Mutual Fund NEWS Group: February 2012

Monday, February 27, 2012

RBI unlikely to cut CRR by 75 bps: Lakshmi Iyer, Kotak Mutual Fund

In an interview with ET Now, Lakshmi Iyer , Head of Products & Fixed Income , Kotak Mutual Fund , talks about fiscal deficit and what can be expected from RBI's monetary policy on 15th of March. Excerpts:

ET Now: The deficit in the financial system has climbed to Rs 180,000 crore. How much worse do you believe it is going to get? Do you believe that when refunds from the MCX IPO start coming back, the situation could look a little better?

Lakshmi Iyer: The MCX IPO is one of the problems which have added to the further liquidity issue. However, that is a thing of the last couple of days. We have seen this liquidity go into the negative zone significantly beyond the RBI's comfort zone for quite sometime now.

Our take is that if there is no CRR cut on March 15th, which is the next monetary policy date, this liquidity situation could further aggravate. This is due to the advance tax which is likely to be in the band of about Rs 50,000 to Rs 60,000 crore and that could take the number to anywhere between the Rs 2,20,000 to Rs 2,30,000. So, the combination of CRR cut and open market operations is what would lead to better liquidity numbers from here on.

ET Now: Montek Singh Ahluwalia said that the interest rate is going to be determined predominantly by what is likely to happen to the fiscal deficit. Where do you see interest rates stabilising in light of that and what is your reading of the yield on the 10 year bond?

Lakshmi Iyer: Fiscal deficit is definitely a challenging situation for the government for FY12 and it would continue to remain a predominant factor determining the direction of rates for 2013. This is because the fiscal deficit is funded through government borrowing programme. Moreover, it is subscribed to buy Indian investors predominantly and to a certain extent FIIs.

So, our take is that if the borrowing programme is likely to shoot up for FY13, which is a resultant of the higher fiscal deficit, we could see some more upward pressure on the 10-year benchmark rates from these levels. It is currently trading at about 8.2%. It could back up by about 10 to 15 bps, taking it on to 8.35%. So, we need to wait and watch out. We are likely to see near term volatility at the shorter end because of liquidity and the longer end because of the uncertain fiscal outlook.

ET Now: Do you believe that the RBI could surprise on the upside by coming out with a higher than a 50 bps CRR cut on the 15th? Do you think that RBI will cut CRR by 75 bps or even a 1% cut to address the challenges that the market is facing?

Lakshmi Iyer: I am not sure that is something which the RBI would want to do right now given that it continues to do open market operations. Today the open market operations figures have topped Rs 1 lakh crore and we still have liquidity continuing to be in the deficit mode.

My sense is that 50 bps is what we are likely to see as a CRR cut. RBI may introduce it in graded phases - may be 25 now and 25-25 in three tranches. This will probably total to 75 bps. But at a stretch going into 75 looks a very low probability given the fact that RBI continues to be committed to do OMOs. Today's market situation clearly warrants open market operations.

ET Now: Do you believe that a combination of that plus CRR cut would likely to sooth liquidity and also bring yields to stable levels?

Lakshmi Iyer: The CRR cut will give some respite on liquidity. It will not lead to a significant soothing on the yield curve front because March is a typical period of historical tightness and liquidity and this March will not be an exception. The liquidity situation is likely to ease only towards the last week of March or probably in the first week of April. So, that is when we could see a transition of the current high state of yield curve to a softer yield curve in the first quarter of FY13.

We are not expecting significant respite even if there were to be a CRR cut of 50 bps or 75 bps on March 15th. If the market gets a sense that the current open market operation trend is likely to continue, then we could see some small respite at the longer end of the GSEC yield curve.

Source: http://economictimes.indiatimes.com/opinion/interviews/rbi-unlikely-to-cut-crr-by-75-bps-lakshmi-iyer-kotak-mutual-fund/articleshow/12056116.cms?curpg=2

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'I made my money by selling too soon.'

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Equity linked savings scheme trumps PPF on returns

A penny saved is a penny earned. In the long run, those who follow this simple yet very powerful principle would probably be more financially sound than those who don't. And those who go one step further by not just "saving" but "investing" in appropriate asset classes and products would likely benefit all the more.

Equity Linked Savings Schemes (commonly known as ELSS schemes) offered by mutual funds combine these two principles to create a product that not only help investors to save tax but also has the potential to help build wealth in the long run. However, ELSS funds differ from most of the other tax saving investment instruments in terms of their risk-return characteristics and for that reason, many investors tend to prefer traditional tax saving investments over ELSS funds.

Fidelity Worldwide Investment conducted a study based on the historical long-term performance of ELSS funds in the Indian mutual fund industry. As a first step it identified all the open-ended ELSS funds which have been in existence for more than 10 years (in existence since October 2001) and then calculated the CAGR of each of those funds for a five-year period at every month end starting from October 2006 to October 2011.

This resulted in a total of 61 data points, the first five year period was from 31-Oct-2001 to 31-Oct-2006 and the last five year period was from 31-Oct-2006 to 31-Oct-2011. Further, using the above performance numbers we calculated the simple average performance of these funds for each of the time periods. Lastly, the results were compared against the rate of return that investors in PPF or NSC would have earned for each of those five year periods.

The results clearly show that ELSS funds' average returns have been better than PPF/ NSC in 58 out of 61 periods and average five year annualised performance of ELSS funds was 26.43 per cent as compared to average PPF rate of 8.32 per cent and average NSC rate of 8.59 per cent — an out performance of 18.11 per cent and 17.94 per cent respectively.

In other words R1 lakh invested in ELSS funds on an average would have grown to R 3,23,036 in a five-year time-frame whereas the same amount invested in PPF or NSC would have grown to just Rs 1,49,120 and Rs 1,50,317 respectively. It was also interesting to learn that more than three times out of five, ELSS funds outperformed PPF by over 10 per cent on an annualised basis.

Like evaluating any other investment option, it is equally important to understand the associated risks. As the study revealed the range of returns from ELSS funds over different time periods and the divergence of returns (and hence the risk) reduces with increase in investment horizon.

For example, over a three-year period, the average CAGR of ELSS funds have been in the range of 9.15-76.75 per cent but if the investment horizon is increased to 5-years, the return range narrows down to 7.03-53 per cent.

Like most equity funds, ELSS funds also tend to be volatile in the short term but have the potential to help investor generate wealth in the long run. Their wealth generation potential along with the compulsory minimum investment period of at least three years makes it a great investment option for investors looking to benefit from tax deductions under Section 80C.

