Quote of the day

Saturday, May 30, 2015

Mutual fund industry body AMFI scouts for a new CEO

Mutual fund industry body AMFI has begun the search for a new chief executive and set up a three-member committee to find a successor to the current CEO H N Sinor.

Sinor's term ends in September. He had joined AMFI in 2010 as its CEO after A P Kurian's retirement.

Sinor was re-appointed as the CEO earlier this year after his term ended in December 2014.

The next CEO will be selected in the next Annual General Meeting (AGM) of Association of Mutual Funds of India (AMFI), which is expected in September, official sources said.

The search panel comprises of AMFI chairman Sundeep Sikka, who is also managing director and chief executive of Reliance MF, HDFC MF managing director Milind Barve and Birla Sun Life MF chief executive A Balasubramanian.

The ideal candidate to fill the top post at AMFI would be a person having decades of experience in the financial markets.

During Sinor's tenure, the mutual fund industry has dealt with sweeping regulatory changes.

Among the initiatives taken during his term, AMFI has put a one per cent cap on upfront commission paid to distributors and initiated investor awareness campaign.

Sinor is a former ICICI Bank executive and chief executive of the Indian Banks' Association.

AMFI, which is the industry association of mutual funds, interacts with market regulator Sebi regarding mutual fund related issues and also represents the industry to government, RBI and other organisations. It also serves as a self- regulatory body for mutual funds.

Source: http://timesofindia.indiatimes.com/business/mf-simplified/mf-news/Mutual-fund-industry-body-AMFI-scouts-for-a-new-CEO/articleshowhsbc/47456770.cms

Wednesday, May 27, 2015

BofA-ML retains December Sensex target at 33,000

American brokerage Bank of America-Merrill Lynch (BofA-ML) on Monday retained its Sensex target at 33,000 by December, but said in the medium term, the Dalal Street will see more volatility.
“We continue to maintain our December Sensex target of 33,000 points. But near-term the markets will remain subdued and range bound with a negative bias, as quarterly earnings are low and more earnings downgrades are likely over the medium term,” BofA-ML analyst Jyotivardhan Jaipuria said in note.

“Also, the India versus GEM premium is near all-time at 35% the GE averages,” Jaipuria said. The markets are likely to witness another quarter of weak growth in the ongoing earnings season. Mirroring the previous quarter when aggregate Sensex profit fell 1% year-on, profit growth is once again going to be subdued at 1%, he said, adding he sees more earnings downgrades for the next few months before stabilising and earnings upgrades may not start until next year.

On a top-down basis, we expect 2015-16 consensus growth estimates of 18% to get downgraded to 12-13% growth, he added. However, he noted that foreign institutional investors (FIIs) have the all-time high overweight on the domestic market. This is on the back of nine consecutive quarters of positive FII inflows.

Strong FII inflows have resulted in all-time high foreign ownership for the markets at about 28%. While GEM funds have a 12.8% weight on the country against the index weight of 7.7%, which is a massive 510 bps OW.

Noting that the Sensex has rich valuations, he said post-2014 polls, the markets re-rated and have been trading at 16 times one-year forward PE. And despite the recent bloodbath, the valuations are still a 10% premium to long term averages. Also, in the GEM context it is currently at a 35% premium to GEM, he said.

On the Modi government’s first year reforms report card, Jaipuria said slow and steady reforms were anticipated and the reported loss of faith in the Modi regime to accelerate reforms is partly due to unrealistic expectations. “Returns last year were led by re-rating, but returns this year would be led by earnings. With earnings being sluggish, the markets would give a flat to slightly negative return for the majority part of the year and the YTD return has been negative 1.5%.

“We see earnings improving only late 2015 and the market returns being back-ended with a flat to slightly phase in Q2 and Q3 of 2015,” Jaipuria noted. He attributed three reasons for the present investor jittery-sluggish recovery, the minimum alternate tax (MAT) controversy and delay in getting the new land law in place. The economy continues to be sluggish and earnings growth in the December quarter was the weakest in 20 quarters and the current quarter is unlikely to be different, he said, adding the dispute on MAT has reignited fears of harsh taxation rules.

On the new land law, he said this underlines difficulty in reform legislation. Investors have been keenly watching the progress of the new land acquisition bill and are hoping the government can quickly pass the Bill through a joint session of Parliament.

