. So far this year, the mid-caps have lost almost twice the loss in large-caps.

"Traditionally hedge funds have obtained alpha by mid-cap investments in India and in a down market the mid-caps just get battered," a Singapore-based India-focused hedge fund manager said, but declined to be named.

India has about 220 single stock futures which can theoretically help hedge fund managers short and protect the downside but often they do not cover their entire mid-cap and small-cap exposures.

"You can't protect a multi-cap portfolio by using Nifty as a short," the hedge fund manager said.

Most hedge funds get their exposure to Chinese stocks through the sophisticated H-share market in Hong Kong.

China also launched index futures and allowed short-selling for the first time last year, enabling investors to profit from falls in stock prices and paving the way for the emergence of hedge funds.

CHINA, INDIA VS RUSSIA, BRAZIL Even when India-focused hedge funds outperform in a down market, they lag other BRIC peers, said Peter Laurelli, vice president of research division at HFN. But they tend to underperform by the least amount during up months, he added.

Funds focused on Brazil and Russia, countries that are more heavily influenced by commodity markets, do well in down markets but fail to show similar outperformance in up markets, according to HFN.

"...For China and India, two countries more heavily influenced by consumer demand and technology sectors, funds underperformed by the least during up-markets and outperformed by the least amount during down markets," Laurelli said.

Source: http://articles.economictimes.indiatimes.com/2011-03-29/news/29358079_1_hedgefundnet-hedge-funds-fund-advisory-firm

AMFI to soon launch campaign to tap potential customers

The mutual fund industry, which boasts of assets of nearly Rs 7 lakh crore, has aggressive plans to reach out to the vast number of untapped potential investors. The soon-to-be-launched campaign will see it demystify capital markets and mutual fund industry in investors' mind.

The Association of Mutual Fund Industry (AMFI) is to come out with its media campaign soon, perturbed by the fact that amid the growth of other financial investment products, growth of mutual fund industry has more or less remained stagnant.

AMFI, is the umbrella body representing over 40 asset management companies (AMCs).

AMFI had earlier planned to launch its media campaign during the first few months of the year, but given the on-going cricket world cup, which will be quickly followed by the Indian Premiere League (IPL), it postponed the launch till the completion of the IPL.

"The advertisement campaign will purely be from the AMFI's side. It will not be fund or scheme specific. We will focus on mutual funds as a product and will try to demystify what a mutual fund is, so that we can bring more investors in the forum. We had planned to launch this on the television, but because of the world cup followed by the IPL, we realised that this is not the right time to go ahead with the launch. After the IPL, we would come out with our media advertisement," said an AMFI official.

So far, individual fund houses have been advertising their products through print and electronic media but in vain. "We have all along been concerned with a major issue of how to grow the market. Across the financial services sector, products such as insurance and those offered by banks have grown. But mutual fund industry is more or less static. In fact, it has de-grown if we consider by the assets under management over the last two years," the official added.

Out of the over 100 crore population, "we have less than a crore unique mutual fund investors. Though potential is enormous, how to reach out to these people and sell them the product is essentially an issue. Moreover, issue is largely around the retail participation and that too around the equity segment," he said.

After the entry load ban by the Securities and Exchange Board of India (Sebi), fund industry continued to bleed, as it could not garner fresh assets in the equity class. The MFs continued to lose number of investors which impacted the equity assets too. As on February, the equity asset under management has reduced to below Rs 2 lakh crore against the overall industry's assets of close to Rs 7 lakh crore.

"Through our campaign, we need to make investors understand that this is not a race-course. If you (investors) have additional disposable surplus which can garner better returns, one should look at mutual fund as an asset class," the official further added.

Source: http://www.business-standard.com/india/news/amfi-to-soon-launch-campaign-to-tap-potential-customers/430103/

Saturday, March 26, 2011

Daiwa Mutual Fund floats Government Securities Fund-Short Term Plan

Daiwa Mutual Fund has launched Daiwa Government Securities Fund-Short Term Plan, an open-ended gilt fund.

The scheme seeks to generate income and capital appreciation by investing predominantly in sovereign securities issued by the central government (including treasury bills) and/or by state governments, with maximum average portfolio maturity of three years.

The new issue closes on 30th March. The minimum investment amount is Rs10,000.

I-Sec Si-bex Index is the benchmark index. Killol Pandya is the fund manager for the scheme.

Source: http://www.moneylife.in/article/daiwa-mutual-fund-floats-government-securities-fund-short-term-plan/15075.html

Finally, Indiabulls, IIFL and UBI get MF licence

Markets regulator The Securities and Exchange Board of India (Sebi) has given a final approval to Indiabulls Financial Services, India Infoline and Union Bank of India-KBC Asset Management to start their mutual fund business, said two people familiar with the development.

Indiabulls and India Infoline had applied for a mutual fund licence in 2007 and 2008, respectively. Union Bank had applied in 2009. "We have received an approval from Sebi to start the mutual fund business," said Nirmal Jain, chairman India Infoline. "We will be launching our products in the next two months. We will be looking to launch index and ETF products," added Jain. Currently, Sebi has around 23 pending mutual fund applications with Sebi.

On March, ET had reported about pending mutual fund licences with Sebi. According to people familiar with this matter, the regulator was not comfortable in granting licences to financial services companies. It is understood that Sebi's whole-time director Prashant Saran has expressed concerns over granting mutual fund licences to non-serious players.

The mutual fund industry is currently seeing a 9% growth with close to Rs 6.2 lakh crore of assets under management. The new entrants in the mutual fund industry feel that India's asset management industry is underpenetrated and doesn't even constitute even 10% of the GDP. But companies are also witnessing exits by HNIs from mutual funds to other short-term investment opportunities.

Many new entrants in the mutual fund business had burnt fingers in the 2008 financial crises. Regulatory challenges, like the entry load barrier, were also seen as deterrents. But this March, new Sebi chairman UK Sinha had removed the entry load barrier which many fund houses see as a boon. But companies, like India Infoline, feel that the mutual fund is a long-term business and India, with a GDP of 9%, is a huge growth proposition.

Source: http://articles.economictimes.indiatimes.com/2011-03-23/news/29178477_1_fund-mf-licence-asset-management-industry

Wednesday, March 23, 2011

LICMF Infrastructure Fund to be converted into an Open Ended Equity Scheme

LICMF Infrastructure Fund which was launched as a 36 month, close ended equity scheme is being converted into an open ended equity scheme with effect from 24 March 2011.