Source: http://www.indianexpress.com/news/equity-linked-savings-scheme-trumps-ppf-on-returns/916999/0

Saturday, February 25, 2012

Domestic managers may get to run offshore funds

Indian fund managers will soon be able to manage domestic and offshore funds. Market regulator SEBI is planning to relax rules that require funds to appoint separate managers for each activity - mutual funds, portfolio management services and offshore advisory services, according to people with knowledge of the matter.

The regulator will put in place rules mandating disclosures of possible conflict of interest arising from the same person managing different funds, they said. Industry officials say the move will result in lower cost for fund houses while investors will be able to enjoy the benefits of the cumulative experience of the investment team.

Also, international investors have more faith in local fund managers as they have a better understanding of the market. "There is a distinct segregation of activity in terms of personnel, research and dealing. Anything that can facilitate pooling in of resources which would not result in conflict of interest would be a welcome move," said N Sethuram Iyer, chief investment officer, Daiwa Mutual Fund.

Last year, the regulator had allowed investment management firms to share back-end resources like IT systems but said they had to have a separate manager for each fund by it unless the investment objective and asset allocation are identical.

Chinese walls that require separate investment teams add to the cost of the asset management company which translates into higher costs to the ultimate investor, industry officials said. Such segregation is not found in developed markets with fund managers managing different funds, provided disclosure about potential conflicts of interest is made to the investor.

The conflicts of interest that the current SEBI regulations seek to avoid are insider trading, front running or the practise of the fund manager buying stocks ahead of the fund and preferential treatment to investors in the larger fund at the expense of funds that have a lower quantum of assets under management.

Abroad, asset management firms have to ensure that they have put in place effective policy to mitigate such concerns.

For instance in the UK, there are provisions for disclosure of conflict of interest to clients and potential clients.

"Achieving the economies of scale is the key value delivery by investment management industry. Being conscious of an ensuring effective resolution of any conflict of interest of varied set of investors is crucial," said Dhirendra Kumar, CEO of Delhi-based mutual fund tracker Value Research.

Source: http://economictimes.indiatimes.com/markets/regulation/domestic-managers-may-get-to-run-offshore-funds/articleshow/12027727.cms

Thursday, February 23, 2012

Gold imports may decline to $38 billion in FY'13: PMEAC

Estimated to shoot up by 76 per cent in the current fiscal to $58 billion, India's gold import may decline sharply to $38 billion in 2012-13 on back of improved economic situation, PMEAC said.

The decline in gold imports next fiscal, the Prime Minister's Economic Advisory Council (PMEAC)'s economic report said, would be on account of improvement in economic situation which would encourage people to invest in financial assets like mutual funds and insurance.

"The stabilisation of basic macroeconomic conditions at home is expected to curtail the demand for imported gold to be held as an asset by Indian households," PMEAC Chairman C Rangarajan said.

The report projects the gold import bill for the next fiscal at $38 billion.

The increase in import of the yellow metal is attributed to investors buying the precious metal to hedge against high inflation.

"Going ahead I believe inflation rate will come down and if rate of return on financial assets becomes attractive then we might able to reduce import of gold," he said adding that the import to revert to the previous year's level of $32-33 billion.

The best means of limiting the appetite for gold is to work towards making other kinds of assets more attractive, he said.

"...make investment in life insurance and mutual fund schemes at least as attractive, as was the case till March 2010," the report said.

Source: http://economictimes.indiatimes.com/markets/commodities/gold-imports-may-decline-to-38-billion-in-fy13-pmeac/articleshow/11993596.cms

Wednesday, February 22, 2012

Small investors logging out from SIPs

Young Chinmay Pise never forgot to check the net asset value of his investments in equity mutual funds before going to bed. His tracking of investments only intensified this year, amid a swift rally in equity markets as the Pune-based software engineer had been investing through systematic investment plan (SIP) since September, 2010. And, last week when the fund value overtook his costs he chose to exit.

"Barring the first two months, my fund value remained below the incurred costs," says Pise, 25. "At one point of time, it dipped more than 13 per cent. Had I put this amount even in a recurring deposit, I would have made close to nine per cent gains."

He started when the equity markets was to its last high only to see a value erosion of 25 per cent in 2011. Pise is not alone. Over one lakh retail investors, who took the SIP route, considering it a safer way to invest in equities, decided to stop investments in January. And the current month, appears to be the same or worse, say fund managers.

"Reduction in SIP is not new. It's happening over the last six months," says Sanjay Sachdev, chief executive officer at Tata Mutual Fund. In February too, the scenario has not changed, he adds. "Even those SIP investors who had started investing three years back have not made gains."

Last month, nearly one lakh equity folios (including non-SIPs) were closed. On top of it, 1.2 lakh equity SIPs failed to see transactions. "Either the cheques bounced back or transactions through ECS (electronic clearing service) were not honoured," says the chief marketing officer of a large fund house.

...but fund managers are optimistic

Domestic fund managers are more confident about investing in stock market now than three months ago, says a survey conducted by ICICIdirect, the online broking arm of ICICI Securities.

According to the survey, conducted among 17 domestic mutual fund managers this month, the outlook for the Indian equity markets has improved significantly. The previous survey was conducted in November 2011. After losing nearly a quarter of its value, the Bombay Stock Exchange benchmark, Sensex, has gained over 19 per cent so far this year. Most fund managers do not see any major downside in the equity market, the survey says. Seventy-six per cent of the respondents expect the Sensex to rise 5-10 per cent or more from the current levels by 2012-end.

Most fund managers have increased their earnings growth expectations for FY13. Eighty-two per cent, as against 50 per cent in the previous survey, believe the earnings growth for FY13 will be around 10-15 per cent. Though most believe the markets to be fairly valued, the majority advises investors to increase allocation to equity markets.

Compared to November, a higher number of fund managers expects equities to outperform, even as almost everybody expects gold to underperform for the rest of 2012. Most respondents see higher crude oil prices and the European debt crisis as the major concerns for the Indian market.

The previous year had started on a big bang note for SIPs. That time, H N Sinor, CEO of Association of Mutual Funds in India (Amfi), had told Business Standard that there was a remarkable increase in number of SIPs. One of the top officials at Securities and Exchange Board of India had said that transactions through the SIP had improved from Rs 800 crore per month to Rs 1,300 crore per month.

Sinor, though, was quick to add that it had to be seen whether this trend continues. Possibly, he could foresee the trend reversal in the second half of 2011.

