Mutual Fund NEWS Group: June 2012

Saturday, June 30, 2012

SBI mutual fund CIO Navneet Munot sees silver lining for Indian markets

A bright Sun is all set to emerge soon from under the dark clouds overhanging the Indian stock markets, according to Navneet Munot, Chief Investment Officer of SBI Mutual Fund.

Mr Munot was addressing an interactive seminar organized by Indian Merchants' Chamber on the topic of "Growth Opportunities in Volatile Markets" at the Chamber. Mr Munot sought to share his insights into the Indian story and into appropriate financial products to suit the risk appetite of investors.

He attributed the present phase of volatility to poor governance at Center, economic crisis faced by many countries in the Euro zone, policy paralysis and political indecision resulting in lack of key structural reforms etc. Mr Munot said that it was not unusual for investors to feel uneasy about their investments in such a volatile market.

"But despite the sinking confidence level, experts believe that most Indian stocks, securities and other assets have retained the ability to deliver attractive returns to investors. Only, an investor needs to take the right step at right time to invest in companies / instruments that can give above normal returns."

Source: http://economictimes.indiatimes.com/markets/stocks/market-news/sbi-mutual-fund-cio-navneet-munot-sees-silver-lining-for-indian-markets/articleshow/14504465.cms

--
___________________________________________________________________________________
'I made my money by selling too soon.'

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

Blog:http://indianmutualfund.wordpress.com/
___________________________________________________________________________________

Friday, June 29, 2012

Finance ministry, Sebi looking to make mutual funds attractive for distributors

The finance ministry and capital market watchdog Sebi will think of ways to revive the fortunes of the mutual fund industry by making the incentive structure more attractive for distributors. The ministry will meet industry representatives and Sebi officials on Monday before drawing up a plan to give a leg up to the industry that is faced with steady outflows, partly due to disinterested distributors.

Commissions to distributors and marketing expenses were met by the fund house by charging an entry load of 2.25% from investors. Of every Rs 100 an investor put in, Rs 2.25 was charged as entry load while Rs 97.75 went into stock purchases. Of this, the chunk was earmarked for distributor commission.

The entry load was banned in 2009 by former Sebi chief CB Bhave, who felt that investors were being taken for a ride by distributors who encouraged investors to churn their portfolios. The ban, however, dried up inflows into mutual funds.

"The objective is to reinvigorate the mutual fund sector," a finance ministry official told ET, confirming that the issue to bring back incentives was on the agenda and would be taken up with the market regulator. In the absence of sales push, coupled with a dismal market, equity schemes assets fell 11% in a year to Rs 1.67 lakh crore in May.

The meeting comes close on the heels of Prime Minister Manmohan Singh's statement on Wednesday that there were problems facing the mutual fund industry that needed to be resolved.

current Sebi Chairman UK Sinha may find it difficult to lift the ban as it may be perceived as anti-investor. "The UK had proposed a similar ban ahead of India, but later deferred it for three years, and that too after giving the domestic industry 18 months to adjust. There may be a need to follow this example in the wake of global developments," said a government official.

While several fund houses rampantly misused the entry load mechanism to shower distributors with gifts and foreign junkets, the ban stunned funds as well as intermediaries, which had no time to restructure themselves.

Brokers felt it could have been done in a phased manner as it made little sense for them to sell MFs in smaller cities for collecting investments worth a few lakhs. Industry body AMFI and mutual fund houses have made several representations to Sebi in the last one year advocating review of the cost structure, so as to have a wider retail participation and geographical penetration. Experts suggest a comprehensive package of measures to revive the industry.

"Like any other industry, mutual fund industry is also under pressure due to weak economic environment. Measures like reversing entry load ban will not alone revive the industry. There is a need for having greater flexibility in managing the expense ratio. Mutual funds should also be allowed to launch pension funds to attract long-term investors," said Dhirendra Kumar, CEO, Value Research.

Sebi had earlier informally sounded out market participants on reversing the ban on entry load, but never went ahead to revoke it. It has also met various market participants like fund houses, investors associations, distributors and mutual fund advisors in the last few months to seek their views on the subject, sources said.

"As part of the discussion, Sebi had sought views of industry participants as to whether reversing the ban on entry load would be in the interest of investors," said a person who participated in one such discussion some weeks ago.

Sebi is also in favour of pushing the Rajiv Gandhi Equity Saving Scheme, which seeks to provide tax breaks to first-time investors in equities, to be made available to investors through the mutual fund route.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/finance-ministry-sebi-looking-to-make-mutual-funds-attractive-for-distributors/articleshow/14480401.cms

FinMin mulls re-introduction of entry load for mutual funds

The Finance Ministry may advise the Securities and Exchange Board of India (SEBI) to consider measures including re-introduction of entry load to bail out the mutual fund industry. The Mutual Fund Advisory Committee of SEBI is scheduled to meet on July 17.

However, experts feel that rather than bringing back entry load, the effort should be to allow mutual funds to launch pension schemes. At the same time, the Rajiv Gandhi Equity Scheme should be routed through mutual funds, they suggested.

Highly placed official sources said that after the Prime Minister's directive to resolve issues about the mutual fund industry on Wednesday, the Finance Ministry is getting ready to draw up an action plan.

Re-introduction of entry loads, which will boost income for funds, is one of the key proposals. Since any move in this regard can be made only by SEBI, the Finance Ministry will advise the regulator, one source said.

SEBI banned entry loads from August 1, 2009. This was done to empower the investors in deciding the commission paid to distributors in accordance with the level of services received, to bring about more transparency in payment of commission and to incentivize long term investment.

The mutual fund industry has been unhappy with this. "First of all, introduction of such a move was not correct. Even the world body, though agreed in principle, did not introduce it, but India did," said a senior fund executive.

But bringing back entry loads is expected to further dampen sentiment, particularly when the markets are down. This will take away the investors to other avenues, he added.

Earlier this month, the SEBI chief Mr U.K. Sinha, had said that various stakeholders have given their suggestion but not about re-introduction of entry load.

In fact SEBI has requested the Finance Ministry that facilities in the recently announced Rajiv Gandhi Equity Saving Scheme should be made available for investment through mutual funds. This will help the investor to reduce the risk, while benefiting the industry.

Echoing the same sentiment, Mr Dhirendra Kumar, CEO of Value Research said, "Rather than pressing for re-introduction of entry load, the Government should facilitate mutual funds to launch pension funds."

Such a move will help the industry to get long term funds, which will also help the stock market. It is estimated that the mutual fund industry can easily mobilise Rs 50,000 crore through pension funds.