All the provisions pertaining to close ended scheme shall cease and those pertaining to open ended scheme as applicable for other existing equity schemes shall become effective from the effective date. The units of the scheme shall be available for continuous sale and repurchase on all Business Days at NAV based price on an ongoing basis.

Pursuant to the conversion into open ended equity scheme, the following changes will come into effect.

The exit load charge will be 1% if exited within 1 year from the date of allotment of units and nil if exited after 1 year from the date of allotment of units.

The minimum investment amount will be Rs. 2000 and thereafter in multiples of Rs. 1 except in case of SIP where the minimum amount would be Rs. 100

Source: http://www.indiainfoline.com/Markets/News/LICMF-Infrastructure-Fund-to-be-Converted-into-a-Open-Ended-Equity-Scheme/3614780708

Birla Sunlife MF, HDFC MF, Reliance MF and Franklin Templeton offer payouts to retain investors

Fund houses are attempting to woo flighty investors by offering handsome dividends, with the market trading flat over the past one year. Fund houses such as Birla Sunlife Mutual Fund, HDFC MF , Reliance and Franklin Templeton have announced dividends ranging from 15% to 20%, in an effort to incentivise investors and persuade them to retain money in existing schemes.

Much more than the current market, it is the year-ago (2009-2010 ) market rally that is helping mutual funds to dole out higher dividends to investors. The ' dividend cushion' that funds created in 2009-2010 - when the stock market more than doubled - is helping fund managers pay dividends in 2010-2011, when the benchmark Sensex returned just over 1.4%.

"Even though the market returned over 100% last year, fund houses distributed just about 20-30% as dividends. Fund houses are paying dividends from the gains they made last year," said the head of investment of a bank-promoted fund house. "Fund managers of highdividend paying funds have managed to shelter their 'dividend cushion' (generated from last year's investments) from market volatility," the investment head said.

Apart from 'dividend cushion', several small-sized fund houses have seen their asset bases widening over the past six months, thanks to regular inflows, especially through systematic investment plans. Asset bases of Axis Mutual and Mirae Asset Investment have grown 44% and 34%, respectively, between April and December 2010. Asset under management or the AUM, of JP Morgan Mutual Fund, DSP Blackrock , Franklin Templeton and Fidelity Mutual Fund rose 15 to 26% during this period.

"Smaller fund houses are paying higher dividends than big-sized asset managers. Fund houses, like Taurus and Sahara Mutual , have paid dividends in the range of 20-25 %. By paying out high dividends, these fund houses expect to attract more investors into their schemes," said Rupesh Bhansali, head-mutual fund research, GEPL Capital.

According to Mr Bhansali, if one takes an year-on-year comparison, dividend yields generated by top fund houses have come down significantly this year. If one compares industry numbers, overall dividend yields have fallen from 25-30 % in 2009 to 17-19 % in 2010, he said.

Fund houses announce dividends to keep retail investors in good spirits. A good dividend payout, especially at a time when the market is choppy will prompt them to stay invested in schemes. A huge dividend payout will also help distributors sell the product more efficiently and bring in more money. "Retail investors, especially elderly investors, expect dividend payouts periodically," Birla Sunlife Mutual Fund CEO A. Balasubramanian.

"We could generate distributable profits from investments made in the first half of current year. The market has turned bearish only since September. We were also able to keep our NAV at higher levels, when the market was trending down," Mr Balasubramanian said.

Conventional fund management wisdom makes it imperative for fund managers to declare dividend as it is one of the few ways to take profits off the table. This is more so in the case of an overheated market, where there are not many good investment opportunities.

Source: http://economictimes.indiatimes.com/articleshow/7759136.cms?prtpage=1

Tuesday, March 22, 2011

SIP rise helps MFs brake pace of equity folio loss

The domestic fund industry has been able to apply brakes on the pace with which it was losing its equity folios.

So far, in the second half of the current financial year, fund houses have lost a little over 200,000 folios. This is less than what the industry had lost in every single month during the first half.

The industry had witnessed a loss of close to 1.7 million folios in the equity segment during April-September, close to 300,000 every month. According to the Securities and Exchange Board of India, as on February 2011, industry's equity folios were 39.2 million, against 39.4 million at the end of the first half of 2010-11.

"A large number of systematic investment plans (SIPs) brought this reversal. However, it is too early to say if it is an evolving trend," says H N Sinor, chief executive officer of the Association of Mutual Funds in India. On an average, there is a monthly addition of 100,000 SIPs every month, adds Srinivas Jain, chief marketing officer of SBI MF. Agrees Karan Datta, national sales head at Axis MF: "Redemption levels have come down a bit, besides higher SIP growth." Though it's an encouraging trend for the industry, which has been hit hard and especially on the equity side of the business, market observers can't say if it would be a sustained trend. For the year so far, equity schemes are still facing a net outflow of Rs 13,281 crore against a net inflow of Rs 2,611 crore during the previous year's corresponding period.

Except the first month of the second half, inflows in the equity segment has seen a consistent improvement. In fact, February was marked by a record net inflow in equity schemes since the entry load ban came into effect in August, 2009. More, last month was the third in a row that industry saw money flowing into equity schemes. The sales of equity-related schemes in February, including equity-linked saving schemes, were marginally up at Rs 6,038 crore against Rs 5,969 crore in September.

However, compared with the same month last year, sales of equity-related schemes are up 10 per cent against Rs 5,486 crore in February 2010.

Currently, the industry has a little over 40 competitors, with equity asset under management of around Rs 1.9 lakh crore. The number of overall folios in the categories, including income funds, equity and exchange-traded funds, is 4.71 crore.

Source: http://www.businessstandard.com/india/news/sip-rise-helps-mfs-brake-paceequity-folio-loss/429267/

Invest 5-10% of your portfolio

After launching a Nifty-50 remix fund, Motilal Oswal Mutual Fund's recent offering — MOSt Shares Nasdaq 100 — continues with its policy of launching exchange-traded funds (ETFs).

The move seems timely because the US markets have performed better than the Indian markets in recent times. Since the beginning of the year, the Nasdaq 100 has returned 14.45 per cent, whereas the Sensex only 1.74 per cent. The scheme plans to invest 95-100 per cent in the shares of Nasdaq 100 companies.