"Clearly, there is a trend of outflow from equity funds," explains Akshay Gupta, CEO of Peerless Mutual Fund. "There is no upbeat attitude among investors to propel their equity investments. As the markets have rallied too steep and too fast, retail investors are cautious."

Tata Mutual Fund's Sachdev says investors are cautious. "They should stay invested," he notes. "This is more of a liquidity-driven rally and not a fundamental-driven one."

Investors are only recovering their costs and moving out, they say. According to Waqar Naqvi, CEO at Taurus Mutual Fund, the situation continues to remain same as what the industry witnessed in January. "Old investors continue to exit and new investors taking time to enter," he adds.

Most fund managers, Business Standard spoke to, were of the opinion that it is the current state of markets that is making investors quit equities. Moreover, availability of alternate investment avenues, including the recent tax-free bonds issued by several companies offering assured returns, have dented inflows in the equities, they say. For the last couple of months, net inflows in the equity segment has been touching three year lows of close to Rs 2,500 crore against as high as Rs 5,000 to Rs 6,000 crore witnessed in early part of last year.

Industry officials also admit that there was an over-marketing of SIPs. This led to mis-selling as well. "Distributors are getting a high up-front fees of 0.5 per cent," says a chief marketing officer. "They tend to churn the portfolio in as little as one month of starting the SIP. For this, both industry and distributors are to be blamed."

According to Hemant Rustagi, CEO of Wiseinvest Advisors, the bigger question now is how investors perceive equities. "I do not think that Indian mindset is yet prepared for equity investments," he adds.

Source: http://www.business-standard.com/india/news/small-investors-logging-outsips/465382/

Product differentiation is not significant

The gold fever, which caught on last year, seems to be a rage still. Though prices have tapered a little — returns from gold exchange-traded funds were down 3.5 per cent in the last three months — enthusiasm hasn't ebbed. The euphoria then is justified, as the yellow metal returned 35.59 per cent in the last one year.

Motilal Oswal Mutual's New Fund Offer (NFO) plans to tap this trend. But, the product has been tweaked slightly — investors can redeem units of gold (minimum ten grammes) directly from the fund house and get an equivalent amount of physical metal, quite similar to the National Spot Exchange that allows this through its e-series.

However, unlike banks or jewellers, who charge a premium on physical gold, the product will price the units based on the Indian spot price of the metal. In addition, there will be a value-added tax.

The minimum investment amount during the NFO will be Rs 10,000. The expense ratio would be up to 1.3 per cent at the moment, said Rajnish Rastogi, senior VP and co-head of equities at Motilal Oswal Mutual Fund, which is in line with the other gold ETF schemes — eleven at present — that charge between one and 1.5 per cent.

The units of the scheme will be listed both on the NSE and BSE. Investors can buy or sell the units through their trading accounts with their brokers or sub-brokers at the price quoted on stock exchanges. "When you want to redeem units, you will have to approach the fund house, furnish your PAN card details and another identity proof such as driver's licence or voter's ID. It will take T+5 days to receive your gold units after putting in your request for redemption", said Rastogi.

There is no entry or exit load applicable. Since all gold ETFs give similar returns, there won't be much difference in these. The only innovation - being able to buy gold cheaper than banks or jewellers - isn't a great differentiator. But, the cost difference — five to 15 per cent — can make it beneficial for the long-term saver.

Typically, it can be used by people who want to save for their children's wedding few years down the line. A 10-15 per cent savings could be significant then.

This is like a monthly savings scheme that many jewellers such as Tanishq have, where investors can pay monthly and buy jewellery at the end of the tenure. Some jewellers even pay one or two instalments. MOSt's gold ETF can be used to save gold over a longer term and then use it for making jewellery. However, as Hemant Rustagi, CEO, Wiseinvest Advisors, puts it, "The usual expenses will have to be incurred once the physical gold is given to the jeweller. Any saving, therefore, is only interim in nature."

As for taxation, there will be none on redemption in the physical format. But if you sell the gold within three years, you will be levied a short-term capital gains tax in which the gains will be added to income and taxed according to your slab. And, if it is sold after three years, you can index the cost and long-term capital gains tax of 20 per cent. However, if you use it as any other gold ETF, the tax will be similar to debt instruments.

Since the advantages of the conversion to the physical format are not significant, treat this scheme like any other ETF.

The NFO for the scheme will open on March 2 and will close on March 16.

Source: http://www.business-standard.com/india/news/product-differentiation-is-not-significant/465370/

Fidelity Mutual Fund in two minds over selloff; bidders confused

Bidders for the India business of Fidelity Mutual Fund are picking up confusing signals from the fund house. Fidelity's decision not to part with its equity fund management team and overseas advisory business has not gone well with many bidders, sources in merchant banking and mutual fund circles told ET.

Fidelity Mutual Fund, in its 'request for proposal' document, has stated it is keen to retain the equity fund management team headed by Alexander Treves. Fidelity Mutual will reach a final decision on its equity fund management team after taking into account the overall valuation of the deal, said a Fidelity insider.

What has added to the confusion is a recent mail from the Fidelity management to senior officials, talking about the possibility of a joint venture with an Indian bank. This comes barely a week after circulating the 'request for proposal' document among potential acquirers.

Sources said sections within the Fidelity management feel that it may be a wrong time to exit India with the local market just stepping into a bullish phase.

Bullish on Fund Mgmt Business

"The business review was conducted in November and December, when markets were not doing well at all. The turnaround in markets has taken top Fidelity officials by surprise. There's a feeling that Fidelity is selling its asset at the bottom of a market cycle," said an insider at Fidelity Mutual.

At the regular morning meetings in the Mumbai office, a few senior officials have expressed their desire to continue with the fund management business in India.

They are optimistic of making the fund house profitable in bullish market conditions.

Fidelity officials declined to give specific comments on the story. "Fidelity Worldwide Investment is conducting a strategic review of its onshore asset management business in India; as with strategic reviews all options are being covered. The review is underway and it is too preliminary to discuss any outcome," said a spokesperson at Fidelity Mutual.

Fidelity Mutual, with a high salary structure and accumulated losses of Rs 305 crore, is looking for a price of about 6.5% of its assets under management (AUM). The fund house has a net AUM of Rs 8,700 crore, of which Rs 5,000 crore are equity assets. "Fidelity is asking for a very high price... we've placed our bids at about 4%," said the CEO of domestic fund house. "Another concern is their reluctance to let the equity fund management team stay with the fund. The deal is not hot without the fund management team," said the person.

Till Friday, Fidelity had received bids from more than a dozen Indian and international institutions, including Invesco, Pramerica (Prudential in USA) and State Street Corp. The fund house is yet to begin the short-listing process.