Source: http://www.thehindubusinessline.com/markets/stock-markets/article3581465.ece

Mutual Funds offering combo schemes to woo investors with plans that invest in gold, debt & equities

Weak markets are making fund houses look at new ways to generate investor interest in products. The latest attraction is a combo deal — schemes that invest in gold, debt and equities. Also, they are betting big on US markets to reap the advantages of the falling rupee.

This comes at a time when the net asset values (NAVs) of multiple asset funds, which invest in gold, debt and equity, have hit their 52-week highs and funds with direct or indirect exposure to stocks of USbased companies have made handsome gains.

Multiple asset mutual funds (MFs) have given 8.2%-10 .9% returns in the past year (till June 22). Except MFs that invest in the defensive FMCG and pharmaceuticals sectors and funds with exposure to stocks of overseas companies, all other equity MF categories were in the red in the one-year period.

"If these three assets (gold, equity and debt) are combined , they would be able to contain losses much more effectively ," says Anil Rego, CEO, Right Horizons, a wealth management firm.

"It is easier to take this product to investors as the risks involved are much less," says Rupesh Nagda, head, investment advisory and products , Alchemy Capital Management . "It is a good option for retail investors as it would be difficult for them to keep shifting money from one asset class to the other," he says. Moreover, investors also do not have much insight into how different asset classes behave in such volatile conditions , Nagda says.

With equities not doing well over the five-year period, usually considered a benchmark for long-term performance, investors are losing patience leading to a sense of fatigue among them, say experts. Diversified equity MFs have moved up by a measly 5.5% a year in the past five years.

Several funds (including sector-oriented funds) that invest in stocks of US-based firms have, however,made it to the top-10 list in the last one year. Incidentally, the best performing equity MF for the period invests exclusively in NASDAQ-100 stocks.

Experts however advise caution on this front. With the rupee plunging to new lows against the dollar and the US markets unlikely to repeat the past year's performance, the prospect of making big gains are much less, they say.

Source: http://articles.economictimes.indiatimes.com/2012-06-26/news/32424752_1_multiple-asset-diversified-equity-mfs-debt-equities

Wednesday, June 27, 2012

India’s worst fund houses and the importance of benchmarks

Last week, Securities and Exchange Board of India (Sebi) chairman U.K. Sinha, speaking at the Confederation of Indian Industry Mutual Fund Summit, said something that took many of us by surprise. It is not often that a capital markets regulator speaks about the performance of products, the lack of it and how the regulator was going to deal with it. Regulators largely stay with removing systemic risk and the risk of fraud, leaving investors to deal with market risk on their own. Why would Sinha, then, point to nine fund houses that were beaten by their own benchmarks over the last three years and promise to take this up with the companies? Is this the start of micro-managed regulation?

I doubt that Sinha intends to look over the fund houses' shoulders as they click "buy" and "sell", but I think he was making a broader point and telling investors to look at benchmarks as a key determinant to evaluate fund house performance. Few investors understand the relevance of a benchmark and look at absolute returns on their money. For example, a few years ago, a fund house sought to take advantage of this ignorance and advertised in large hoardings that its schemes had returned 100% over the year. What investors did not understand is that the underlying index—the Nifty or the Sensex—went up by more than 100% over the year, lifting overall returns. The truth is that that fund house had schemes that had underperformed the benchmark while giving 100% returns! The logic of using an actively managed mutual fund route to investing is to be able to beat the benchmark. Just investing in an index fund or an exchange-traded fund will get you lower costs and average market returns. The reason you pay the higher management fees and take on more risk is so that the fund manager can get you benchmark-plus returns. When that does not happen investors must switch fund houses and schemes. Investors need to be educated about this and what better road than to get the media to report on what seems to be, an outrageous statement—Sebi will monitor performance.

The next question, of course, is: which are these nine fund houses that earned the ire of the regulator? Sebi did not release this list, nor do we have the methodology used to filter these out, but most of the names are not difficult to find—they make up the bottom rank of all league tables. I asked Value Research to crunch numbers for me and a special thanks to Charul Sharma for turning this data around so fast. The fund houses that have seen all of their equity funds underperform the benchmark over a three-year period are JM Financial, Baroda Pioneer, Deutsche and Edelweiss. JM has five, Deutsche four, Baroda Pioneer two equity schemes and Edelweiss one equity scheme in their equity portfolio that have all underperformed their own chosen benchmark. Over a five-year period, there are four fund houses with no funds that beat the benchmark and these are LIC Nomura, Morgan Stanley, JM Financial and Escorts. Look out for a more detailed list of fund houses later this week in these pages.

As an investor, why should you care about overall fund house performance, and not worry about just the scheme that you own? A fund house with 75-80% of its schemes outperforming the benchmark points to an asset manager with good investment hygiene and good systems. Fund houses have used the new fund offer route in the past to garner money and this done, have tended to ignore most schemes, focusing only on the flagship. An overall attitude of we-beat-the-benchmark points to a well-run fund house. The funds that have all their equity funds outperform the benchmark over a three-year period are AIG Global, Canara Robeco, Fidelity (before it was sold), HDFC, Mirae and Quantum. In the over-80% outperforming league table are fund houses such as DSP BlackRock, Franklin Templeton and ICICI Prudential.

If you hold units in any equity funds of the beaten-by-benchmarks fund houses, sell and switch to schemes from fund houses that populate the other end of the spectrum. Often investors get attracted to the lesser known fund houses and schemes by the carrot of a resurgent fund house or a scheme that will do really well. As a small investor with limited resources and risk appetite, remove the noise of non-performing fund houses and new fund houses. Let the high networth, seasoned investors take the higher risk needed to punt on a new fund house or the resurgent scheme of an old one. Your money is limited and so is your risk appetite. Stay with the proven winners. And start looking at benchmarks.

Source: http://www.livemint.com/2012/06/26211123/India8217s-worst-fund-house.html

Tuesday, June 26, 2012

Exit consistent underperformers

The Securities and Exchange Board of India Chairman U K Sinha's concerns about consistent underperformers in the mutual fund industry should encourage investors to relook at their portfolios.

Sinha's views have already found some takers. "If a fund is under-performing for five years, then the simple option is to exit it. The minimum expectation is that a fund would beat the benchmark," says Surajit Mishra, executive vice-president and national head (mutual funds), Bajaj Capital.

But there is a problem. With the Bombay Stock Exchange Sensitive Index, or Sensex being range-bound in the last three years, it would be difficult for investors to decide whether to exit at a loss or not. And should they wait for a non-performer for five years? Since August 2011, the Sensex has been between 15,000 and 18,000 points. Also, since 2009, the index has moved between 15,000 and 21,000.

The bigger problem is that some of the outperformers during the boom period of 2006-2008, for instance many JM Mutual Fund schemes, are among the worst performers in the past three years. JM Mutual Fund's JM Core 11, JM Equity, JM Multistrategy, JM Tax Gain, L&T Infrastructure, LIC Nomura MF Equity and Sahara REAL are some schemes which have consistently given lower returns than their respective benchmarks.