Also, ETFs are cheaper than equity-diversified funds, in terms of expense ratio. The total expense ratio of MOSt Shares Nasdaq 100 will be one per cent, as against an average of two per cent for other equity-diversified funds.

It is the first ETF in India which will invest in shares listed on the NASDAQ 100, and the second index tracking ETFs after Benchmark AMC's Hang Seng Bees.

While these are the good news, there are some restrictions as well. The fund does not have a systematic investment plan (SIP) option yet. Although the fund will invest in equities, it will be taxed as debt fund. It implies that there will a long-term tax on capital gains at 10 per cent with indexation benefits and 20 per cent, otherwise. In the short-term, capital gains will be added to income and taxed, according to the tax slab.

The fund house has said investors in the new fund offering (NFO) period — between March 16 and 23 — would get double indexation benefits such as a fixed maturity plan. The scheme will be listed at the Bombay Stock Exchange and the National Stock Exchange on April 4.

For investors, who want to take advantage of the turnaround in the US markets, this fund is a good opportunity. The international flavour, that is, being able to invest in scrips such as Microsoft, Google, Amazon, Yahoo and eBay, is definitely an added attraction.

But don't go overboard. Financial planner Radhika Gupta says, "While there are very good companies listed on the Nasdaq, they mostly belong to the information technology segment. This leads to overexposure in a particular sector."

Alhough the US stock market has turned around this year, it has not performed exceptionally well in the last few years.

Investors in the Indian markets would have earned higher returns from the Sensex. In the last two and five years, the Sensex has returned 41.13 per cent and 10.48 per cent annually. In comparison, the Nasdaq-100 has returned 35.65 per cent and 5.7 per cent in the same periods.

Rajesh Tanna, AVP-MF at Bonanza Portfolio, says, "This product is mainly targeted towards high net-worth individuals. Retail investors do not really understand how the product works." Ideally, if you are well-invested in Indian stocks, either through direct exposure or mutual funds, you can look at this fund.

This is a good portfolio diversifier. Invest only part – say, 5-10 per cent of portfolio – in this product.

Source: http://www.business-standard.com/india/news/invest-5-10your-portfolio/429273/

Product Crack| Mirae asset India-China consumption fund

Mirae Asset India–China Consumption Fund (MICF) is an equity diversified mutual fund scheme that aims to invest at least 65% of its corpus in Indian equities and the rest in Chinese equities. MICF will invest in consumer-oriented sectors, such as fast-moving consumer goods, banking, media and telecom. While fund manager Gopal Agrawal will manage the India portion of this scheme, Basavraj Shetty is the designated fund manager of the international portion of the portfolio, with assistance from Mirae's Hong Kong office.

What works

A growing middle-class population and their rising income are two factors that will give a boost to the middle-class consumption and companies engaged in this sector. Mirae estimates that India's middle-class spending will rise by 18% and China's will increase by 15% over the next five years. Rising population of India and China is expected to boost demand for products manufactured by companies in the consumption space. For instance, the fund house expects Asia's middle class population (excluding Japan) to grow at a compounded rate of 11% over the next five years. As per the five year plan released by the Chinese government, the minimum wage is expected to increase by 50% during the period from 2010 levels.

What doesn't

China's growth projections can paint an attractive picture, but with a country that is devoid of democracy and is tightly controlled by its government, it's a bit tricky to navigate their projections. Further, though investing in foreign equity shares offers diversification, there isn't much merit in looking overseas when the Indian equity market offers multiple options with scores of listed companies and equity mutual fund schemes that come with a decent track record. Mirae's existing scheme that invests in China (Mirae Asset-China Advantage Fund) returned 10.42% in the past year. In other words, it navigated the recent volatility in Chinese equities reasonably well. However, in 2010, the fund underperformed equity diversified schemes that focused solely on India.

Mint Money take

Consumption is an attractive theme that most fund managers in India seem to have lapped on. However, ignoring India-specific funds—some of them with a good track record—and going abroad is completely your choice. If you must invest, an ideal time horizon would be not more than three years. Also, take minimal exposure if you must. A better alternative is to stick to a India-specific diversified fund.

Source: http://www.livemint.com/2011/03/21213836/Product-Crack-Mirae-asset-Ind.html

Monday, March 21, 2011

Reliance MF Declares Dividend Under Two Schemes

Reliance Mutual Fund has announced 24 March 2011 as the record date for the declaration of dividend on the face value of Rs 10 per unit under dividend options of following schemes:

Reliance Growth Fund: The quantum of dividend will be Rs 4 per unit for retail plan and institutional plan. The scheme recorded NAV of Rs 53.3177 per unit for retail plan and Rs 424.3054 per unit for institutional plan as on 17 March 2011.

Reliance Quant Plus Fund: The quantum of dividend will be Rs 2.50 per unit. The scheme recorded NAV of Rs 13.1006 per unit as on 17 March 2011.

Reliance Growth Fund is an open ended equity growth scheme which has the investment objective to achieve long term growth of capital by investing in equity and equity related securities through a research based investment approach.

Reliance Quant Plus is an open ended equity scheme which has the investment objective to generate capital appreciation through investments in equity and equity related instruments. The scheme will seek to generate capital appreciation by investing in an active portfolio of stocks selected from S&P CNX Nifty on the basis of a mathematical model.

Source: http://www.indiainfoline.com/Markets/News/PrintNews.aspx?NewsId=3612548709

Investors flocking to short-term assets: Fidelity

Mutual fund house Fidelity International India today said domestic fixed income investors are increasingly going in for short-term products and keep shuffling from one fund to another, besides preferring individual stocks over industry segments.

"The fixed income products, especially those in the short-term cash segment, are growing at a faster pace now, as investors are looking for more stable income and expect positive returns in all market conditions besides keen on preserving their hard-earned capital," Fidelity International India Country Head Ashu Suyash.

Investors are also willing to consider investing in multiple asset classes, she added.

According to Suyash, of the Rs 7-trillion MF industry, Rs 5.65 trillion are fixed income-based funds while the rest Rs 1.35 trillion are equity-based. Over the past few quarters, investors have been flocking to fixed income funds.