"If the price is right, Fidelity may prefer an American buyer as it will smoothen the exit. Getting regulatory approvals will be easier if an American asset manager buys Fidelity India. Sebi too will like it if Fidelity finds 'an-equal weight buyer'," said another investment banker.

A few leading domestic fund houses, however, did not bid for Fidelity's assets as the acquirer, as part of the deal, has to give jobs to all members of the business management team, comprising marketing and sales personnel.

"Large Indian fund houses have full-sized business management teams; they do not have the space to accommodate Fidelity personnel," said another chief executive of a local fund house.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/fidelity-mutual-fund-in-two-minds-over-selloff-bidders-confused/articleshow/11983051.cms

Tuesday, February 21, 2012

Pramerica Mutual Fund to buy 39% stake in Prudent Corp for Rs 20 crore

Pramerica Mutual Fund is close to buying a 39% stake in Ahmedabad-based retail distribution outfit Prudent Corporate Advisory Services for about Rs 20 crore, according to two persons close to the deal.

The stake acquisition will help Pramerica, which manages over Rs 2,100 crore worth of assets, widen its distribution base significantly as Prudent ranks among the top five retail fund distribution companies.

Officials at both Pramerica Mutual Fund and Prudent declined to comment on the development.

Prudent, which was formed in 2000, offers personal and corporate investment planning services through mutual funds, third party products, portfolio management services, fixed income and real estate.

It is also a corporate agent for Kotak Life Insurance. Prudent services assets worth Rs 3,500 crore, of which about 60% is invested in equity funds. It manages about 1,25,000 retail systematic investment plan folios.

Prudent, which has partnered over 4,000 independent financial advisors, has 48 branches spread across western and northern India. Prudent earned commissions worth 21 crore last year, according to AMFI.

Pramerica intends to start it PMS segment soon; this deal may help the company get rich clients from Prudent's strongholds in Gujarat, Uttar Pradesh, Delhi and Punjab," said the marketing head of a mid-sized fund house.

However, many distributors said Prudent may not be the right pick for Pramerica.

"Prudent was a strong retail distributor till about two years ago... it lost the game when it forayed into real estate. Foreign fund houses will not be really happy to partner with anybody who does real estate broking," said a Mumbai-based distributor.

Source: http://economictimes.indiatimes.com//articleshow/11969583.cms

Market in a correction mode: Sunil Singhania, Head Equities, Reliance Mutual Fund

In an Interview with ET Now, Sunil Singhania, Head Equities, Reliance Mutual Fund, gives his views on Indian markets and a range of his favorite sectors. Excerpts:

ET Now: For this year, India has really outperformed the region. Have you been surprised by the pace of the rally and what is the approach that you are now adopting?

Sunil Singhania : This rally has got everyone unguarded so to say. The speed and the intensity has been very sharp. There might be some events here and there which might ensure that there are some small reactions to the market.

However, one interesting thing is that after a long time we are seeing investors both global and domestic looking at these reactions to invest aggressively which was unlike the past 18 months where investors were looking at up ticks to sell. Now it has changed to--buy on reactions. So even if there is a reaction, our call would be that these reactions are going to be short and swift.

ET Now: My compliment, on the same forum, exactly a month ago, you had indicated to our viewers that it is time to buy equities aggressively. So my question today is now that liquidity is back, do you think for Indian markets, the bear market is over and the new bull market has started.

Sunil Singhania : I wish it were so simple and the good thing is that at least the optimism is back. Equity investment is again starting to be looked at.

We have seen markets move from we can say over optimism to huge pessimism. We are now in a correction mode. At this point of time, we would not say that the markets are expensive. They are fairly valued but there are a lot of companies on the midcap side, some of the beaten-down sectors where people had given them valuations of probably a liquidation and those have already come back.

As you said, some of the stocks have moved 70-80% over the last one month but again we will just highlight that they have to be looked from their fair valuations and from the highs rather than from the lows.

So our attempt is to try and see how we can rejig and move from just exuberance kind of stocks without fundamentals, moving up to companies which have fundamentals and which are yet to participate in the rally.

ET Now: What have you made of the policy action in the power space now?

Sunil Singhania : There is no doubt that power sector in India has got huge potential. You have severe power shortage, the demand is insatiable. So from a developer's perspective, it is a very good business to be in where you can put in huge sums of money and then you have huge demand.

What has happened over the last couple of days has been that the roadblocks which were becoming very big for the power sector in terms of fuel availability has been addressed completely as far as coal is concerned. So it is a very positive move.

The fuel security which the power companies will get will ensure that the projects which are already either completed or in the process of being completed over the next few years would be ensured with a reasonable coal supply and there is incentive and disincentive both in terms of working as far as the PLF is concerned. So it is a very good move but more importantly, this is a move which has been directed from the PMO office. So there is a lot of seriousness to it.

Also, we hear that the EGoM is going to meet again, one to take up the issue of the problems faced by UMPP very soon and followed by an EGoM on the gas as far as the power sector is concerned.

So from our perspective, this is not a one-off event, it is a chain of events which will ensure that the much needed boost to the power sector is coming through. We should not forget that power sector is one sector without which the dreams of India to consistently grow at upwards of 8% will never be met.

ET Now: Fair point, the FSA or the fuel-supply agreement indeed is a game changer for some of these power companies but from your perspective, are power stocks looking slightly expensive because most of the power stocks this calendar year, have already appreciated by about 50-80%. Is all the good news baked in at current levels?

Sunil Singhania : We are probably making a mistake of seeing the lowest price and trying to see how much they have moved up from the bottom. However what we have to also look at is, what are the valuations compared to the reasonable fundamentals which these companies have. There are definitely pockets where if things start to move or start being pushed the way the signs are now, there is definitely potential of significant more upsides.

We have seen the kind of opportunity and the kind of interest with the sector attracted in 2006 to 2008, obviously the last 18 months because of multiple reasons, whether it was fuel availability or whether it was land availability or the interest rates going up, we saw the reverse.

There is definitely optimism from our perspective and we do feel that this is one sector where a sustainable 14-15% growth for a long period of time is definitely possible.

ET Now: What is your sense, do you think the power sector will now be the next leader in the bull market?

Sunil Singhania : I do not know whether they will be the leaders of the bull market but it is a very good sector. The good thing is that everything which was working against the sector has started slowly working in favour of the sector.

So on one hand, you have interest rates which have started to come off which is again very positive because it is a high capital intensive sector. The other thing is that equity investments have started to come back. So this risk appetite will ensure that the equity capital which some of these larger power companies need will also be available.