He also warned that investors could be disappointed if the land acquisition bill and the goods and services tax bill are not passed in the Budget session, Jaipuria said, adding the chances of these Bills getting House nod look distant.

Source: http://www.livemint.com/Money/hBHnH7dvge8FKWZnKIM7ZL/BofAML-retains-December-Sensex-target-at-33000.html

Mutual funds slow down pumping money in stocks in May

Mutual fund managers have reduced their pace of buying this month, amid sharp rise in volatility. After pumping in more than Rs 9,000 crore in Indian stocks in April, fund managers have bought shares worth around Rs 3,300 crore so far this month. The drop in investment pace, industry players, say is a tactical call and not a directional one. They add that it is a continuation of "buy on dips" strategy.

Thus far this month, in the 16 trading sessions, equity fund managers have net invested about Rs 3,300 crore, which is nearly a third of what the previous month witnessed. Compared to the immediate previous month, the quantum of net investment is low but is in line with the average monthly investments ever since the Narendra Modi-led BJP government took office in New Delhi last year.

The investment figure in last month was unusually high after the market had come off nearly 10 per cent from the highs.
According to fund managers, it is a tactical call and should not be read as directional. It has come at a time when corrections in the key indices appear to have been arrested to some extent. Rather, the benchmark indices are showing some resilience and are up about two per cent compared with April-end. In the recent past too, fund managers had reduced their buying spree whenever markets moved up.

G Pradeepkumar, CEO of Union KBC Mutual Fund, says, "Since the start of the current rally, fund managers have been aggressively buying on dips. Last month, when markets witnessed corrections, we have been buyers. Further, strong inflows in the equity segment also fuelled investments."

Another possible reason for the slowdown in investments could be relatively less robust inflows in equities from investors. Sector executives say reduction in inflows cannot be ruled out in May. Rajiv Shastri, managing director & CEO of Peerless Mutual Fund, says, "Slowdown in inflows could be a possibility. When situation looks a little uncertain, investors tend to hold back their investments."

The Reserve Bank of India (RBI)'s next policy review on June 2 is also being eyed by fund managers as the next decisive trigger. According to them, it is to be seen how the RBI moves as there appears to be visible pressure from the government for an imminent rate cut.

In FY15, the total net investments by fund managers were to the tune of about Rs 41,000 crore, the highest in sector's history with net inflows for the year at Rs 71,000 crore.

Nearly 10 per cent correction in stock indices post the Union Budget against the recent peaks were taken as big opportunities by the fund managers to pick stocks. Even investors increased investments during the March-April period, which were as high as Rs 19,000 crore.

Currently, the industry has over 400 equity-oriented schemes managing assets worth Rs 3.45 lakh crore.
Source: http://www.business-standard.com/article/markets/mutual-funds-slow-down-pumping-money-in-stocks-in-may-115052601188_1.html

Tuesday, May 26, 2015

Indian funds have beaten Warren Buffett in returns, says Nilesh Shah

Indian investors are still in reverse track, Nilesh Shah tells ET Wealth. The good news is a more mature set of investors has entered the market in recent years.

A recent report says most actively managed mutual funds underperformed their benchmarks in the past five years. What are your observations?

Nilesh Shah: There's a saying that if you torture data enough, it will confess to everything. The SPIVA report is nothing but torturing of data. They have failed to appreciate that the worst performing Indian mutual fund outperformed Warren Buffett in dollar terms by over four times in the past 17 years. They also failed to appreciate that Indian equity fund managers outperformed the benchmark indices by double the margin by which Buffett outperformed indices in past 17 years. So we are outperforming the God himself, but you are torturing data to represent something that is untrue. All I can say is, please don't denigrate us and represent data to get sensational headlines.

You think all mutual funds have done their job well?

Nilesh Shah: As a mutual fund house, our job is to ensure that we take proper care of our clients' money. This could be in terms of outperforming the benchmark indices of the respective schemes. Fund managers are also human. They also make errors. If they keep on repeating those errors, there is cause for concern. In 2000, a lot of fund managers went wrong in picking companies. In 2008, a lot of us went wrong on the valuations. But at least the mistake of picking the wrong companies was avoided.

Equity funds have given good returns in the past 10-15 years. Why are investors still staying away?