On the problems faced by the MF industry, which has been reeling under a wave of regulatory interventions since a year, she said though fixed income funds look to be more promising now, for this market to bloom, a developed corporate bond market, coupled with FII participation, is a must.

"The predominance of bank funding and government bonds are impeding growth of this market segment in particular and overall domestic MF industry in general. Dominance of these factors make credit risk distribution skewed."

Fidelity International Global Investment Officer for fixed income segment Andrew Wells said Asian investors are also moving into to park their money with fixed income asset classes as they are on the look out for regular income and higher yields.

Source: http://www.indianexpress.com/story-print/764462/

The House That HDFC Built

This retail-investor focused fund house has grown 71-fold in 10 years

Think of it as reinvestment with a twist. HDFC Mutual Fund has launched a debt fund for cancer cure, which lets investors donate a part of or the full dividend to the Indian Cancer Society. After a decade of profitability and steadily growing assets under management (AUM), the latest offering is an innovative way of espousing philanthropy from this year's winner of the Best Fund House in BW-Value Research survey of the mutual fund industry.

But Milind Barve, managing director of the fund's asset management company (AMC), says this is not a one-off thing; the AMC will continue its focus on philanthropy and investor education, activities that investors will remember it for, besides its record of quality performance.

In the year of its launch, HDFC AMC, an offspring of HDFC Bank, collected Rs 1,238.13 crore (as on 31 March 2001) of average assets under management (AAUM); by December 2010 this figure was Rs 87,883 crore, a 71-fold increase in 10 years. Its profits for the year ended 31 March 2010, were Rs 208.36 crore, compared to Rs 129.11 crore in the previous year. The first year was the only year in which it missed paying a dividend. The performance speaks for itself: in 2010, the AMC had 22 top-rated funds, seven of which were 5-star rated (HDFC Top 200, HDFC Equity, to name two), and 15 were rated 4-star by Value Research. Franklin Templeton AMC and Birla Sun Life AMC are the next best performers.

Barve attributes this success to the AMC's focus on the retail investor (much like the parent bank's focus on the retail customer) and not spending too much resources developing new products. He believes in keeping his funds simple in order to make them investor friendly. Says Barve: "We believe passionately that the Indian market needs products that are not too innovative, or they become too complex for our investors." The AMC has added only two new products in past five years and around 60 per cent of its assets come from retail investors.

So, besides the consistently high performance, what is it that helped the fund outshine other players in the business? "The focus was to build the retail business instead of going after the low hanging fruit of getting large amounts of money from a few corporate and large institutions," says Barve. So much for the customer; but what about investments by the funds?

The story there is pretty much the same: buy valuable companies, look at potential growth, and take a good look at management. Simple, perhaps boring, but very effective. But Barve is going global: he will allow overseas investors to put money into his existing funds, using Credit Suisse's marketing network.

But he is also concerned about the low penetration of MFs in India. "All of us relatively large players in the industry have a role in building the market," says Barve, who may be wearing his hat as chairman of the Association of Mutual Funds of India when he says this. "It's not about market share, or about being No. 1 or 2. Unless the market itself grows, we cannot." His AMC has the resources to achieve some of that: a system of 111 service centres and nearly 36,500 distributors to further the cause.

Source:http://www.businessworld.in/bw/storyContent/2011_03_17_The_House_That_HDFC_Built.html

IDFC Mutual Fund announces dividend under its Tax Advantage Fund.

IDFC Mutual Fund has declared dividend under IDFC Tax Advantage (ELSS) Fund. The quantum of dividend for distribution is Rs 1 per unit. The investment objective of the scheme is to generate long term capital growth from a diversified portfolio of predominantly equity and equity related securities. The record date for dividend distribution is 23rd March 2011.

Source: http://www.mutualfundsindia.com/news_viwe.asp?news_headline=IDFC+Mutual+Fund+announces+dividend+under+its+Tax+Advantage+Fund@MF040

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'I made my money by selling too soon.'

Website: http://indianmutualfund.co.cc/

Blog:http://indianmutualfund.wordpress.com/
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Equity mutual fund managers hoard cash

Volatility in the Indian equity markets has pushed fund managers to sit on cash and enter the market once valuations start looking attractive. Average cash levels of equity schemes in the Indian mutual fund industry have increased to 6.33% of the total portfolio in February (highest in the last six months) with few equity schemes keeping cash levels in the range of 10-20%. These cash levels have inched up even more, according to industry sources.

According to the Value Research data, in the month of January this year, the average cash levels were 5.73% while in December last year it stood at 4.47%. Market participants say that since the start of the current calendar year, fund managers have hiked their cash position as they feel that markets have not yet bottomed out and might fall further from the current levels. In the month of January and February, Sensex index was down by 10.64% and 2.75% respectively.

Anoop Bhaskar, head equity at UTI MF says, "We have raised cash levels since January, as we have taken a view that we don\'t want to make any further purchases at this point of time. We have booked profit in the markets and are now sitting on cash." He also added that, some funds like UTI Dividend Yield, UTI Opportunities are getting regular inflows, and those have not been invested resulting in higher cash levels. Interestingly, in the last three months, equity inflows for the mutual fund industry has been positive, after sustained redemption pressure from its investors.

Some of the mid-cap and small schemes like Reliance Small Cap (42.94%), L&T Mid-cap (18.4%) and Sundaram Select Mid-cap (16.76%) have increased their cash holding in February. In the month of February UTI Opportunities fund is holding cash of over 9.59% which used to 3.29% in December last year and 2.2% in September 2010.

TP Rama, MD of Sundaram MF says, "In February few of our schemes had hiked their cash levels, but in the current month we have entered the market and brought down cash levels to 5-7% levels. We invest in those stocks which don\'t have high PE ratio, so in March few stocks were trading at reasonable levels and we have bought those stocks."

A senior fund manager from the leading fund house on condition of anonymity said, "With uncertainty in the global markets we feel that in the coming months too cash levels might stay at the same levels. Once the valuation starts looks attractive, we will be fully invested in the market."

Source: http://www.indianexpress.com/story-print/764325/

Friday, March 18, 2011

Mutual funds restart buying as inflows from new fund offers rise

After remaining sellers in stocks for most of 2010, mutual funds have started nibbling into shares over the past four months. Beaten-down stock valuations and a gradual rise in inflows are prompting fund houses to increase exposure to the stock market. Under pressure from massive redemption and low inflows into equity schemes, fund houses redeemed Rs 27,550 crore in 2010.

