‘FIIs driving Indian market to all-time highs while opening doors for future’

CHRISTOPHER D. SPELMAN, CEO, JP Morgan Asset Management

With the Sensex at a 32-month high of 19,594, the big question on Dalal Street is: Is the market overvalued? CHRISTOPHER D. SPELMAN, CEO, JP Morgan Asset Management, says India is a compelling fundamentally driven story and there may be some short-term corrections, but if an investor takes a long-term view, now is a good time to invest. In conversation with GEORGE MATHEW, Spelman, who has worked in several global markets including Hong Kong and South Korea, says, "the weighting for India will increase significantly and this will further drive FII flows into the country." Excerpts:

What's your view on the valuation of the Indian market? Is it overvalued? Do the economic fundamentals justify the bull run on the markets?

The markets have witnessed immense volatility in the recent past. Considering the situation of the Indian market in 2008, when the Sensex slid below 8000, some may feel that the market is overvalued today; implying that now may not be the best time to enter the Indian market as levels may seem higher than long term average. However, we believe that the Indian economy and, in turn, the stock market will continue to perform well in the coming years. Whilst there may be some short-term corrections, if an investor takes a long term view, now is a good time to invest. Looking at the long-term growth potential, the Indian market is fairly valued.

India is a compelling fundamentally driven story. GDP growth is strong, inflation is coming under control, the demographics are extremely strong relative to all other countries and the required investment in infrastructure will all drive the markets. Earnings are recovering and the upgrade cycle has commenced.

Where do you place India among emerging markets? Tell us the advantages and disadvantages of investing in India...

The global economy is looking toward Asia to drive growth in the future. India and China are in the global economic spotlight. Undoubtedly, India is a great secular multi-year growth story. Since this has become a well-known reality, India is one of the more expensive emerging markets destinations. We also believe in the growth potential of Emerging Europe, Middle East and Africa. Earnings growth in these areas could be the primary driver of returns in 2010 and beyond.

We believe India is a fast growing, consumption led market with strong FII flows and a solid banking sector. India also witnessed 8 per cent GDP growth despite global economic uncertainty and investments in infrastructure are doubling every 5 years. India has also seen attractive return on equity during the last few years. Investing in India, however, is subject to domestic factors such as the possibility of political instability, the dependence of the agrarian economy on climate, and sluggish execution of infrastructure projects. Since myriad factors influence investment trends, fundamental bottom up stock picking is critical rather than just focusing on a sector.

Foreign portfolio investment in India has picked up of late. Why's the global money coming to Indian markets? Will foreign inflows rise further in the coming days?

2010 witnessed unprecedented capital inflows in India. FIIs have invested around $14.5 billion (YTD), despite a stiff global economic environment.Over the long term, we expect global investors to increase their exposure to India. India is under represented in the global and regional indices that many long only equity funds use to benchmark their performance and many ETFs and passive funds follow. The weighting for India will increase significantly and this will further drive FII flows into the country.

Though the market is at a 32-month high, Indian capital market has been unable to attract retail investors in a big way. What's keeping them away from the markets?

The primary deterrent to Indian capital markets attracting retail investors could be market volatility. The Indian retail investor is risk averse, and fluctuations in the stock market may induce fear of investing. Also, the emotional remnants of the 2007-08 experience have made investors wary of placing their money in the capital market. Lack of awareness and the scarcity of unbiased advice leave a retail investor lost in a sea of investment options. Until the fear of losing capital is overcome by the willingness to take risk to participate in economic growth, the retail investor could remain at bay. It is our firm belief that the Indian stock market will perform exceedingly well in the next 10-15 years. This presents a great opportunity for the Indian retail investor to participate in this growth story by investing regularly in the market. Investors should therefore look long-term and invest regularly with discipline instead of being concerned about market levels and P/E ratios.

Where's the global economy heading? Do you see further recovery in the coming months? There was a talk last month that global market was moving towards another slump. But it has been rising.

US recovery is expected to be better and stronger by 2013. Europe has registered the best growth in recent times. Emerging markets led by China, India, Brazil, South Africa and Russia promise to lead global recovery faster. However, there has been speculation on a double-dip recession- meaning a failure of recovery to take hold or a return to recession. Statistically, these are rare. Concerns about the US economy moving towards deflation and a 'double dip' recession have risen after leading indicators peaked and data came in weaker than expected. However, there has only ever been one 'double-dip' US recession in the postwar period (1981). With the present US recovery still in its early stages, the normal cyclical triggers for another recession so soon into the upturn are missing.

JP Morgan seems to be keeping a low profile here. Where do you see your company in the fund management business here 3-4 years down the line?