Nilesh Shah: Indian investors were 45% owners of Indian equity in the early 1990s. Today, they own only 9-10%. While the market cap of Indian companies has soared, the Indian public has just sold off its stake. There are lots of Indian companies run by excellent entrepreneurs and managers. These people work hard but the fruits of their hard work are enjoyed more in Singapore, Hong Kong, London and New York, rather than in Ahmedabad, Bengaluru, Mumbai and Delhi. Indian companies are progressing but Indian investors are still in reverse track. If Indian investors had not sold off, HDFC and other great companies would still be Indian-owned.

Some portion of the EPF corpus will now be invested in stocks. What do you think of the development?

Nilesh Shah: It is a positive move. The investment philosophy followed by the EPFO for the past several decades has led to poor returns for investors. There are millions of subscribers who have been contributing to it for the past 15-20 years. By not investing in equities, they have remained poor. Imagine how much richer they could have been if some portion of their PF balance was allocated to equities 15-20 years ago.

Do you think equity fund investors in India have matured in the past 10-15 years?

Nilesh Shah: On one hand, there are investors who are happy with a reasonable return that beats the broader market. On the other hand there are investors who want to double their money in a very short time. They think that since fund managers appear on TV and other media, they are gurus. If a fund manager could predict with certainty where the market was headed, why would he work? A fund manager is not a wizard, he doesn't have a magic wand like Harry Potter. However, a more mature set of investors is now emerging. They are not too upset when markets don't do well. They understand that the downturn is transitional and try to gain from it by buying more at low prices. A growing number of investors is also realising the benefits of regular and longterm investing. There are 78 lakh SIP investors in funds today. We pray they continue and reap benefits of systematic investments in equities.
Source: http://economictimes.indiatimes.com/opinion/interviews/indian-funds-have-beaten-warren-buffett-in-returns-says-nilesh-shah/articleshow/47395888.cms

Don't switch out of debt funds

We have been recommending the long-dated debt fund strategy for some time now. While it has generated handsome returns in the past, conditions are not rosy for investors who got in only in the last three months. Income funds have generated absolute returns of only 0.97% in the last three months while the average longand medium-term gilt fund has lost money .

So what went wrong? After falling for more than 18 months, the 10-year yield remained almost flat the last three months before starting to inch up in the last few days. The 10-year yield is now placed at 7.87%, 22 bps higher than the recent low of 7.65% on 2 February . To find out where the yield is headed, we need to take a look at the factors that contributed to its recent spurt.

First, the spurt in crude prices from its recent lows has raised doubts about the low inflationary situation in India.Brent crude is at $69 per barrel, a more than 40% jump from its January low.However, experts think this spurt is temporary. "What is happening on crude is a technical bounce," says Rajeev Radhakrishnan, Head, Fixed Income, SBI Mutual Fund. This is because there is no reduction in supply by OPEC. "Crude should stabilise between $60 and $70. If prices go above $70, shale producers who shut down production may come back," says Radhakrishnan.

Food inflation is another worrying factor. A below average monsoon is predicted too. However, experts remain unfazed. "The corelation between monsoon and inflation is low," says R. Sivakumar, Head of Fixed Income, Axis Mutual Fund. "Food inflation is due to the increase in minimum support price and the government has made only a very small increase this time," he adds.

The CPI-based inflation, which the RBI uses, is still above 5%. However, the WPI-based inflation is in the negative zone for the last five months and should help bring down the CPI-based inflation.Growth not picking up as expected is another reason for a benign CPI-based inflation. "We are growing well below our potential rates. With enough spare capacity , manufacturer's pricing power is low and this should help inflation to shift lower," says Radhakrishnan. That would mean the RBI's CPI-based inflation target of 6% by January 2016 will be achieved. "Inflation should be close to 5% in the next year," says Sivakumar.

The weakness in the rupee is another factor holding the RBI's hand. The dollar has been appreciating over the last few months due to US rate hike fears and has already reached `64.05. Though RBI wanted a small depreciation in the rupee due to inflation differential, it would not like a sudden crash. Another factor irking RBI is the behaviour of banks, which have not passed on the benefits of the last 50 bps cuts to custom ers. However, the banks have started passing on some benefits. With more banks participating, RBI may restart rate cutting soon. "The next rate cut from RBI may happen before June 30," says Kumar.