Counting out May 2010, when mutual funds netbought shares worth . 98 crore, mutual fund were net-sellers in the market on all months since September 2009.

The 15-month-long trend reversed only in December 2010, when funds net-bought shares worth Rs 1,377 crore. "Mutual funds were witnessing redemption and low inflows the whole of last year. Things have just started looking up now," said Neelesh Surana, senior fund manager, Mirae Asset Global Investments . The 11% fall in the market since January this year has made stock valuations attractive, fund managers said.

While a section of the fund industry is still sceptical about the future course of the market and corporate earnings, the rise in equity allocation is being attributed to genuine value buying, short trading strategies adopted by funds and deployment of new fund offer (NFO) money. "The market correction (post- huge Diwali rally) has brought frontline stocks at attractive price levels. Our mandate now is to accumulate good stocks and stay invested in them," said Mr Surana.

According to institutional brokers, fund houses are concentrating on large caps and frontline mid-cap stocks currently. Political unrest in some West Asian countries, rising crude prices and inflation are forcing fund managers to take refuge in large-cap stocks, which are known to be more resilient in the event of a deep market correction. Fund houses are maintaining 6-8 % cash to chance upon further buying opportunities.

"We expect funds to continue buying in the coming months," said Hiren Dhakan, associate fund manager (fund-of-funds ), Bonanza Portfolio. "Funds have been increasing exposure to banking, FMCG and auto stocks over the past two months. Telecom and oil & gas stocks are seeing a weightage reduction in fund portfolios," Mr Dhakan said. Among individual stocks, ICICI Bank has replaced Reliance Industries as the most-owned stock in fund portfolios. About 293 schemes have ICICI Bank in their portfolios while Reliance Inds , Infosys and ONGC appear in 280, 278 and 255 equity fund portfolios.

Another reason for the rise in mutual fund investments could be the large line of NFOs that mobilised money over the past few months. Mid-and small-sized fund houses, like Pramerica Mutual Fund, Peerless, Axis Mutual Fund , IDFC , Fidelity, Kotak Mutual , Principal Mutual Fund and Motilal Oswal Asset Management, among others, have launched new funds over the past two months. Equity funds, as a category, have been logging inflows over the past three months.

The average assets under management (AUM) of the fund industry surged 2.3% in February to Rs 7.07-lakh crore. According to data compiled by Association of Mutual Funds in India , the MF industry witnessed inflows of Rs 25,757 crore in all schemes, with equity and money market schemes seeing inflows of Rs 2,495 crore and Rs 8,770 crore, respectively , in February.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/mutual-funds-restart-buying-as-inflows-from-new-fund-offers-rise/articleshow/7732612.cms

IDBI unveils Short Term Bond Fund

Fixed income funds seem to be the flavor of the season as interest rates head northwards and equity markets continue to remain jittery. IDBI Mutual Fund has today announced the launch of its open ended IDBI Short Term Bond Fund to capture this mood.

NFO Date: March 17, 2011 to March 22, 2011.

Investment objective: The scheme aims to provide investors with regular income for their investment. The Scheme will endeavour to achieve this objective through an allocation of the investment corpus in a diversified portfolio of debt and money market instruments.

Asset Allocation: The scheme would allocate 65 to 100 per cent of assets in money market instruments/ debt instruments with maturity/residual maturity up to and including 2 years with low risk profile. The scheme would further allocate up to 35 per cent of assets in debt instruments with low to medium risk profile.

Minimum Application: Rs 5,000

Investor need it seeks to fulfill: "It is both an accrual as well as mark-to-market risk reward product. It is positioned to give higher returns than liquid or ultra short term funds given the high interest rate scenario in sub one year segment," said Krishnamurthy Vijayan, MD & CEO, IDBI Mutual Fund.

Target Investors: The fund is targeted at all segments of investors looking at an investment horizon of 6 months to 1 year.

Distribution: The fund would be marketed mainly through IFAs, national distributors and corporates. The fund would be available pan-India.

Empanelled IFAs: Approximately 3,000

Exit Load: 0.50 per cent if units are redeemed within 3 months from the date of allotment.

Fund Manager: The scheme will be managed by Gautam Kaul

Benchmark: Crisil Short Term Bond Fund Index

Source: http://www.cafemutual.com/News/InnerNews.aspx?srno=388&MainType=New&NewsType=NFO&id=

HDFC Mutual Fund announces dividend under two equity schemes

HDFC Mutual Fund has declared dividend under HDFC Equity Fund and HDFC Long Term Equity Fund, on the face value of Rs 10 per unit. The quantum of dividend for distribution is Rs 4 per unit. HDFC Equity Fund is an open-ended growth scheme with an investment objective to achieve capital appreciation. HDFC Long Term Equity Fund is an open-ended equity scheme and has the investment objective to achieve long term capital appreciation. The record date for dividend distribution is 22nd March 2011.

Source: http://www.mutualfundsindia.com/news_viwe.asp?news_headline=HDFC+Mutual+Fund+announces+dividend+under+two+equity+schemes@MF041

Goldman Sachs AMC to buy Benchmark MF for Rs 130.5 crore

Goldman Sachs Asset Management Company said on Wednesday that it would acquire Benchmark Mutual Fund, an ETF-focussed Indian fund house. Benchmark mutual fund manages assets worth around Rs 3000 crore.

The deal would be finalised by the end of the year, subject to regulatory approvals, said a statement from Goldman Sachs.

An official associated with the deal said Goldman would pay Rs 130.5 crore or approximately 4.3 per cent of Benchmark's average assets under management (AUM). All Benchmark employees would be retained by the new management, he added. Regulatory approval is expected in the next 3-4 months.

Through the deal, Goldman Sachs aims to bring actively managed on-shore funds into India, added the statement. The financial services major has an office in Mumbai with eight employees, providing research on Indian and BRIC equities for offshore funds.

Goldman Sachs officials could not be contacted for further details.

Benchmark is the country's only fund house with a sole focus on exchange-traded funds (ETFs). The fund house manages eight ETF products and is credited with launching India's first ETF – Nifty BeES. The average AUM for ETFs in India is Rs 5,979 crore, according to the Association of Mutual Funds in India. The gold ETF segment has an AUM of about Rs 3,744 crore with 10 products. India's first Gold ETF – Gold BeES – was conceptualised by Benchmark back in 2007.