Added to that, the PMO's and the government's attempt to ensure that all the roadblocks for the sector are slowly addressed, again is a very positive. So we remain quite optimistic.

ET Now: In quick time, Nifty has moved from 4500 to 5500, now almost 5600. Do you see 5000 now acting as a serious base for the Nifty? 5000 is where you think there is a lot of support.

Sunil Singhania : I do not know about the numbers but as I said earlier, unanimously everyone is looking at corrections to invest. So as I said corrections are going to be short and swift.

ET Now: In 2011, mutual funds saw net outflows. Is SIP in retail money coming back in these markets?

Sunil Singhania : Media companies should be encouraging investors to put money. Unfortunately during the last 1.5-2 months, the mood had been so gloomy that new money had definitely not poured in but we are already seeing interest from investors.

They are waiting for a small correction and on a small correction, we will definitely see more money coming in.

One thing I would like to mention here is that there is definitely good amount of money in the system. NHAI bonds and the all those other tax-free bonds can get hugely oversubscribed and collect Rs30000-40000-50000 crores all put together.

It clearly indicates that retail has lot of investments, lot of money waiting to be invested and once the confidence starts to trickle down, there is a lot of hope of big money coming in.

ET Now: Apart from power, what is it that you are overweight on and where do you see value?

Sunil Singhania : There are again lot of individual stocks where there is definitely some hope. There were concerns about some metal companies. If you see, metal companies have also moved up 30-40% but from their highs, they are significantly lower.

Probably from a longer-term perspective, there is a lot of value in metal companies. In near term, there are always going to be concerns about what happens to China, Europe, some mines which are in India, but from our perspective, there are companies across sectors where a lot of pessimism had been built in. To some extent, it has been corrected but there is still value in some of these sectors.

The other thing is that we also have to look at where the regulatory changes can impact positively. So we are overweight in some of the media companies on the cable side. We feel that there is some optimism in the insurance and the retail side.

ET Now: That seems to be big portfolio change, seems to be a big change in stance, isn't it because last time when I interacted with you, you were of the view that one should buy pharma and PSU stocks?

Sunil Singhania : No one expected the intensity of this rally. The rally has definitely taken everyone by surprise but it is a positive surprise. From our perspective, if small steps continue to be taken by the government and if, the macroeconomic factors which are now looking in favour of India as an economy (whether it is inflation or interest rates) continue, the market and the economy has a lot of optimism from a longer term perspective.

Source: http://articles.economictimes.indiatimes.com/2012-02-17/news/31071489_1_power-sector-sunil-singhania-indian-markets/2

Market may touch new highs over the next 12 months: Vijai Mantri

In an Interview with ET Now, Vijai Mantri, MD & CEO, Pramerica Mutual Fund, gives his views on Indian markets. Excerpts:

ET Now: After the recent run up that India has seen, we have become the most expensive in the region, and Sensex is at a valuation of 15 times FY12 earnings, is it time to exercise caution?

Vijai Mantri : I do not think it is a time to log out because if you look at Indian market from valuation perspective, it is still discounted to last 5 to 10 years average PE multiple or price to book value.

If you look at the earnings growth of Indian equity market, the top line continues to grow at close to 20%, even December quarter numbers growth on top line was close to 20%. If you look at the bottom line, we have seen perhaps the worst quarterly result in December 2011 and the results are bottomed out. and there are significant upsides.

The visibility on the corporate bottom line will start emerging over next six month period. So we have not seen yet the full cycle of when the unleveraging will happen, when the interest rate go down, when the one-time adjustment is being taken care of.

So if you look from a valuation perspective, if you look from an earning perspective, we clearly see there is a lot of leg left in this rally and it is not the time to cash out.

Compared to 2009, where the market went up significantly and suddenly investor did not have the opportunity to participate in the equity market, 2012 may allow multiple entry points for the retail investor. So if you are investor and you are investing for three to five year period, whenever you see correction in Indian equity markets you should put money rather than taking money out.

ET Now: Which are some of the key sectors you are bullish on where you have overweight positions and which are the key sectors on your avoid list?

Vijai Mantri : We are buying more in the banking space because we believe the banks will be in a sweetest spot over a 6 to 12 month period for very simple reason that most of the bad news about the banking sector has already been priced in.

The most important news is on the NPA side and if we look at the balance sheet of the bank and if we look at what price they are available, many of these banks are available in the historical low valuation and it means that significant amount of NPAs has already been discounted in and, we do not see NPA going to be that much in the banking space.

The second thing is, the interest rate is going to come down over the next 12 to 18 month period, it would help banking sector significantly.

The third thing, one needs to look at the interest rate curb, if you look at three months bank CD or six month bank CD or 12 month bank CD, they are available around 10% and, if you look at 10-year GSec it is around 820 to 825, so the yield curve is clearly inverted, suggesting interest rate is going to come down.

When the interest rate is going to come down, lot of NPAs would see recovery, so I believe, banking sector would be an interesting space to be in. It is also a direct play of India GDP.

The second space we are turning bullish is the capital goods because we believe this sector will see some activities because the government will come out of the reform post budget and post UP election and, the market would see the visibility of these things at least 6 to 12 month now but the visibility as far as the profits and the activities of the investment side will take 6 to 12 months.

But the market will start discounting these things much ahead of a visibility on these areas. So I believe capital goods, banking would be the interesting space and added to that is industrial space. We are overweight on these three sectors. We are underweight on real estate, we are underweight on IT.

ET Now: So what do you like from the cap good space?

Vijai Mantri : If you look at the capital goods, we like BHEL, L&T, Crompton & Greaves, Thermax.

If you look at the cycle of these companies over the last 10 to 15 year period, you get out what should have been your entry point and when you could make money in these stocks. These companies have gone through the challenges where the order book position was not looking very good.

The policy paralysis we have seen in past, interest rate going up, the competition from international market, so these companies have seen all these things over the last 15 to 20 year period and the best time to own these stocks has always been around the same time, so we are looking at these companies.

ET Now: Indian markets are up 20% this year and that is largely on account of liquidity but the fundamental turf is not looking exceptionally strong, factors which got us down in November and December were high crude prices, high inflation and a ballooning subsidy burden, can we brush aside all the macro concerns?

Vijai Mantri : I do not think we can brush aside. These problems would continue to remain there. I think inflation would come down. If you look at the fiscal deficit the government has said there is 4.6% fiscal deficit.