The spike in 10-year yield can also be linked to technical factors in the market. RBI is about to issue new 10-year papers, so existing investors are getting out of current ones. "The yield on the existing 10-year paper is high because of the illiquidity premium and the yields on new papers are usually 15 bps lower than the old papers," says Indranil Pan, Economist, Kotak Economic Research. With the FII limit on government securities reached, there is no additional FII inflow here. Any increase in limit will result in fresh bout of buying and bring the yield down again.
Experts are of the view that the 10year yield will come down in a year."The current yield of 7.95% is an aberration and should come down to 7.25% in 5-6 months," says Kumar. Sivakumar and Radhakrishnan agree.

Stick with long duration: Investing in long duration funds is the best strategy to make money from a fall in interest rate. The price of bonds and yield are inversely co-related and bond prices move up when yields go down.Existing investors should stick with long duration funds instead of shifting.They can also consider putting in fresh money into this segment. However, note that the current yield is below 8%."Only investors with long-term holding period and strong views can make money this year," says Pan. "There will be short-term volatilities in long duration funds and instead of selling, they should hold on," says Vidya Bala, Head, Mutual Fund Research, FundsIndia.

Gilt or income: "Income funds are better for retail investors, as gilt funds are for those who have specific views on gilt yields," says Sivakumar. The advantage of income funds is that they can get the benefit of the higher yield in corporate debt papers also. Income fund managers usually invest in corporate debt when the difference between the gilt yields and AAA rated corporate bonds are high and get back to gilt then the yield difference is low. Pure gilt fund investors, who time the gilt yield cycle correctly, may also have to deal with higher taxation. The Indian gilt yield cycles takes 18-24 months. Since the minimum holding period for long-term capital gain for debt funds has been increased to 36 months, active investors who exit before three years will have to pay short-term capital gains tax.

Short-term for stability: Investors who seek stability can go for short-term income funds. Here the returns come through the accrual method. These funds have generated decent returns in the past year. However, short-term rates are expected to fall. A better option are dynamic funds, where the fund manager takes the call on maturity based on his reading of interest rate movements.

Source: http://timesofindia.indiatimes.com/business/india-business/Dont-switch-out-of-debt-funds/articleshow/47410775.cms

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Aggrasive Portfolio

  • Principal Emerging Bluechip fund (Stock picker Fund) 11%
  • Reliance Growth Fund (Stock Picker Fund) 11%
  • IDFC Premier Equity Fund (Stock picker Fund) (STP) 11%
  • HDFC Equity Fund (Mid cap Fund) 11%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 10%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
  • Sundram BNP Paribas Select Midcap Fund (Midcap Fund) 8%
  • Fidelity Special Situation Fund (Stock picker Fund) 8%
  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Moderate Portfolio

  • HDFC TOP 200 Fund (Large Cap Fund) 11%
  • Principal Large Cap Fund (Largecap Equity Fund) 10%
  • Reliance Vision Fund (Large Cap Fund) 10%
  • IDFC Imperial Equity Fund (Large Cap Fund) 10%
  • Reliance Regular Saving Fund (Stock Picker Fund) 10%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 9%
  • HDFC Prudence Fund (Balance Fund) 9%
  • ICICI Prudential Dynamic Plan (Dynamic Fund) 9%
  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Conservative Portfolio

  • ICICI Prudential Index Fund (Index Fund) 16%
  • HDFC Prudence Fund (Balance Fund) 16%
  • Reliance Regular Savings Fund - Balanced Option (Balance Fund) 16%
  • Principal Monthly Income Plan (MIP Fund) 16%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
  • Principal Large Cap Fund (Largecap Equity Fund) 8%
  • JM Arbitrage Advantage Fund (Arbitrage Fund) 16%
  • IDFC Savings Advantage Fund (Liquid Fund) 14%

Best SIP Fund For 10 Years

  • IDFC Premier Equity Fund (Stock Picker Fund)
  • Principal Emerging Bluechip Fund (Stock Picker Fund)
  • Sundram BNP Paribas Select Midcap Fund (Midcap Fund)
  • JM Emerging Leader Fund (Multicap Fund)
  • Reliance Regular Saving Scheme (Equity Stock Picker)
  • Biral Mid cap Fund (Mid cap Fund)
  • Fidility Special Situation Fund (Stock Picker)
  • DSP Gold Fund (Equity oriented Gold Sector Fund)