While we are conscious of the fact that AUM growth is important but we are very clear that we want to grow our business profitably. Profitable growth can be achieved by having an optimum product mix, excellent service levels and by being sensible in the way we conduct business. We are reasonably happy with the growth that we have achieved in the first three years of operations but there are definitely things we could have done better.

Source: http://www.indianexpress.com/news/fiis-driving-indian-market-to-alltime-highs-while-opening-doors-for-future/683992/0

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'I made my money by selling too soon.'

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

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MFs ask agents to get biometric cards, follow KYD norms

Market regulator SEBI has ushered in a major overhaul of the way mutual funds are sold with the introduction of biometric cards and stringent licencing norms for distributors to weed out agents indulging in frauds.

Following directions from SEBI, mutual fund industry body AMFI has asked all fund houses in the country to comply with 'Know-Your-Distributor (KYD)' norms before the grant or renewal of registration of distributors.

The agents would be required to get biometric cards that would carry an impression of their right hand index finger and help in immediately checking the distributor's record for any possible irregularities in past.

The KYD norms, devised on the lines of KYC (Know-Your- Customer) norms already being followed by banks and other financial service providers for their customers, would require the distributors to submit proof of their identity and address, as well as PAN and bank account details.

The new rules would be applicable to new registrations and renewals with effect from September 1, while compliance is mandatory for already registered distributors within six months, or by the end of February, 2011.

The AMFI has asked the fund houses to suspend payment of commission to non-compliant distributors.

Besides checking agents indulging in fraudulent activities, the move is also aimed at weeding out non-serious agents and those indulging in mis-selling activities.

There are more than one lakh distributors working for about three dozen fund houses in the country.

Previously, the grant of registration required a certificate for having passed an AMFI certification examination, two photographs and payment of a registration fee.

However, pursuant to a directive from market regulator SEBI, the AMFI certification has already been replaced by a certification programme for distributors conducted by the National Institute of Securities Markets (NISM).

Furthermore, the new KYD norms would require distributors to go through a stringent verification process that would look into the past record of the distributors to minimise the risk of mis-selling and other potential fraudulent activities.

In a circular to the fund houses on the new KYD norms, AMFI said: "As you are aware, there are increasing numbers of instances of financial frauds played on the investors by Mutual Fund distributors/their employees.

"... As one of the measures to control this situation, Securities and Exchange Board of India (SEBI) has advised AMFI to tighten the procedure for distributor registration.

"On reviewing the current procedure for registration of distributors, it was decided by the board to introduce a more stringent Know-Your-Distributor (KYD) process involving obtaining relevant documents and validation of such documents, personal verification and biometrics."

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/MFs-ask-agents-to-get-biometric-cards-follow-KYD-norms/articleshow/6584297.cms

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'I made my money by selling too soon.'

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

Blog:http://indianmutualfund.wordpress.com/
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MFs go insurers' way to sell plans

You can't escape the phrase 'gift your child Rs 1 crore' printed in bold letters in the newsletter from the neighbourhood mutual fund agent. Then, the small text below it explains that if you invest Rs 6,000 in best performing mutual funds scheme via a systematic investment plan (SIP), your newborn would be a crorepati (assuming the scheme returns 20% per year) by the time she becomes 18.

The example shouldn't surprise anyone, but actually it does. It is because the mutual fund newsletters usually don't talk this way: their tone is always impersonal; they always speak about the dividends declared, performance of top funds vs the respective benchmark, assets under management and so on.

''It is true that mutual fund newsletters usually speak about the performance of schemes, returns on benchmarks like sensex, dividend history, assets under management... Insurance players used to speak about goal-based investments,'' says Rajesh Krishnamoorthy, managing director, iFast Financial. ''It seems the mutual fund industry has also started speaking about investing for a goal. Maybe because of the recent troubles the industry is trying to reach out to investors forcefully,'' he adds.

''Maybe it is true that we were speaking more about performance, dividend and so on. But there was always a tacit understanding that mutual funds are the best investment vehicle to meet individual's long term goals,'' says Sandeep Dasgupta, CEO, Bharati Axa Investment Managers. ''The change in language may be because the industry is going through dramatic changes after the entry load ban last year. Maybe this is one way to communicate effectively to investors,'' he adds.

The mutual fund industry has been struggling to find its feet ever since the market regulator — Securities and Exchange Board of India (Sebi) — banned entry loan on mutual funds. Mutual fund sales force has been dwindling since then. Faced with no incentives to sell MF schemes, many agents have shifted to peddling more-lucrative unit-linked insurance plans (Ulips), which gave them attractive upfront commissions.

According to financial experts, mutual funds should do more investor education programmes — as per the new guidelines they are expected to hold five such programmes every month, but they seldom do it — and talk more about goal-based investments.