Market has already anticipated even in last year that these numbers do not add up, so market was already discounting all these factors. If you look at this year, market is anticipating that as far as fiscal deficit is concerned, it may hit 5% plus kind of number so market has priced in all these things.

If positive news flow happens then you will see the market going to the new level and the positive news flow may not necessarily has to come from the international market. If you look at the rupee-dollar play, part of the inflation is because rupee has depreciated against the US dollar and, now rupee is in appreciation course and if that stays there, again inflation would come down.

So we know that the inflation would remain there, it may come down to 6% but still above RBIs comfort level to 4% to 5%, but 6% is pretty okay. It may have a chance to coming down further. About fiscal deficit, we know the ground reality will remain around 5% but in spite of those things, we believe that the India is in a good shape and it will continue to be in good shape post budget and UP elections.

ET Now: On a scale of 1 to 10 what to your mind are the chances that Indian markets will touch or will cross the previous high of 21000?

Vijai Mantri : My sense is that over the next 12-month, the market may touch new high and I will put 70% chance on that.

Source: http://articles.economictimes.indiatimes.com/2012-02-17/news/31071532_1_banking-sector-banking-space-interest-rate/2

Why are 8 firms bidding for loss-making Fidelity’s India assets?

Fidelity, one of the worlds largest fund managers in the world, has decided to exit India by selling of its assets.

What's surprising is how many firms are scrambling to grab what's up for sale.

According to an article in Mint, eight firms including Tata Asset Management, Pramerica Asset Managers, US financial firm State Street Corp, Mizuho Financial UFJ Financial Group Inc, and a joint venture of Ambit and Nikko are some of the companies interested in buying the assets of Fidelity's Indian asset management arm, FIL Fund Management Pvt Ltd.

For a company that reported an accumulated loss of Rs 333 crore —the highest in the domestic mutual fund industry — that's quite a long list of suitors. In 2011 alone, the company's losses had more than doubled to Rs 62.39 crore from the previous year.

According to an article in MoneyLife, a fund needs at least Rs 10,000 crore in assets under management to just break even. Fidelity had never reached that figure, which is what exacerbated its losses. Fidelity had equity-related assets totalling Rs 6,183 crore and about Rs 2,696 crore in debt schemes at the end of December.

However, Moneylife blamed two Securities Exchange Board of India (SEBI) chairmen in particular for the fund's failure. "The foolish regulations that killed all incentives to sell mutual funds started under former SEBI chairman CB Bhave's tenure and has been taken to new depths…the current SEBI chairman UK Sinha," it said.

SEBI's decision to ban the entry load also had a dramatic impact on the profitability of the mutual fund industry as it hit distributor margins.

Given these various problems, why are so many firms interested in Fidelity's assets then? It is because of the fund's large equity exposure or more because some new foreign fund wants to enter India via this sale? Lets hope they do their home work well or we may end up seeing another stake sale soon.

Source: http://www.firstpost.com/business/why-are-8-firms-bidding-for-loss-making-fidelitys-india-assets-215199.html

Wednesday, February 15, 2012

Liquid funds to give returns in line with money markets

Sebi appears to be taking a leaf out of international experiences in valuation of liquid funds.

The Securities and Exchange Board of India (Sebi) has decided to change the valuation norms for debt and money-market instruments held by mutual funds. Instead of the earlier norm requiring these instruments to be marked to market, where the residual maturity exceeded 91 days, the new norms would see instruments with maturities of at least 60 days being marked to market (when these securities are not traded).

Over a period of time, Sebi has reduced the mark-to-market tenor from 1 year to 91 days to 60 days. In making the change, Sebi has expressed its desire that all types of investors—existing as well as those seeking to purchase or redeem—are treated fairly. Marking to market ensures that the portfolio value closely reflects the realizable value of the assets. In the case of equity funds, the well-traded and liquid nature of the equity market ensures that mutual fund net asset values (NAVs) capture the current value of the portfolio. The debt market remains illiquid and non-traded securities are valued using a valuation model.

For securities with up to 60 days of maturity, the valuation method would remain the same (amortization at cost). In amortization, there is the possibility that the price of the security could be substantially different from the market price. This could lead to over/under-valuation of the portfolio. The lowering of the mark-to-market threshold would ensure that the extent of valuation difference is minimized both in duration and amount. The benefit of the new norms would be in the reduction of over-valuation, which could affect the fund if it were to be subjected to large redemptions.

Sebi appears to be taking a leaf out of international experiences in valuation of liquid funds. In the US, for example, money-market funds are required to calculate a "shadow" price, which is disclosed with a two-month lag. In Europe, money-market funds are allowed to amortize as long as the weighted average maturity is less than 60 days (source Bank for International Settlements). The rationale for amortization in valuation is that for short maturity debt, daily volatility is quite small and the difference to market price would be negligible. For example, a three-month certificate of deposit (CD) would see its price change by only six basis points (bps) (0.06%) for a 25 bps change in the yield. A 60-day CD would see the price change by 4 bps for a similar magnitude change in yield.

Indeed the actual experience in the US suggests that deviations in the shadow price remain small—that the amortized value is close enough to the real value of the fund (source Investment Company Institute). Thus, the shadow price has not had a negative impact on the growth of the money-market industry. In this context, Sebi's step may be seen as more restrictive than the international norm as it requires the marked-to-market prices to be used in the fund's NAV rather than as a shadow NAV. This may result in an increase in investor perception of volatility even where it may not be justified.

The impact of the changed valuation norms would be felt most in the category of liquid funds, which invest exclusively in instruments that mature within 91 days. This category was defined by Sebi to provide a low volatility option for investors seeking to invest for the short term. The low-risk nature of this category has made it the option of choice for companies and retail investors in mutual funds who desire to park their short-term surplus. In view of the changed valuation norms, liquid funds are likely to change their portfolios to invest in instruments with shorter tenor. This would be consistent with the investor preference of low volatility.

For the money markets, liquid funds remain key providers of liquidity. For example, liquid funds are among the largest investors in CDs and commercial papers (CP), apart from being key participants in repo and collateralized borrowing and lending obligation. Restricting deployment avenues for liquid funds may result in lower liquidity in these key markets as funds move into safer assets.

In summary, the primary rationale for investing in liquid funds—earning short-term interest rates with low volatility—is not changed by the change in valuation norms. Mutual funds will adapt to the new guidelines and liquid funds would continue to provide returns in line with those prevailing in the money markets.