Some of these schemes give high returns, doubling or trebling, during boom times, which make up for investors' losses in the lean period.

The call, as a result, is a tough one. First, investors have to cross the psychological barrier of booking losses. Most refuse to exit mutual funds or investment-oriented insurance plans because they want to, at least, get back the principal amount.

However, before entering any scheme, investors need to look at the scheme's performance, ideally over five to seven years because it will give an idea on how the scheme has performed in bull as well as bear cycles.

Then, the assets under management (AUM) are another good indicator, especially for risk-averse investors. For one, a bigger AUM indicates the scheme has been attracting funds.

Finally, look at the current performance, in terms of net asset value (NAV) of the scheme and compare it with peers and the benchmark index. If there has been a sharp change in strategy, one needs to enquire with the distributor or fund house if the fund manager has quit or the fund house has changed its strategy.

For instance, Franklin Templeton Equity Income, which manages Rs 1,000 crore, was launched in 2006. The scheme's one-year returns are -4.34 per cent, almost in line with its benchmark BSE 200's fall of 4.40 per cent (June 22), according to data from Value Research. However, the scheme has returned seven per cent per annum in five years whereas the benchmark index has returned 17.42 per cent. But over the same period, it is better than category average of 5.55 per cent. Since launch, it has returned 11 per cent.

In other words, while over time, it has not beaten the benchmark, it is more or less in line as far as recent performance goes. Taking a call on such funds is quite difficult unless one speaks to the distributor/fund house for changes that could have taken place.

If you are already invested, look at the NAV of the scheme and see how much it has fallen below their initial investment. If the NAV is close to the invested amount then it might make sense to wait for a while before exiting. But if the NAV is very low compared to the investment, they could book losses."If the money loss is beyond the comfort level of the investor and if the fund is not in the best performing category then investors should exit," says Mishra.

"In case 50 per cent of a fund's schemes are under-performing, then investors can look at exiting from these schemes and moving to other schemes of the same fund house," suggests Suresh Sadagopan, a certified financial planner. He argues that at a given point in time, it is possible that some schemes are under performing even for the best performing AMCs. It is suggested that investors go through their portfolios once a quarter.

Most importantly, if you are looking at safety and do not want to consistently compare you scheme's performance with peers and benchmark, choose index funds. This will help keep the returns in line with broader indices, plus or minus five per cent.

Source: http://www.business-standard.com/india/news/exit-consistent-underperformers/478486/

Monday, June 25, 2012

“Trustee must ensure that money is managed well”

While the returns continue to remain a challenge due to the volatile markets, the Sebi chairman pulled up several fund houses for underperformance on a consistent basis. "The industry has stagnated over the last five years because of the weak markets and several domestic and global factors," said Nimesh Shah, MD & CEO, ICICI Prudential AMC in an interview to Sandeep Singh of The Indian Express. Excerpts:

How do you see Sebi's move to pull up mutual funds for underperformance?

I think that it is a very good move. If we are charging a fee and Sebi is allowing us to charge it then we are responsible that the money is invested properly. If some AMC is not able to generate returns then the trustee can give the money to some other AMC. It is the trustee's job to see that there are adequate processes in place so that the money that has been given by the investors is managed well.

What should the investors do during the current volatility in the equity markets?

Volatility is here to stay so the question is can you invest in funds that will benefit from volatility. We want our funds to benefit from volatility and we are focussed on funds that will benefit from it. There is no point cribbing about volatility as it is the new order and you have to adapt to it. I just want to beat the benchmark and be in the top quartile.

What is your investment strategy at these times?

We follow active change in asset allocation between debt and equity depending on the level of the market. Whenever the markets go up the fund will sell-off equity and go into the debt and when it goes down we will buy the equities back. We have introduced a science that it should be based on price to book value. Based on fundamentals, the asset allocation call is taken. My fund manager does not take a call but there is a formula to it which is based on back testing done since 1997. We have come to the conclusion that at what levels of price-to-book ratios are fairly valued, undervalued or overvalued and change our positions based on this. These are statistical arithmetic calls.

What is your take on the distributor regulation?

The regulator has to control any malpractice that impacts the investor in a negative way. If someone is doing a wrong job then he should be taken to task. I think that even if entry load comes, the churning of portfolio will keep on happening because if a distributor earns by churning then s/he will continue with it.

We need to find a way to incentivise the distributor so that s/he looks to build an AUM that creates a good trail income for her/him.

What are the factors that are affecting the mutual fund industry?

As of now the products for investors are good, however in the process of giving good products, somewhere the commercial requirement of the manufacturer and distributors have been slighltly affected and the number of distributors in the business has reduced dramatically.

The industry has stagnated over the last five years because of the weak markets and domestic and global factors and mutual funds are only relative performers and not absolute performers. The big issue is that common man is not investing in mutual funds.

Source: http://www.indianexpress.com/news/trustee-must-ensure-that-money-is-managed-well/966256/0

Wake up call for MF industry

The mutual fund (MF) industry which has been going through a rough patch in the last three years is facing the stick once again. While there were a slew of fund offerings recently, the multiplicity of similar schemes, non-performance, complacency and lack of pro-investor steps have come under the regulatory scanner.

Last week, during the annual Mutual Fund Summit organised by the Confederation of Indian Industry, Securities and Exchange Board of India (Sebi) Chairman UK Sinha raised concerns over nine fund houses with half or more of their schemes having underperformed their respective benchmarks and nine others with less than half of the schemes underperforming consistently over the last three years.

While Sinha did not name the fund houses, his wake-up call was loud and clear: "while an investor is free to move out from that scheme, if the performance is not good and this is happening on a continuous and long-term basis, then it becomes a matter for Sebi to take on and where ever we are finding such things we are going to ask questions to the fund managers, CEOs and if needed the AMC board and their trustees." The presence of a large number of similar schemes has ended up diluting the basic fundamentals of simplicity and ease of investing, because of which investors choose MFs instead of investing directly in bonds or buying stocks from stock exchanges. Too many schemes have ended up confusing the minds of investors.

44 FUND HOUSES, 4,400 SCHEMES

The MF industry has seen the number of fund houses grow from 32 to 44 over the last six years. The number of schemes has grown from 779 to 4,473 (counting various options of a single scheme as separate schemes) in the same period. Further, there have been 18 new entrants through the joint-venture (JV) or acquisition route. The growth in the industry and several new entrants, both Indian and foreign, demonstrate the potential of the mutual fund business in India.