MAPE Advisory advised Benchmark in the deal. The Indian MF industry will see further consolidation as the markets become volatile and tough, and big mutual fund players find valuations attractive," said an industry analyst.

Though Goldman Sachs had received SEBI nod to enter India in September 2008, it kept plans on hold following the economic downturn of 2009.

Source: http://www.thehindubusinessline.com/markets/article1544277.ece?homepage=true

Wednesday, March 16, 2011

Soumendra Nath Lahiri joins Canara Robeco

Canara Robeco Asset Management Company has appointed Mr Soumendra Nath Lahiri as its Head of Equities effective from April 1.

In his new role, Mr Lahiri will be responsible for managing the equity funds that form a major part of Canara Robeco's portfolio including Canara Robeco Equity Diversified Fund and Canara Robeco Equity Tax Saver Fund.

Prior to joining Canara Robeco, Mr Lahiri was Senior Vice President and Co-Head, Equities with DSP Black Rock Asset Management Company. He was also recently appointed as Chief Investment Officer at Emkay Global Services.

"We are extremely happy about Mr Soumendra Lahiri joining the team. We look forward to utilising his experience in taking the company forward. His understanding of the markets will add a lot of value to our clients and the entire team will benefit from his knowledge and guidance," Canara Robeco Asset Management Company's Chief Executive Officer, Mr Rajnish Narula, said in a statement.

Canara Robeco is a JV between Canara Bank, a 100-year old premier bank in India and Robeco, an 80-year old Rabobank entity and an asset management specialist.

Source: http://www.thehindubusinessline.com/industry-and-economy/banking/article1540431.ece

SBI Magnum Taxgain Scheme 1993 declares dividend

SBI Mutual Fund has declared a dividend of 40% ((Rs. 4.00 per unit on Face Value of Rs.10) under dividend option of SBI Magnum Taxgain Scheme 1993. The record date for dividend has been fixed as March 18, 2011.

All investors registered in the dividend plan of SBI Magnum Taxgain Scheme 1993 as on March 18, 2011 will receive this dividend. The NAV of the scheme as on March 14, 2011 under the dividend option was Rs. 39.13.

SBI Magnum Taxgain Scheme 1993, is an open ended ELSS Scheme. The objective of the scheme is to deliver the benefit of investment in a portfolio of equity shares, while offering deduction on such investments made in the scheme under section 80C of the Income Tax Act, 1961 and (b) Distribute income periodically depending on distributable surplus.

Source: http://www.moneycontrol.com/news/mf-news/sbi-magnum-taxgain-scheme-1993-declares-dividend-_529645.html

Is Sebi getting ready to reload?

For an industry waiting with bated breath for the new regulator to indicate which way the wind will blow, the two-page circular uploaded on the Securities and Exchange Board of India (Sebi) website on 9 March 2011 quickly became the most emailed and forwarded document. Through the circular, Sebi has allowed mutual fund houses to use two sources of money to pay distributor commissions. One, they can use the accumulated load balances they are holding. Before August 2009, the loads (the distributor commission embedded in the price of the mutual fund scheme) were collected by the fund house and paid to the distributor. Not all such loads were paid out and the money undistributed was kept in a separate account. The older and bigger the fund house, the larger was this amount of accumulated loads. The circular is being seen in the market as of great benefit to the older, larger fund houses that are sitting on Rs250-400 crore each in these accounts. This is a reversal of the earlier argument within Sebi that was in favour of writing back this money to the scheme (that is to the investors). Two, fund houses can use the money collected as exit loads to pay distributors. Both the steps are being seen as a significant indication of what will happen next. The market now expects the two-cheque system to collapse into one and a gentler easing into the pre-August 2009 world when fund houses looked at the distributors as their primary customers and the real retail customer was not really on the radar. When you can buy the business, why spend energy in developing it?

But how badly has the industry been affected by the banning of loads? How much was the bleed? I did a small dipstick and found that even informed people thought that the equity funds bled heavily and lost about half their money due to distributors refusing to sell funds and investors getting out in the 18 months since the no-load rule. The truth is a little different. I found (looking at Association of Mutual Funds of India data) that the worst month since August 2009, in terms of outflows, was September 2010 when a net of almost Rs8,000 crore bled out of equity funds, with a gross bleed of just over Rs13,000 crore and an inflow of almost Rs7,00 crore. But this Rs8,000 crore of net redemption was a mere 3.66% of the total equity assets under management (AUM) of Indian investors who hold over Rs2 trillion in equity funds. Right. At the worst point, less than 2% of the money bled out.

In fact, the September numbers prompted an insurance chief, who met me at an airport in mid-October, to confidently predict the demise of the fund industry by December 2010. "They're dead!" he crowed, "and the business is all coming to us." The good thing with predictions about the near future is that they can be remembered and validated. February 2011 became the fourth month with positive inflows into equity funds. With more than Rs7,000 crore coming in and almost Rs4,000 crore going out, the net inflows of Rs3,500 crore are 1.93% of the total AUM of equity funds in India. In fact, November to February has seen a spurt in inflows and a decline in redemptions. The reasons for this could be two. One, market volatility is making investors wary of exiting and hence the reduction of redemptions by half in February over the previous month. Or that fund houses are stabilizing into the new no-load world and investors are coming in using the systematic investment plan road. The gross inflows have picked up steam, with an average Rs7,000 crore coming in the last four months, against an average Rs6,000 crore in the 15 months before November 2010.

Could it be that the inflows are coming back in due to fund houses finally getting out of their Nariman Point and Bandra-Kurla offices and getting to the investors through direct sales pitches, through customized products, through investor awareness drives? Could it be that the AUM-focused fund houses in search for valuation are now trying to grow the retail business now that the corporate loopholes are mostly plugged? While it is too soon to say that the industry is settling down, there is clearly a new focus at least within some of the fund houses. From throwing money at the distributors, fund houses are actually thinking about how to get the retail investor. Maybe the new Sebi chief should allow fund houses some more gym time for workouts. They may realize that the crutches of loads are actually not needed.