Source: http://www.livemint.com/2012/02/13211552/Liquid-funds-to-give-returns-i.html

Taking advantage of rate uncertainty

A number of fund houses prepare to launch these open-ended schemes

Investors in debt funds are in a bind. While there are indications that Reserve Bank of India is likely to cut indicative rates, there is uncertainty on when it will happen and by how much.

The existing rates of interest — eight per cent plus — is good. But if rates fall, it could be better for investors due to rise in prices. To take advantage of this uncertainty, a number of fund houses are lining up to launch open-ended dynamic bond funds.

Three fund houses — IDBI Mutual Fund, Pramerica MF and Union KBC — have already done so. Two more, Daiwa MF and Principal MF, have filed offer documents with the regulator, the Securities and Exchange Board of India (Sebi).

Dynamic bond funds, as the name suggests, are able to take advantage of rate cuts or rises by altering their portfolio. But here lies the danger as well.

Sometimes, fund managers can get their churning right or it can go haywire as well. So, returns can widely fluctuate.

In the one-year category, return on dynamic funds is 9.78 per cent. However, the best performing fund — SBI Dynamic Bond — has given a the return of 12.99 per cent, while the worst-performing — Tata Dynamic Bond A & B — have given a return of 7.51 and 7.52 per cent, respectively.

"The debt fund track record of the fund manager and the fund house plays a very important role in deciding which dynamic bond fund one should choose. The investment process and philosophy should be looked at," explains Mahendra Jajoo, director and CIO (fixed income) at Pramerica MF. Investors need to check the track record before taking a call.

The trick in these funds lies in being made to predict the rate fluctuations correctly and change the portfolio. "When the interest rate is rising, bond prices fall and the fund manager should be able to decrease the duration of the bond; short-term bonds face a lower impact. And, when the interest rate is falling, they should be able to increase the duration of the bond," says Gautam Kaul, fund manager, IDBI MF.

The taxation on these funds is computed like any other debt scheme. Long-term capital gains tax is calculated at 10 per cent with indexation and 20 per cent without it. In the short term, capital gains will be added to your income and taxed, according to slab.

But since the risk involved with investing in these funds is not very high, Suresh Sadagopan, a certified financial planner,says one can allocate 20-40 per cent of the debt portfolio in these funds. "From a 6-18 month perspective, these funds are far more tax-efficient and will give you better returns than a bank fixed deposit, a national savings certificate or PPF. They are less risky than corporate bonds as well."

In terms of cost, they are comparable. For dynamic bond funds, the expense ratio can be anywhere between 0.7 per cent and one per cent, higher than most short-term debt funds. However, the expense ratio is comparable to income funds (higher tenure debt funds).

The exit loads vary between fund houses. It is around 0.5 per cent and for six months to one year. Some fund houses do not charge exit loads.

Source: http://business-standard.com/india/news/taking-advantagerate-uncertainty/464600/

Four fund managers' view on how equity markets are likely to take in coming months

They are like players of the Indian cricket team. A good show earns kudos while a poor one brings brickbats. That they manage public money makes them even more accountable. Meet some of the country's leading fund managers who have been managing your money convincingly, both during rallies and in downturns of the equity markets. In candid conversations with ET , top executives of the mutual fund industry share not only their investment strategies and biggest challenges, but also some of their best and not-so-good investment decisions, besides giving their view on the direction equity markets are likely to take in the coming months.

Sandeep Kothari, Fund Manager, Fidelity

Worldwide Investment

1) What makes you stay back in your current organisation?

Fidelity is a good company with a good investment culture. Also, as an asset manager I believe that one needs to build a track record in managing people's money and to build trust. You can not hop around jobs to do that.

2) What is your philosophy for equity investing?

There is no growth or value sort of philosophy per se. I believe one needs to look at businesses, scalability of business and pay the right value for it. The idea is to identify good businesses and grow with those businesses.

3) What triggers your investment decision?

I think paying the right price is very important. However, defining the right price is very subjective and influenced by a lot of macroeconomic factors.

4) Your biggest challenge as an equity fund manager.

Not losing out on focus if schemes underperform and not getting carried away if they do well.

5) Your best investment decision.

Did not get carried way by the infrastructure boom in 2007 though the decision had begun to hurt the performance of the schemes. Sticking to the conviction of not investing in these companies was very challenging and difficult, but eventually it paid off well.

6) Investment decision you regret.

We exited a couple of stocks at the lowest prices ever hit by that counter and lost money since we had bought them pretty expensive. While we did not have significant exposure, we do regret not having done enough research before taking the exit call.

7) Investment ideas for the coming months.

We expect the banking and financial cycle to turn around this year and if that happens then the capital investment cycle would also increase.

8) Do you invest in your own schemes?

I have invested in all three of my schemes, Equity, India Growth and Tax Advantage though SIPs. In fact, a large part of my equity investments is in my own funds.

9) Your take on Indian equity markets.

Markets are volatile and we expect volatility to continue. But we do believe in cyclical recovery if government starts moving on the policy. But if reforms do not happen, sentiments may turn back equally quickly.

Apoorva Shah, Executive VP & Fund Manager, DSP Blackrock Asset Management

1) What makes you stay back in your current organisation?

I respect the core values of DSP that are honesty, integrity and an open culture. This organisation has allowed me to work in different capacities and graduate from sales to fund management.

2) What is your philosophy for equity investing?

I don't have a theory on how the market should behave but I am flexible in my approach. I accept the way in which it behaves and adapt myself to it.

3) What triggers your investment decision?

Stock picking, especially in the mid caps, is on the basis of size of opportunity, scalability, pricing power and management quality in terms of their ability to execute and track record.

4) Your biggest challenge as an equity fund manager.

To read the changing markets from time to time, and to meet investor expectations.

5) Your best investment decision.

Going extremely defensive in 2008 with overweight positions in consumer staples, pharma and IT despite they being expensive. We avoided financials and cyclical stocks then.

6) Investment decision you regret.

Couldn't aggressively change the defensive character of the portfolios in 2009. Should have embraced the financial sector in March 2009. Got apprehensive about the potential bankruptcy in the system and avoided financials.

7) Investment ideas for the coming months.

We have remained defensive for a major part in 2011, but are looking forward to cut down on defensive bets. Looking to invest in certain beaten down and cyclical counters like financials, capital goods, and infrastructure.

8) Do you invest in your own schemes?

I have currently invested in DSP Balanced fund and the MIP. I have a lump sum investment in both these schemes.

9) Your take on Indian equity markets.

We have had high quality stocks outperform till last year and there was a high-risk aversion. Now there is a love for risk that has come again. Valuation gap between quality stocks and beaten down ones has expanded substantially. Quality stocks are very expensive. Need to shift the portfolios based on a value approach, on the margin.