However, in a rush to launch new funds to attract more investors during the bull run from 2005 to 2007, fund houses probably forgot that there are a limited number of key differentiators among various schemes. While exotic names were given to many schemes and an attempt was made to make them look unique, fund houses faltered on the most important factor for investors — delivery of returns. A recent PwC report on MF industry in India said, "with many seemingly similar offerings from multiple MFs unable to clearly communicate their superiority, a less informed investor may find it difficult to make a choice. This uncertainty leads to a weakened 'pull' for the product." During the financial year 2011-12, the MF industry, shrank by 1.6 per cent in terms of assets under management due to the redemptions by investors and stiff global and local market conditions.

CONSOLIDATION

The NFO boom that happened a few years ago has left behind a proliferation of schemes, many with overlapping objectives and investments. There are about 160 equity schemes with less than R 100 crore AuM, more than 100 schemes with less than R 50 crore as AuM and about 42 schemes with less than R 10 crore as AuM. "Overlapping schemes may be analysed and the possibility of merging overlapping schemes, or discontinuing such schemes could be evaluated," says Gautam Mehra, Leader-Asset Management, PwC.

Experts believe that while the Sebi had issued a circular in 2010 stating that consolidation or merger should not be seen as a change in the fundamental attributes of the surviving schemes if some conditions are met, the absence of an income-tax neutrality and the STT levy are dampeners which should be removed to facilitate merger of schemes.

Companies like IDFC MF, Franklin Templeton MF, UTI MF, Kotak AMC, ICICI Pru AMC, BNP Paribas and L&T MF have merged some of the schemes in the past. "There are schemes with just a few crore of assets under management. It is difficult for a fund manager to create a diversified portfolio through such a small asset size," said Dhirendra Kumar, CEO, Value Research.

SILVER LINING

The volatile market conditions in the last two-three years have led to withdrawals by investors to the tune of R 49,000 crore in FY 2010-11 and R 22,023 crore FY 2011-12, leading to a further drop in AuM, in addition to the drop caused by adverse market movements. Despite so much volatility in the equity markets, many MFs were able to deliver much better returns than their benchmark indices. For example, if we look at annualised returns over last three years of some of the top performing schemes, ICICI Pru Discovery gave 23 per cent returns, IDFC Premier Equity gave 19.6 per cent returns and Tata Div Yield gave 19.32 per cent returns.

Sinha's comments should come as a wake up call for the MF industry which has been deliberating on merger of schemes since last five years, but without much action. It would be good for the investors if the MF houses reduce their total number of funds and have a consolidated offering in each category. "We merged six equity schemes last year. That is the way forward for all asset management companies. The industry should move towards providing solutions to investors and not launch plethora of products," said Sanjay Sachdev, President and CEO, Tata MF.

What's the way forward? Consolidation and clear positioning of products might help rekindle the interest of investors — who turned their back towards equity markets in general and mutual funds in particular due to poor returns — in investing through mutual funds.

Source: http://www.indianexpress.com/news/wake-up-call-for-mf-industry/966205/0

Friday, June 22, 2012

Mutual Funds: Sebi switches into micro-regulating mode

Redemptions by investors, alongside adverse global and domestic woes have resulted in a 16.5 per cent shrinkage in the size of the Indian mutual fund industry. From Rs 703,669 crore in March 2011, the industry's assets under management (AUM) have come down to Rs 587,659 crore in March 2012.

A gathering of mutual fund industry insiders was delighted and cheered when Upendra Kumar Sinha, Chairman of the Securities and Exchange Board of India (SEBI) sympathised that "We at Sebi are concerned about the state of the mutual funds' industry."

Sinha was speaking at the eighth annual mutual fund summit, organised by the Confederation of Indian Industry (CII), in Mumbai. The gathering seemed even more happy when Sinha mentioned that Sebihad suggested to the government that investments under the Rajiv Gandhi Equity Savings Scheme, announced in the union budget this year, be routed through the mutual fund route.

But this happiness did not last for long. Sinha denied that Sebi regulations are the reason for the dilapidated state of the Indian mutual fund industry . "Sebihas not been on a regulatory overdrive, if the industry feels so," Sinha insisted.

And then came the thrashing from Sinha, which is unlikely from a regulator. Although he didn't name any particular asset management company (AMC) as an offender, Sinha said that Sebi's inspection had uncovered nine AMCs whose majority of schemes (over 50 per cent or even all the schemes) have been underperforming their respective scheme benchmarks for three years in a row. Sinha further added that there are other nine AMCs where up to 50 per cent of the schemes have underperformed their benchmarks for three years.

"This cannot be allowed by regulator to go on and on and such fund houses must take corrective action," said Sinha. On its part, Sinha added that Sebiwill engage with fund house chiefs and fund managers whose schemes are consistently underperforming benchmarks. "There can be short-term vagaries but consistent underperformance is a matter of concern," Sinha said, giving the example of one scheme which has underperformed since its inception.

And underperformance was not Sinha's only critical observation. "There are conflicting situations," he said, citing a case where one single investor accounted for over 25 per cent - the maximum permissible limit - of a particular scheme's AUM. Sinha cited another case of non-compliance where portion of a particular mutual fund scheme's AUM was invested in a fixed deposit of a bank which was one of the investors in the same scheme.

"Majority of the industry is not violating," says Sinha. "This is a small group of AMCs which are not following the rules," he added. But Sinha has sent a clear signal that Sebi is intolerant. "Going forward we plan to do the inspections more intensely," said Sinha. Clearly, Sebi has switched into micro-regulating mode.

Source: http://businesstoday.intoday.in/story/sebi-switches-into-micro-regulating-mode-for-nutual-funds/1/185730.html

Sebi raises concerns about MF sector, performance of schemes

Sebi chairman U.K. Sinha says 50% of the schemes of nine fund houses have underperformed their benchmark indices and there were nine other fund houses where up to 50% of the schemes were underperformed by their respective benchmark indices

The Securities and Exchange Board of India (Sebi) on Thursday raised concerns about the performance of mutual fund (MF) schemes and non-compliance at some fund houses in the Rs 6.64 trillion asset management industry that has been demanding friendlier regulations ever since the regulator scrapped entry fees in August 2009.

While acknowledging sluggish investment sentiment in the market, Sebi said it's also concerned about the industry and has reached out to stakeholders in recent months for suggestions to revive the industry's growth. While doing this, the capital market regulator felt that the industry should also highlight the performance of its schemes. According to Sebi, there were several fund houses whose schemes were beaten by their own benchmark indices.

"This should be a cause of concern. Sebi is going to engage with these fund houses... as to why on a consistent basis their schemes have not performed," said U.K. Sinha, chairman, Sebi.

He said over 50% of the schemes of nine fund houses have underperformed their benchmark indices and there were nine other fund houses where up to 50% of the schemes were underperformed by their respective benchmark indices.