Source: http://timesofindia.indiatimes.com/business/india-business/MFs-go-insurers-way-to-sell-plans/articleshow/6588257.cms

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'I made my money by selling too soon.'

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

Blog:http://indianmutualfund.wordpress.com/
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Mutual funds in big rebound from 2008

If your mutual funds sank — and with it your heart — after hitting highs in January 2008, it is time to cheer up. As many as 221 schemes out of the 572 equity schemes have already crossed the net asset values (NAV) they hit when the Sensex closed at its life-time peak on January 8, 2008. NAV data of all equity schemes including balanced schemes (split between debt and equity) and Monthly Income Plans or MIPs (that invest up to 20 per cent in equity) as on Tuesday shows fund managers have brought gains in value from the losses incurred since then.

However as many as 351 schemes have yet to reach the highs they witnessed in 2008.

Sectoral schemes such as those that put money in pharmaceutical, consumer goods and banking stocks come out on top, with MIPs and balanced funds also doing well.

The ones that have yet to regain their NAV levels are the ones that have high exposure to infrastructure and realty or those in which fund managers did not do well enough.

"Balanced funds can handle the volatility better and can move into cash to a larger extent (when required) and hence perform well," said Surya Bhatia, a Delhi-based financial planner.

The performance varies among various fund houses. HDFC Mutual Fund tops with 19 out of its 21 schemes having crossed their NAVs at the time when Sensex was at its highest peak. DSP Black Rock, Reliance, ICICI Prudential and Birla Sunlife mutual funds follow.

Source: http://www.hindustantimes.com/Mutual-funds-in-big-rebound-from-2008/Article1-600590.aspx

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Mid-cap MF schemes catching up with index

Every second scheme outperforms CNX Midcap in 10-month period.

With mid-cap indices performing better than the Nifty and Sensex, mid-cap schemes of mutual funds have also picked up momentum and started outperforming the CNX Midcap index. The last 10 months have seen more than half of the mid-cap schemes outperforming the CNX Midcap index.

While the mid-cap index gave returns of 5.5 per cent last month, the average return posted by 40 mid-cap schemes stood higher at 5.82 per cent.

Twenty one of the 40 mid-cap schemes listed gave returns of more than the benchmark return of 5.5 per cent. The story is similar in the 3-month, 6-month and the 10-month periods. In the 3-month period, with the average return being 14.33 per cent, 26 funds outperformed the CNX Midcap index. In the six-month period when the average returns was 18.93 per cent, this number came down to 21.  

 Over the last one –year valuations of the mid-cap stocks have increased leading to an increase in the returns of these schemes, say fund managers.

"First of all, there has been a re-rating of mid-cap stocks in the market. During the economic downturn people, due to risk aversion, had avoided investing in mid-cap and small-cap companies because they were afraid that these companies would not survive. But on the contrary, these stocks have done very well. They have been trading at a discount of 35 per cent and recording growth," said Mr Gopal Agrawal, Deputy CIO and Head-Equity, Mirae Asset Global Investments.

Market valuations rise

 The market valuations have been on the rise which has resulted in increasing large-cap stock prices. Analysts say that as the valuations get higher, the large-cap stocks start to lose their charm as they become too expensive. "Whenever markets attain a particular level, valuations of the large cap stocks increase. Right now, we are at a level where these stocks are not cheap anymore. So, the attention of the investors is on the midcap stocks. In fact, in the last two months, mid-cap indices have outperformed even the Sensex and the Nifty." said Mr. Kaushik Dani, Fund Manager - Equity, Peerless MF.

 While mid cap funds may do well in a rising market, their returns across a complete market cycle have been sedate. Between 2007 and 2009 these funds had underperformed the index.

Out of the 40 midcap funds, on an average only about 12 schemes managed to do well against the Midcap index.

However, fund managers feel that in a stable economy mid-cap companies will continue to do well. "Investors need to have these stocks in their portfolio depending on their profile and their ability to take volatility. They should, at least, have 15 per cent of their portfolio invested in midcap stocks as these stocks will give higher growth." said Mr. Anoop Bhaskar, Head - Equity, UTI AMC.

Others, however, feel that the catching up of mid-cap stocks has already played out. "Going forward what will be important is individual stock selection. This will be the key for outperforming the index. Now that the bigger themes in the market have played out, investors will be looking at both the mid-cap and large-cap stocks. With valuations narrowing down, it isn't about large-cap or mid-cap stocks anymore," said Mr Mahesh Patil, Head, Equity - Domestic, Birla Sun Life.