Source: http://www.livemint.com/2011/03/15212715/Is-Sebi-getting-ready-to-reloa.html?h=B

Tuesday, March 15, 2011

Canara Robeco MF Declares Dividend

Canara Robeco Mutual Fund has announced the declaration of dividend on the face value of Rs. 10 per unit under dividend option of Canara Robeco Equity Tax Saver. The record date for dividend has been fixed as 18 March 2011.

The quantum of dividend will be Rs. 1 per unit. The scheme recorded NAV of Rs. 18.32 per unit as on 11 March 2011.

Canara Robeco Equity Tax Saver is an open ended equity linked tax savings scheme with lock in period of 3 years. The investment objective of the scheme is to achieve long term capital appreciation by predominantly investing in equities to facilitate the subscribers to seek tax benefits as provided under Section 80 C of the Income Tax Act, 1961.

Source: http://www.indiainfoline.com/Markets/News/Canara-Robeco-MF-Declares-Dividend/3604110664

Monday, March 14, 2011

Infrastructure stocks look attractive: Kenneth Andrade, Chief Investment Officer, IDFC Mutual Fund

In an interview with ET Now, Kenneth Andrade , Chief Investment Officer, IDFC Mutual Fund , talks about the Indian market and his favourite sectors. Excerpts:

Characterise the current market environment for us. Are you cautious, are you fully invested, are you sitting on cash?

From a perspective of what we have been doing as basically looking at the environment currently and with realigning our portfolio into based on the results that just went by and the expectations into March, we have got significant amount of events that have been happening across the entire globe. So we are looking at spaces where we could actually trim our positions which are vulnerable to these moving parts. So that is what we have been doing. We have in the process created some kind of cash in the entire process where we have been looking to redeploy that in the next month or two. So in context where the markets are currently held on moving parts, it is very difficult to take a call on the market and build portfolios, but sticking with where the convictions are the highest and realigning our portfolios accordingly.

What is your view on infrastructure that is one space which has really been beaten down? Do you think a bottom is in place for most of these stocks and would you now be a buyer into it?

We have just closed our product in the infrastructure space. This is in line what we think is probably a nice time to take an allocation into that entire sector. What we would see coming with the March-end results and also balance sheets coming out you probably heading into the worse quality of balance sheet that you have seen over the last decade in these companies. Now that creates a significant opportunity. One, most of the companies will have to reassess the environment around them and rebuild their strategies to improving financial health of the business. Two, the space itself as we see it will be more consolidatory space rather than an expansionary environment. Now this is exactly the opportunity that we are playing for. In a consolidatory phase company has become a significantly more responsive to creating cash on their balance sheets through operations rather than looking at the external environment to raise cash now. This is good for an equity holder. On the other hand you will not see dramatic improvement or increase in balance sheet sizes and you would see balance sheets actually consolidate. So our view is somewhere in 2012 and 2013, you would see this entire balance sheets effectively consolidate themselves and that exactly the opportunity that is there. So we are going into the entire premise and this is a consolidation period for the entire industry and that is where the equity investor would make significant amount of return compared to an expansion phase which you had in the last 3 or 4 years wherein the equity investor were more at the receiving end in the space. So yes, in a way we do believe infrastructure valuations and business opportunity is there. These are appropriate time to start investing into the business.

What is your view on commodity prices? One side you have the Fed which is pumping the economy by QE2 and the Japanese bank also is now planning to inject about $85 billion, given the way how both central bankers are now planning to pump in more money will commodity prices go up more?

Most of our portfolio is extremely light in terms of commodities. A very large part of the allocation in our local portfolio or domestic portfolios are more playing the consumer economy in India, latter part of it is started and small part of that is effectively on the infrastructure side of the entire business. Now in line with what we are trying to do with the consumer part of the economy and the infrastructure part of the entire economy and if this plays out over the next 2 or 3 years, it may not make for an interesting view in commodities. One, the consumer part if consumers are going to determine volume growth in the entire business, the consumer economy is not very commodity intensive. Secondly, if we believe that infrastructure is going to be more of a consolidation play and rather than an expansionary play, again this may not be a very good thing from a commodity perspective. Now that is in line with what we are doing in India or most of our portfolio are doing in India. If you step back and look at the 12th five year plan which the Chinese economy has just come through with again the shift and the focus is towards enabling the consumer in that respective economies. If that holds true again, we probably may not have an environment which is very conducive for further commodities business. It is not like commodities are going to fall off the place where going to be a base demand for commodities which will continue to exist and there will be couple of commodities which are consumer intrinsic, which depend upon the consumer and end consumer and these are copper etc. They largely go into the electrical business which is again related to the consumer environment, consumer economy. So I guess we have to pick and choose as to which part of the commodity business you want to be with. So I guess something like crude, the demand will be reasonably tight and this is structural in nature given the fact that 35% of the world?s population which is a Chinese and Indians are earning double digit growth in their per capita incomes. So that is basically you will probably need to pick and choose on commodities rather than owning a basket of commodities in this environment.

You have bought consumption-oriented businesses for the year gone by which is the year 2010 and that worked like a charm for you. What is your big bet for the year 2011?

Well, little bit of infrastructure which seems to be basing out and the business still has reasonably amount of momentum still in the consumer part of the economy. So we would expect going into this year the two themes to effectively play out unlike a single theme that we have bought through 2009 and 2010.

In the near term though what is the call on the rate sensitives, in particular autos, because they seem a little edgy ahead of the policy?

With autos you also need to realise that they come out extremely high base and the environment that you see at this point in time is also a environment where rates are not coming down, which is what you rightly said. So I moderate my expectation from that sector, it probably would not do what it did last year, it could be a pocket of strength but again like you basically cannot say that it is going to be an entire sector that is going to do well you will have to pick and choose and that goes down to what markets might look like for 2011 and may be a very large part of 2012. You would need to pick and choose you may not find one particular segment of the market that gives you all the outperformance that is there.

If I look at your latest declared portfolio holding, you have exposure to Asian Paints , Shriram Transport and Exide. Your top holdings change in coming months?

Cannot see any reason to change that.

Why do you like paint companies? Why do you like auto companies at a time when the country is experiencing inflation? I am sure that will hit consumption patterns.