"Some AMCs' (asset management companies) schemes have underperformed since inception. Sebi will engage with them and ask what measures they are taking to address the issue. We will perhaps review their performance on a half-yearly or annual basis," Sinha said at industry lobby Confederation of Indian Industry's annual mutual fund summit.

Moreover, Sebi was concerned about fund houses flouting regulations on several fronts in recent months. "One scheme even had a single entity investing at least 25% of the assets under management (AUM) in the scheme. Then we found that a mutual fund was investing money in the fixed deposit of a large bank, which itself is an investor in the fund," Sinha said. Rules stipulate that a single investor can only invest up to 25% of the AUM in a mutual fund scheme.

Sinha said the losses of certain mutual fund schemes were being transferred to other schemes. "This can't go on and Sebi will not be silent on these issues," Sinha said.

At least three fund houses refused to comment citing the sensitivity of the issue.

Sinha reiterated that the regulator will not come in the way of the industry's growth.

The market regulator recently met members of the mutual fund industry for suggestions on reviving growth. Sinha said that Sebi will shortly take actions in line with the suggestions it received.

"We have received several suggestions and most of them (industry participants) are against reintroduction of entry loads," he said.

Removed by Sebi in August 2009, entry fees were charges (up to 2.25%) that mutual funds collected at the time of investment from the investor, and eventually passed on to the distributor as commissions.

"We have been advocating for a variable load. There are different types of investors with varied appetite and needs. So we need a variable load structure in place," said Anthony Heredia, managing director, Morgan Stanley Investment Management Pvt. Ltd. "But the overall growth story of the fund industry is intact. For instance, once the interest rates come down, we should start seeing the return of bond funds. The next 12-18 months could be difficult for the markets, but we see a strong five-year story with the asset base multiplying manifold at this rate of growth and savings behaviour in the economy."

Sinha urged the industry to bring in pension-oriented funds as they have a large pool of money and a longer investment horizon.

Sebi said that it is in discussions with the income tax authorities to treat such mutual fund schemes at par with pension products in terms of tax rebates. But the industry sounded reluctant to introduce such products.

"Pension money comes in as investments for 20 years. Fund managers want immediate commissions," said Dhirendra Kumar, chief executive officer, Value Research Online, a Delhi-based mutual fund tracker.

The regulator is also in the process of formalizing regulations for investment advisers. Indian financial regulators have been working on a comprehensive set of regulations for investment advisory services that straddle financial products. Last year, Sebi had circulated a concept paper on investment advisory regulations.

Sinha said that Sebi officials recently met those of the Financial Stability and Development Council (FSDC), which has broadly accepted Sebi's suggestions on investment advisory, and the market regulator will shortly introduce the final set of rules.

The regulator is also working on guidelines for initial public offerings (IPOs), Sinha said. "We are looking at how to increase the penetration of IPOs and ensure enhanced investor protection. We will come out with detailed guidelines in two-three months. Our job is to ensure that the rules of the game are played properly."

Taking note of slowing foreign investment through participatory notes or PNs, Sinha said the regulator and the government are actively trying to encourage foreign investment through the recently introduced channel called qualified foreign investor route.

Source: http://www.livemint.com/2012/06/21130104/Sebi-raises-concerns-about-MF.html?h=A1

Underperforming mutual funds under Sebi lens

The Securities and Exchange Board of India has said that it will question top officials of fund houses about non-performance of mutual fund schemes and probe their non-compliance with the stated investment objectives.

Concerned over non-performance of some schemes over a long period of time, Sebi Chairman, U K Sinha, said that fund houses need to look into the matter and consider the merger of some schemes.

Speaking at a CII mutual fund summit here, Sinha said that the regulator would also conduct inspection on AMCs (Asset Management Companies) for not following rules with regard to the fund objectives.

Every mutual fund scheme has a stated investment objective and they are supposed to invest accordingly.

Sinha said that the capital market regulator is considering questioning CEOs and fund managers of mutual fund schemes, which are not performing over a long-term basis since inception.

"Management (of mutual funds) should look into the areas of no-performance," he said, adding that he is in favour of merger of schemes on case to case basis.

Pension schemes

He also said that nothing prevents fund houses to come up with pension schemes, but the issue of taxation needs to be solved.

"We are in touch with tax authorities and have sought similar treatment with the pension products," he added.

Participatory Notes

About the recent flight of capital invested through P-Notes (Participatory Notes that allow rich foreign investors to invest indirectly through India-registered FIIs), the Sebi Chairman said that P-Notes have come down in the last few months and the Government and SEBI are encouraging QFI investment into the country.

QFI route

The Government recently came up with guidelines for encouraging overseas inflows through Qualified Financial Investment (QFI) route, which provides easier and more cost-effective compliance mechanism for foreign investors.

Sinha also said Sebi would soon come up with IPO guidelines regarding the safety margins, but did not give any timeline.

Source: http://business-standard.com/india/news/underperforming-mutual-funds-under-sebi-lens-/175605/on

Tuesday, June 19, 2012

Too much of advice bringing in poorer returns for HNIs

Some time ago the Association of Mutual Funds In India (Amfi) released data on the investment patterns in mutual funds as it stood at the end of the 2011-12 financial year.

The data comprises of the breakup of the amount invested in funds, sliced according to the type of mutual funds, the type of investors as well as the age of investments. The funds are classified across liquid & money market, gilt, debt-oriented, equity-oriented, balanced, gold ETF, other ETFs, and funds investing overseas.

The types of investors are broken up across corporates, banks/FIs, FIIs, high networth individuals (HNIs) and retail. Of course, HNIs are also retail, but Amfi classifies them as those with single transactions of more than 5 lakh. The time periods along which the data are broken up into periods with the boundaries at three months, six months, one year and two years.

The data offers some very interesting and useful insights into how Indians invest in mutual funds. Speaking about equity funds for the moment, for my money, this is the headline conclusion: HNI investors are overwhelmingly interested in short-term investments while smaller retail investors invest for the long-term. The difference is not minor. Thirty-three per cent of the HNI equity money is of less than one year duration as opposed to 20% of retail money. In the one- to two-year range, HNIs have 27%, while smaller investors have 18%. For more than two-year investment horizon, HNIs have 40% while retail investors have 62%.

On the face of it, this is surprising. A naive analysis would assume that HNIs would have superior access to better quality advice and would also make a greater effort to manage their investments well. They should also have uninterrupted availability of savings for longer stretches of time. Therefore, they are the ones who should be more committed to longer-term equity investments. The truth is the opposite, and sharply so.

Why is this so? One possibility is that HNIs use equity mutual funds as a substitute for equity itself. They trade in and out of equity funds based on their expectations of where the markets are going, trying to time the rise and fall of NAVs. Retail investors, by contrast, just put in their money or start their SIPs and then let them be for long periods of time, as it should ideally be.