Anand Radhakrishnan, Sr VP & Portfolio Manager - Equity, Franklin Templeton Asset Management

1) What makes you stay back in your current organisation?

The only business that we do in Franklin Templeton is asset management and as an investment management professional I like to work for an organisation where the heart and the soul belongs to investment management. It is one of the very few organisations to have emerged as the benchmark for some of the best industry practices globally.

2) What is your philosophy for equity investing?

Investing in businesses that can withstand cycles and deliver good returns in both good and bad times.

3) What triggers your investment decision?

It is essentially bottom-up based GARP approach, but we also take value based contrarian calls.

4) Your biggest challenge as an equity fund manager.

To identify long-term winning ideas in the market.

5) Your best investment decision.

Investing in some of the large-cap stocks where we had high conviction like HDFC Bank, Bharti Airtel, Lupin, Kotak Bank and Idea. Investing in Cummins in the industrial segment turned out to be a winning idea for us.

6) Investment decision you regret.

Not exiting some of the extremely high-valued infrastructure stocks in 2007. One costly decision in 2011 was to sell consumer staples too early on valuation concerns.

7) Investment ideas for the coming months.

With interest rates very low globally, it is not remunerative investing in bonds, while dividends in several equities are higher.There was a case of undervaluation of equities. Markets is on a corrective course where the undervaluation of equities will reduce.

8) Do you invest in your own schemes?

Most of my equity investments are in our schemes. So if my schemes do well even we do well.

9) Your take on Indian equity markets.

Hopefully, a number of local issues will get solved once the elections are over. Hence 2012 will be a better year compared to 2011. We are cautiously reacting to these changes, while waiting for confirmations. We are not betting on a big recovery in 2012. We believe that some more of what we have seen is required to enable bigger bets on pro-cyclical stocks.

Kenneth Andrade

Head - Investments, IDFC Asset Management

1) What makes you stay back in your current organisation?

IDFC has given me independence and freedom of thought to implement what I wanted to. I have been associated with the organisation when it just started off in equities and now I have taken it up as a challenge to scale it up.

2) What is your philosophy for equity investing?

I look for great start-ups and for great people who can start organisations. Then once the business hits a certain inflexion point, you need to see if it has enough bandwidth to scale up.

3) What triggers your investment decision?

I like companies that go for market share, especially in down cycles.

4) Your biggest challenge as an equity fund manager.

Finding the right scale of investment without diluting the return profile of the portfolio.

5) Your best investment decision.

Not having infrastructure stocks in the portfolio in 2008 and banking and financials in 2011. Also, an early participation in the consumption cycle in early 2009 helped.

6) Investment decision you regret.

We got some of our exit strategies wrong, like textile, sugar and solvent extraction in the mid of 2010. Our exit strategies in many businesses have not been the best.

7) Investment ideas for the coming months.

We are kicked about the NBFC space. While the entire banking system in the last decade extended their balance sheets to infrastructure, their lending to the retail segment has not been impressive. NBFCs have shown a significant growth in retail lending which we like.

8) Do you invest in your own schemes?

There is too much off a compliance issue. So I refrain from investing in my own schemes. Currently, my largest investment is IDFC itself. I do not invest in mutual funds because of regulatory problems.

9) Your take on Indian equity markets.

In the current decade, corporate & bank balance sheets and the fiscal position are in mess. The de-leveraged part of the economy is the customer. So my sense is if the interest rates were to soften, the first thing to take off will not be capital goods or infrastructure but the car sales and mortgages.

Source: http://articles.economictimes.indiatimes.com/2012-02-13/news/31055165_1_fund-managers-equity-markets-investment-strategies/2

Monday, February 13, 2012

Avoid stocks with poor fundamentals: Sivasubramanian KN, Franklin Templeton Mutual Fund

Prospective rate cuts, lower earnings downgrades and project fast-tracking by the government are likely to instill confidence in investors, though worries about deficits and capex slowdown remain, says Sivasubramanian KN, chief investment officer, Franklin Templeton Mutual Fund. Post the 2000-point market rally in January, the fund house has increased exposure to telecom and power firms and financial services institutions.

It has cut investments in technology companies, as per the fund fact sheet. In an interview to ET, Sivasubramanian says investors need to be cautious about the sharp run-up in stocks without underlying fundamentals. Edited excerpts:

Markets have gained 15% and FIIs have pumped in over 11,000 crore since January this year. What do you think is the reason for this turnaround in trend?

Improved economic news flow from key economies such as the US and China as well as policy support have improved global investor sentiment over the past one month. Emerging markets such as India have benefited from the easy global liquidity, as foreign investors seek higher yields and look for medium-to-long-term growth opportunities.

The rally also needs to be seen in the context of India's underperformance in 2011. In an improved risk environment, global investors could have found India attractive, given that most negative developments appear to be priced in. However, we need to be cautious about the sharp run up in stocks without underlying fundamentals.

Do you expect this buoyancy in the market to continue?

It is difficult to predict short-term market movements - a lot would depend on the global situation. While broad issues about twin deficits and slowdown in capex remain, there are some signs of improvement: One, RBI has indicated interest rates have peaked; two, the government seems to be fast-tracking project approvals and three, earnings downgrades momentum has slowed in recent weeks.

What are your major concerns with respect to Indian markets?

The near-term direction will depend on various factors such as inflation, policies and global factors that could impact liquidity. Any spike in risk aversion could impact capital flows into India and if commodity prices, especially energy, start firming up, it would impact India's current account position. Investors are looking for clarity on the fiscal consolidation front. They are also analysing the impact of the recently launched food security bill and SEB losses.

Is it time to move out of defensive sectors?

The focus should be on individual companies and their characteristics and growth potential rather than a top-down view that is fraught with risks. We have a bottom-up approach to investing. We choose companies based on their individual merits.

What will be the impact of Assembly elections on markets?

We don't expect elections to have any significant impact over a longer time-period. However, the results could have an indirect impact; a negative result for the ruling coalition could bring in some uncertainty. On the other hand, a strong showing can help the central government to push forth key reforms.

What do you expect from the budget?

Investors will look for an insight into the government's stand on various reforms, steps towards fiscal consolidation and policy measures to facilitate a recovery in the capex cycle.

Source: http://economictimes.indiatimes.com/opinion/interviews/avoid-stocks-with-poor-fundamentals-sivasubramanian-kn-franklin-templeton-mutual-fund/articleshow/11865606.cms?curpg=2