  "Our strategy was to take a call on conviction ideas. We reduced the total number of companies in the portfolio from 35-40 to around 25-30, but increased our asset allocation in these companies. Our focus was on sectors like banking and financial services, consumer goods, hospitality and even the aviation sector which was not doing well at that time." said Mr Sadanand Shetty, Vice-President and Senior Fund Manager – Equity for Taurus Mutual Fund.

 "The long-term outlook remains positive. Good quality mid-cap stocks are available. India is a very large market, where most of the mid-cap and small-cap stocks are of superior quality. So, the interest of the investors should remain in this segment," said Mr Dani

Source: http://www.thehindubusinessline.com/2010/09/15/stories/2010091551851000.htm

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'I made my money by selling too soon.'

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Redemption-hit funds find hope in rising SIP accounts

In a silver lining to the dark clouds hovering above the domestic mutual fund industry, there has been a steady increase in the number of fresh equity SIP (systematic investment plan) accounts opened over the past few months. Ironically, the rise in SIP accounts is happening at a time when there is significant redemption in equity schemes.

Data provided by CAMS, the registrar to around 57% of overall mutual fund portfolios, reveal that SIP accounts have grown over 45% over the past one year. Fresh SIP accounts have gone up from 1.59 lakh in July 2009 to 2.31 lakh (in July) this year. Equity fund investors redeemed close to `4,000 crore in June and July and about `2,900 crore in August this year. Number of equity folios have fallen 2% since this April.

"It is ironic that we are seeing the opening of new accounts at one end and redemption at the other. SIPs are steadily gaining in number over the past few months. We expect August numbers to be significantly higher than previous months," said NK Prasad, president & CEO, CAMS.

According to Mr Prasad, fund houses are aggressively promoting SIPs, since investors have been reluctant to invest lumpsum into equity schemes in a rising market. Fund houses with smaller ticket sizes — often lower than `500 and marked as micro SIPs — see more account openings. Weighted average investment in one SIP account is about `2,200 per month. The duration of investment (on an average) has gone up from 12-15 months to about 36 months now, he added.

SIPs have been steadily gaining popularity among retail investors over the years. The number of live SIPs have gone up from 7 lakh accounts in 2003 to 22.5 lakh in 2010. The first quarter of 2010 witnessed SIP subscriptions accounting for 19% of the total inflows in equity mutual funds as compared with 2% in calendar year 2005, according to the recently-released BCG-CAMS report on equity mutual funds.

According to distributors, fund houses are trying to widen their reach by tying up with more banks and financial advisors who are willing to sell equity mutual funds.

"Declining upfront commissions are forcing distributors to look at trail-based income now. On the part of advisors, it is easy to sell SIPs as no further follow-ups are required," said Rajesh Krishnamoorthy, managing director, ifast Financial, adding, "with about 93% of SIP transactions happening over ECS, the advisor need not worry about monthly investments as well. These factor make SIPs easy to sell."

According to Mr Krishnamoorthy, some fund houses are also offering upfront trail commission to distributors on assumptions that the investor will stay invested more than the 'stipulated investment period' (reached upon by the fund house and distributor). In case, the investor redeems his investment prior to stipulated investment period, the fund house will claw back a portion of the upfront trail paid to distributor.

Most fund marketers are placing their hopes on rising SIP numbers to counter redemption in equity portfolios. They are expecting the profit booking in equity portfolios to continue for some more time.

"People who had invested in 2008 are booking profits at current levels," said the marketing head of a bank-promoted fund house.

"The only way to counter it is by adding more SIP accounts. We're trying to reach out to more people; the idea is to widen our reach to newer places. We are also planning to launch a few 'flavour-of-the-season' NFOs to bring in more investors," the marketing head added.

Source: http://economictimes.indiatimes.com/Analysis/articleshow/6556091.cms

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'I made my money by selling too soon.'

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

Blog:http://indianmutualfund.wordpress.com/
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Baroda Pioneer unveils PSU equity fund

Baroda Pioneer AMC today announced the launch of a PSU equity fund — an open-ended scheme — which will invest in a diversified basket of equity stocks of domestic public sector undertakings (PSUs).

The new fund offer will open for subscription on September 13 and close on September 24, said a news release from the company.

"PSUs operate in high growth sectors such as banking, infrastructure, oil and gas, power, minerals and are, thus, very diversified. Only a few of the consumer-related sectors are not included in the PSUs basket. We will be investing in around 35 stocks of the PSUs." said Mr Rajan Krishnan, CEO, Baroda Pioneer AMC.

The fund will invest 65 per cent in equity and equity-related instruments and the balance will be invested in debt and money market instruments. The minimum application will be of Rs 5,000 and in multiples of Re.1 thereafter.

Source: http://www.thehindubusinessline.com/2010/09/14/stories/2010091451281100.htm

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

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

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