Paradoxically, the driver behind this could be the difference in the amount and the kind of attention that the two types of investors are getting from financial advisors or wealth managers or whatever else the people serving HNIs are calling themselves nowadays. Because HNIs expect more service, they get more advice, which must eventually translate into more activity and thus more transactions. The final result is shorter holding periods and poorer outcomes.

In contrast, small retail investors probably tend to be left to their own devices by fund distributors and the wealth management sorts are not interested in them anyway. It's rather like the contrast between pampered rich kids whose every need is looked after and working class kids who learn to fend for themselves.

From the fund companies' perspective, this data shows that retail investors are probably an under-served lot. From a commercial point of view, it's vastly better to have equity money that stays for long periods of time rather than money that floats in and out depending on the season.

Besides high networth individuals, fund companies must also question the value of the large amount of very short-term corporate investments they manage in the shorter-term debt funds (65% of the total).

However, all this aside, I must say that as a long-term watcher of mutual funds, the total quantum of equity assets is a disappointment. Two long decades ago, UTI's Mastergain fund collected 4,472 crore in its NFO. Extrapolating from that number, today's 2 lakh crore of equity assets must be counted as a disappointment. But that's a different story.

Source: http://articles.economictimes.indiatimes.com/2012-06-18/news/32299580_1_hnis-retail-investors-equity-funds

Monday, June 18, 2012

Mutual Fund holding in auto companies like Tata Motors, Maruti & others takes a dip

The stress of the Indian Automobiles Industry has begun to reflect in the shareholding pattern of these companies. Mutual Fund Industry, which is considered to be extremely cautious with its investment bets, has off late reduced its investment in most auto majors of the country today.

As at the end of Mar '12, the MF holding in Tata Motors was a mere 1.7% against 1.9% in Sep '11. For Maruti Suzuki, the MF shareholding was at 2.9% in Mar '12, its lowest in past one year since Mar '11.

The shrink in the MF shareholding was also reflected in the shareholding pattern of Ashok Leyland and M&M. While for M&M, MF shareholding at 2.9% was lowest since Mar '09, in case of Ashok Leyland; the same has shrunk to 2.6%, lowest since Mar '08.

The only company in this sector to have witnessed a renewed buying interest by the fund industry is Eicher Motors. The MF holding in this company is steadily on a rise Mar '10 from 9.5% then to 14.6% today.

Incidentally, Eicher Motors, which commands a market capitalization of less than Rs 6000 crore, is amongst the handful of companies in the auto industry to have reported a consistent growth in the operating margins for the past four years. The operating margins of the company have grown from 0.6% in FY '9 to more than 10% in FY '12.

Source: http://articles.economictimes.indiatimes.com/2012-06-15/news/32254590_1_mutual-fund-industry-mf-investment-bets

Friday, June 15, 2012

Net outflows from gold ETFs hit 52-month high

Indian gold exchange traded funds (ETFs) are witnessing their highest net outflows in 52 months. With some recovery in the stock markets and gold prices surging to Rs 30,000 for 10g, investors have started booking profits partially, say fund managers.

According to data from the Association of Mutual Funds in India (Amfi), gold ETFs saw net outflows of Rs 41 crore in May. Though a small number in absolute terms, it gains importance as the category last saw such outflows in January 2008.

The asset category, which has emerged as one of the most attractive investment avenues over the past three years, has been already witnessing a slowdown in inflows since the second half of FY12.

Says Dhirendra Kumar, chief executive officer of Delhi-based fund tracking firm Value Research, "Inflows into gold ETFs have been riding on momentum. Now, that momentum has decelerated."

Some fund managers say gold would be the first asset class to correct when the situation improves. Says Akshay Gupta, chief executive officer, Peerless Mutual Fund, "I do not see gold prices increasing much. They have risen one way for the last two years, which may not sustain."

"We are cautious and have cut our asset allocation towards gold in some schemes by around 15 per cent," he adds.

Gold prices have surged around 10 per cent so far this year. Between 2007 and today, the yellow metal has given a whopping return of over 180 per cent as it jumped from Rs 10,650 to Rs 29,860 for 10g.

Experts say that recent depreciation in the rupee helped gold surge. The increase in import duties to four per cent also pushed gold prices up in the Indian markets.

For the last several months, independent experts had been getting worried about the pace of inflows into gold ETFs, fearing the built-up of a bubble. For instance, between FY09 and FY12, net inflows in gold ETFs increased over 43 times, from Rs 84 crore to Rs 3,646 crore. All through these years, investors have been pumping money into assets such as income funds, real estate and gold.

Says Navneet Munot, chief investment officer, SBI Mutual Fund, "Gold should be used only for hedging purposes, against extreme inflation or deflation and in case of a major economic or financial market breakdown. It should form a small, not a major, part of investors' overall portfolio."

As on May 31, the mutual fund industry had 14 gold ETFs and assets under management worth Rs 10,312 crore, around two per cent of the industry's total assets.

Source: http://business-standard.com/india/news/net-outflowsgold-etfs-hit-52-month-high/477364/

Debt scores over equity but bond market far from perfect

Bonds, especially tax-saving bonds, were a hot favourite among investors in 2011-12, as volatility in the Indian markets prevented retail participants from investing in equity IPOs.

Retail investors' flight for safety has helped corporate India raise Rs 35,610.7 crore through public issuance of debt which was 33 percent higher than funds mopped up through equity offerings during the year, said an Economic Times report today.

High bank deposit rates, a volatile, range-bound equity market, and uncertainties over ELSS (equity-linked savings scheme) due to the Direct Tax Code overhang are the factors that have led to a fall in inflows into equity funds last year.

Tax-free infrastructure bonds, which offer assured returns of 8 to 9.25 percent, turned out to be a major draw, as opposed to ELSS schemes.

Also mutual funds saw high net worth individuals (HNIs) pulling their money out of the equity schemes in 2011-12 due to the bearishness that prevailed.

Clearly, when the market goes down, high net worth investors (HNIs) shift money to safer havens like tax-free bonds and term deposits. These instruments bear a coupon rate exceeding 9-9.5 percent on an annualised basis, making them more attractive than equity funds.

With foreign investors shying away from investing in India, the finance ministry plans to create a $1 billion sub-limit for QFIs in corporate bonds and mutual fund schemes. As of now, foreign investors are allowed to invest $20 billion in the country's corporate bond market. With the latest ministry move, that ceiling will increase to $21 billion.

But tapping only institutional investors rather than retail investors is not going to reinforce investor confidence in the Indian markets as in the Indian investor understands equities better than markets.