I guess these are all consumer businesses and in line with just talking about the consumer economy, the underlying part of the portfolio if you go across the top 10 companies or even the top 15 companies in the portfolio that we construct, all of them are industry leaders by themselves, all of their balance sheets which are non-geared and all of them are growing faster than index level itself. So even if you hit an inflation point or even if you hit a point over the next year or 2 years, where you see a slowdown coming in the entire system, our belief is that given the financial strength and the dominance of each of these players in their industry, they will only gain market share. So we effectively come from a position that these companies are already extremely strong and even if we hit a patch which is a slowdown, these guys will only increase market share. If the contrary of that happens and the market effectively expands also, then they will grow, with all the companies in this portfolios. So either which ways the portfolio is that we have constructed so far should withstand itself in an environment which is growing and even if the environment consolidates or slows down, these guys should come out reasonably stronger than what they are.

You also own textile stocks Arvind Mills , Shri Lakshmi . Textile stocks have never created wealth for any investor. Why do you like textiles?

Well, it is likely a contrarian in that space. We like the manufacturing business because they have reasonably run out of capacity at this point in time. Secondly again in line with our putting a portfolio together a very large part of that entire portfolio is oriented towards the largest guys in the entire business. Cash flows are extremely strong. So another year of these kind of cash flows and the financial health of these companies will be significantly better than what they appear to be and what they appear to be is also significantly stronger than what these companies were over the last decade. All of them are available in between 3 to 5 times cash payback and there is not much too debate as far as valuations are concerned except for the fact that there is lot of policy risk in the textile environment. Apart from that, we are in the sweet spot as far as that industry is concerned.

Source: http://economictimes.indiatimes.com/opinion/interviews/infrastructure-stocks-look-attractive-kenneth-andrade-chief-investment-officer-idfc-mutual-fund/articleshow/7699894.cms

Franklin Family Solution

‘Valuations are below long-term average'

When we last spoke to him in July 2010, Vetri Subramaniam, Head, Equity Funds, Religare Mutual Fund, took the unconventional stance that stock valuations had already run up too much and that mid-cap stocks were unlikely to outperform. Now that both these calls have proved correct, we caught up with him for an update on the markets and how the Religare funds are navigating them.

Excerpts from an interview:

In July, you took the view that market valuations had captured much of the upside and that there was a risk of earnings downgrades to Indian companies. Have those downgrades happened?

I think the risks to earnings of Indian companies have gone up in recent months, with high inflation and fears of further monetary tightening to curb that inflation. I don't yet see that fully reflecting in the consensus earnings estimates.

Rising commodity prices for instance, have really increased input costs for companies across-the-board. You are already seeing signs of margin pressures in the earnings of the past quarter.

Smaller and mid-sized companies and companies operating in highly competitive segments may find it difficult to pass on those increases to their consumers.

There is also the risk of an increase in interest rates. Indian companies, especially small and mid-sized ones have always been quite sensitive to higher interest costs.

The way I see it is that the change in the global scenario calls for an upgrade in the earnings estimates for the commodity companies in the index basket and a downgrade in the estimates for the users of those materials.

However, as cyclicals typically enjoy lower valuations than other sectors, the overall PE multiple of the market has trended down.

Is this correction then a good opportunity to invest, for people with a five year view?

Yes, I think so. Valuations currently are below their long term average. The Sensex is now trading at 14.3 times one year forward consensus earnings. Assuming that the consensus estimates will be cut, which we believe is likely; earnings are still likely to grow at about 15 per cent in FY12 versus consensus estimates of 19 per cent growth.

Based on this reduced estimate the market is at about 15 times one-year forward earnings which compares well to the 15-year average PE multiple of 14.5 times. From this level of valuations, investors can benefit not just from the growth in corporate earnings but also an expansion in PE multiples at some point in the future.

How will rising oil prices play out for listed Indian stocks, if sustained? Are you altering your sector weights owing to this development?

The rise in oil prices is more negative for the Indian fiscal deficit than it is for Indian corporate earnings due to the lack of pass-through. But the public sector oil marketing companies will likely do poorly even though the government will provide them with compensation.

The cost structure of the airline companies would also be negatively impacted. The pass-through of the hike to petrol and diesel prices would be incrementally negative for the auto sector. We have made slight adjustments in our sector positioning based on these views.

Religare Contra Fund has a good three year record, but has underperformed the markets in 2010. What explains the slowdown in performance?

Religare Contra is typically the kind of fund that has a "value" approach to stock selection.

After the correction in 2008, the broader markets were trading at very attractive levels, with a large number of stocks available at throwaway prices.

The initial part of any up move, after a big correction is usually led by value stocks and Religare Contra capitalised on that. However, as the rally continues, growth stocks begin to outperform, and that is when the environment becomes more challenging for value stock pickers.

Even recently, though, you will find that this fund has contained downside quite well whenever the market corrected. That will continue to be its key advantage as we head into more volatile market conditions.

The top sector choices in many of your funds include technology and financials. Can you explain why?

If you look at our sector weights relative to the benchmark, you may find us a little underweight on financials. On technology stocks, yes we would be somewhat overweight, basically on account of the improving global environment which suggests good volumes and pricing for IT companies. In some of our funds, materials have a significant overweight position as well.

The call there is that if the global environment continues to improve, metal prices would continue to rise. With many metal companies seeing huge volumes coming onstream, volumes would remain quite strong too.

What is the outlook for Religare PSU Equity Fund?

PSUs did do well for a period, but premium valuations were not the norm. Only a few PSU stocks with very low liquidity enjoyed premium valuations. At this point of time, PSUs are vulnerable to a further fall because they are dominated by rate-sensitives and oil marketing companies. However, from a valuation and growth perspective, the PSU is one portfolio we think is quite attractive.

The growth expectations for the PSU basket too are quite resilient compared to the rest of the market. PSU stocks also enjoy advantages of low leverage and fairly strong cash coffers, except for the oil companies where the subsidy related issues really reduce visibility.

Which fund would you buy from your bouquet of funds in today's market environment?

The Religare Business Leaders Fund is very well positioned because it has the kind of companies that can survive these challenges. Large companies which don't have debt issues and have a lot of pricing power. They may not suffer margin damage that smaller companies do when input costs rise.

The other fund which we would recommend at all times is the Religare Growth Fund, given its balance between large cap and mid cap companies.

If the markets were to go down sharply from here, the Religare Contra portfolio too will get much stronger. It's a good fund to contain downside.

Source: http://www.thehindubusinessline.com/features/investment-world/mutual-funds/article1531983.ece?homepage=true