According to Nilesh Shah, president, (corporate banking), Axis Bank, retail particpation in corporate bonds can be increased by making them an acceptable security in collateralized borrowing and lending obligation with reasonable margin, incentivising insurance companies to sell them, allowing PF trusts to invest in higher credit corporate bonds and allowing them to sell the shorter maturity corporate bonds in the market to create liquidity at the short end and appetite for investment at the long end.

It is clear that the government is banking on public debt to woo investors. But there is no denying that the corporate bond market in India is relatively underdeveloped and illiquid, which makes pricing of new credit instruments difficult.

Moreover, the corporate bond market is dominated by high-rated papers, which are few in number. According to ratings agency Crisil, not even 5 percent of the companies it rated in India carried the premier 'AAA' rating, which leaves limited options for foreign investors looking for papers with investment grades in the country.

Source: http://www.moneycontrol.com/news/mf-news/debt-scores-over-equitybond-market-farperfect_717954.html

Axis AMC floats fund focused on large caps

Axis Asset Management Company (AMC), the mutual fund arm of Axis Bank, has launched a new fund offer, Axis Focused 25 Fund, an open-ended equity fund. The fund will invest in large-cap companies selected from the top 200 companies.

"The fund will have a concentrated focus on select 25 best ideas at any point of time, with a majority of companies being drawn from the top 200 Indian companies (based on market capitalisation)," Axis AMC said in a release.

Portfolio will be biased to larger companies with up to 90 per cent in top 200 companies by market cap.

The fund is expected to outperform market in adverse situations based on the fact that quality companies tend to maintain their growth trajectory despite downturns.

Data from 2003 to 2011 performance analysis of the companies show the top 10 companies within the BSE 100 Index delivered an average return on equity of 37 per cent, compared with 26 per cent for the BSE 100 index, the fund house quoted a Bloomberg analysis.

The share prices too, for these companies have witnessed significant outperformance.

The share price of these top 10 companies appreciated by as much as 30 per cent, compared with a negative-15.8 per cent for the bottom 10 BSE 100 companies, Axis AMC added.

"Axis AMC will rely strongly on its internal research capabilities to identify these companies," the fund house said adding, "Axis Asset Management will ensure that the portfolio though restricted to a maximum of 25 companies, is well-diversified across sectors and is not illiquid."

Rajiv Anand, MD and CEO, Axis AMC said, "The key feature of the fund is the fact that we will attempt to nurture these companies over their business cycle without being unduly concerned by short-term market volatility. It is thus ideal for patient and long-term equity investors with an investment time horizon of more than five years."

Chandresh Nigam, head investments, Axis AMC said, "We believe sustainable business performance drives stock returns. Picking business cycles therefore is important."

The new fund offer closes for subscription on June 25.

Investors can either invest in the new fund offer through monthly instalments of Rs 1,000, or a one-time investment of Rs 5,000.

Source: http://wrd.mydigitalfc.com/mutual-funds/axis-amc-floats-fund-focused-large-caps-916

Thursday, June 14, 2012

Appreciation of rupee key for Indian markets to rally

A weakening rupee is a big negative for the market, says Anoop Bhaskar, the head of equity at UTI Mutual Fund. In an interview with Ashley Coutinho, he says investors should not try to time the market, but invest systematically over the next 12-18 months.

Your outlook on Indian equities...

Two weeks ago, the mood was very despondent. Now, things are looking up a bit. Growth expectations have been toned down and expectations for earnings growth have come down over the past three quarters. There is a belief that the government's inaction on the policy front has hurt the economy. I believe the rupee depreciation is a very big negative for the market. The rupee has to be stable with an upward bias for the markets to rally from here on. There are very few examples, if any, of an emerging market where the domestic currency kept weakening yet the market received robust overseas inflows. The rupee will appreciate over the next few months if global crude oil prices continue to fall, the global situation doesn't deteriorate, RBI takes some action to cut interest rates and government takes decisions on issues that really need fixing. This appreciation (of the rupee) can then become the foundation on which our markets rally.

What are some of the key positives for the market?

Market participants are trying to see things in a positive light. In India, a GDP growth rate of below 6% will be fairly unacceptable to the political class and they will make all efforts to ensure we stay above that level. With the GDP numbers so low, the RBI will be forced to cut interest rates. The rupee is showing some signs of stability and is not headed to the 58-59 levels it was assumed to be headed to earlier. Global crude oil prices have come off and there are hopes of something positive happening on the policy front.

Your advice to retail investors...

Investors should not try to play the market at different levels; enter every time the Nifty touches, say, 4,700 and exit when the market reaches 5,200 or 5,300 levels. It is better to take a certain view and buy quality companies that will do well over a cycle. Investors should not feel that they have missed out on a rally just because they failed to enter at the 4,700 levels or stay away just because they find the market expensive at the current levels. Rather than trying to time the top and bottom, they ought to invest systematically over the next 12-18 months. We will see significant volatility during this period and it will be very difficult to time each of the rallies and falls.

Which sectors do you like?

We are adopting a cautious stance. Several of our funds are equal weight on banking, a sector with the highest beta. A cut in interest rates will benefit banks. We are also equal weight or overweight on defensives like pharmaceuticals and consumer staples. We want to play selectively on industrials or capital goods. Our view on infrastructure is they are stressed assets where the element of dilution is difficult to calculate. If a company's debt to market cap is 3.5 times, it cannot repay debt from its operations and raise equity to pay off the debt. It can only sell assets. So, we would rather look at these companies when the asset sales start to happen.

What is the outlook on FII money?

Surprisingly, money hasn't flown out of India despite the spate of bad news. But the inflows are difficult to predict. The quantitative easing, as and when it happens, will change the mood and perception on risk-on assets rather than actually bringing in any tangible inflows into emerging markets like India.

How will the global headwinds impact Indian equities?

Last year, there were 11 European summits and the world markets rallied for 2-4 days after these summits. The same will be the case in 2012. However, you can't build a portfolio based on events for which the probability varies from 30% to 60%. The only thing a fund manager can do is adopt a more cautionary stance.

Source: http://www.financialexpress.com/news/appreciation-of-rupee-key-for-indian-markets-to-rally/961208/0

Tuesday, June 12, 2012

Dormant status on account statements sows confusion among investors.

AMCs are looking at calling dormant accounts by another name.

AMCs are contemplating changing the nomenclature of 'dormant' folios which has lately been creating confusion among investors. SEBI had asked AMCs to send half-yearly consolidated account statements to investors who have not transacted during a six-month period ended March or September.

AMCs are questioning the logic behind this move. "On one hand we are talking of long-term investing, and on the other, we are telling investors that there have been no transactions. Some NRI investors are also concerned when they see 'dormant' in their account statements," says the marketing head of a large fund house.

A few AMCs are planning to change the terminology. "We might call such folios a different name so that there no confusion in the minds of investors," says the sales head of a top AMC.

"We are trying to change the terminology. We are mentioning these folios as 'inactive' currently. We are thinking of telling investors that 'inactive' doesn't mean that they have to carry out some transactions or complete certain formalities. People are equating dormant folios with dormant bank accounts. The reason for mentioning folios as 'dormant' was to keep investors updated on a half-yearly basis," says an operations head of a mid-sized AMC.

Most AMCs call accounts 'dormant' while others are calling them 'inactive'. AMCs tag the folios as 'dormant' if there are no financial transactions like purchase, redemption, switch, dividend payout, dividend reinvestment, SIP, SWP, and STPs during a six-month period ended March or September.

Industry officials say that mentioning 'dormant' against accounts with no transactions is not serving any purpose. They are of the view that this terminology could be altogether dropped as well. Often investors tend to forget their investments and many forget their folio numbers. Distributors tell Cafemutual that some of their clients are worried after noticing the term 'dormant' in their statements. A few clients have gone ahead to redeem their investments.

Source: http://www.cafemutual.com/News/InnerNews.aspx?srno=1546&MainType=New&NewsType=Industry&id=21

Monday, June 11, 2012

Strong inflows into liquid funds shore up MFs' asset base in May

Strong inflows into liquid funds helped Indian mutual funds log a near-3% rise in their asset base in May.

The fund industry added over Rs 26,742 crore during the month, taking the overall asset base to Rs 6,99,284 crore, according to data released by the Association of Mutual Funds in India.

Most fund categories witnessed inflows during the month. Equity funds posted inflows worth Rs 506 crore in May. Liquid funds netted over Rs 25,000 crore, making them the largest contributors to the industry asset base.

Income fund assets swelled by over Rs 1,580 crore while gilt funds posted outflows worth Rs 371 crore. Redemptions outpaced investments in ELSS funds, which lost over Rs 86 crore last month.

Gold exchange traded funds logged outflows of Rs 41 crore while balanced funds saw positive inflows worth 61crore.

"Redemptions from equity funds were lower in May. On the flip side, money trickled in through systematic plans. Liquid funds received investments from corporates, which helped the industry record positive numbers last month," said Vijai Mantri, CEO of Pramerica Asset Management.

Income funds, which include short-term debt funds and fixed maturity plans, saw inflows for the second month in a row.

The rising interest rates in the economy over the past two years have seen the share of FMPs in the category grow to 43% in May from 8% in May 2010, a recent Crisil report said. Inflows into this category can be attributed to several fixed maturity plans launched during the month.

"Money has to come into equity funds for asset managers to make money," said the chief executive of a leading fund house. "These are bad times... The number of live SIP folios has come down significantly over the past four months. The industry needs more investors to stay afloat," the official said.

Markets, too, have not been very conducive for new investors; the 30-share Sensex corrected over -6.26% in May.

Returns of most equity funds have also not offered any cheer. Large cap, diversified equity and small & mid-cap funds yielded an average -5.5%, -5.6% and -4.9% returns, respectively, during May, going by the data sourced from Crisil.

Source: http://articles.economictimes.indiatimes.com/2012-06-09/news/32140764_1_liquid-funds-equity-funds-short-term-debt-funds

Friday, June 8, 2012

Bullish on rural consumption story: Aviral Gupta, Indiabulls Mutual Fund

In an interview with ET Now, Aviral Gupta, Fund Manager-Equity, Indiabulls Mutual Fund, gives his views on the Indian economy and key sectors. Excerpts:

ET Now: This week alone we have seen something like a 4% run up in the Indian equity markets. There was some weakness today, but would you say broadly the direction is up from here on?

Aviral Gupta: We will break this into three parts what is exactly going on in the world economy. I will touch on Europe, the US, China and then India. We have had QEs, we have had LTROs, but has anything really worked? We really do not know what is going to work over there. Now coming to China, China is trying to shift from an export-oriented economy to a domestic economy. It is not going to happen in a day's time or a year's time or two years' time or even five years' time. Coming to emerging markets, coming to Brazil, growth rate has come down to 2.1%. Now where does India stand in all this? We are at very great advantage right now compared to other economies. That is the kind of view which I am taking in. Now how do we take advantages? Only if the government comes up with some reforms, some policies.

ET Now: What is the portfolio approach that you are adopting and do you think that someone who is sitting on cash now start putting their money into the markets? Are these attractive or compelling valuations according to you?

Aviral Gupta: Valuations are very compelling at this point of time. No doubt about it, but I would say you might get the stocks much cheaper from these levels. Let us see how Greece pans out and that will be the key deciding factor. Second thing is the markets globally have run up, but I do not think there would be that much of upside this time in case QE3 is announced. All those things have completely failed. So why would I trust another QE?

ET Now: Everyone has agreed that you will have a fractured mandate come out of Greece and there will be some development in Greece even if they do not leave the Euro. By the end of July Spain is going to default in some manner or the other because it has got to bail out its territories, it will have to seek an international bailout. Now given these two significant developments, do you believe that the markets or rather central banks will have to push ahead with some form of QE and that in turn can drive up equities and EMs irrespective of what is happening in Europe?

Aviral Gupta: That will definitely drive the equities and the EMs, but that turn will be a very short-term run. That is what I feel. If we want our markets to be sustainably on a bullish mode, the government has to come out with certain reforms, that would be the key. Because, as I said earlier, all the actions which have been taken in the past have failed completely. So what else can they bring now? Which tools are left there, that is a very big question mark.

ET Now: Let us break it down. If we look stock specifically or sector specific, which sectors would you start nibbling into which look attractive?

Aviral Gupta: We are still very bullish on rural consumption story simply because elections are due in the next two years. They may happen earlier also. In that case rural economy will be again flushed with money. They will push in money to the rural economy. So that is one sector which I am looking into. Secondly, some defensives like pharma are something which I am looking into, given the account specifically in lieu of rupee depreciation. I am very stock specific in IT. I cannot name the stocks specifically because of regulations, but a lot of bellwether have completely disappointed.

ET Now: How about the infrastructure sector, are you positive on that given some noise that came out of Delhi just two days back?

Aviral Gupta: Announcement, implementation and completion. They have to be cleared; more clarity is needed on that.

ET Now: For the markets you are basically saying that one should sit on the sidelines, wait for the dust to settle and then perhaps enter. What levels do you think one should look at?

Aviral Gupta: The current valuation levels are pretty comfortable at this point of time, but you can start nibbling in. That is something one can do. But I feel the downside risk is high even now because of the global events, and not because of India-specific events.

Source: http://economictimes.indiatimes.com/articleshow/13927756.cms?prtpage=1