Quote of the day

Tuesday, June 2, 2015

India on marathon path; markets don't need steroids: Uday Kotak

Confident that India is on a 'marathon' growth path, eminent banker Uday Kotak has said that the markets should not look for any 'steroids' even as he warned against excessive debt exposure of the corporates.

Kotak also said that it has been an "euphoric phase" since the Narendra Modi-led NDA government came into power a year ago, while there is perception emerging now that expectations were ahead of reality.

"This perception stems from excessive exuberance, which needs to be moderated. However, in reality, I am confident that growth will be steady, stable and upwards.

"I am convinced that the India Marathon story is already playing out. The watchers of the Indian economy as well as the markets should not look for steroids," the Kotak Mahindra bank chief said.

Kotak also said that one of the biggest challenges today was the history of excessive leverage by India Inc.

"This has slowed down parts of the Indian banking system. As these events unfold and unravel, I sincerely hope that it does not create any accidents and challenge the capacity of the financial system in supporting the growth of the Indian economy," Kotak said in his annual letter to the shareholders of Kotak Mahindra Bank.

Elaborating on his views about the first year of the Modi government, Kotak said, "While the euphoria may have faded, the country has made progress. India's macroeconomic signals have become stronger and stable. Crucial parameters such as current account deficit, fiscal deficit and levels of inflation have improved."

Listing out the possible challenges for the India growth story, Kotak said, "It is unlikely to be a great snapshot, but certainly will make for a wonderful movie.

"India is poised to witness stable and sustainable growth in the long term."

On banking sector, Kotak said that public sector banks currently account for about 70 per cent of the savings and deposits, while private sector banks account for the rest.

"With new issues challenging the banking system, it is time for us to ponder how we structure the future of Indian banking. I believe that over the next 10 years the ratio will be equitable between public and private sector banks."

Kotak said this presents "significant challenges and opportunities" for Kotak group and it needs to "build an institution that has the capacity to defy gravity" and create a 'Bigger, Bolder, Better Kotak'.

He said that the group has already taken steps in that direction, including with the mega merger of ING Vysya Bank with Kotak Mahindra Bank that has created a combined entity with total employee base of over 40,000 and the combined consolidated balance sheet of around Rs 2 lakh crore.

Other strategic decisions include acquisition of domestic schemes of PineBridge Mutual Fund and a 15 per cent stake in India's largest commodity exchange - MCX, Kotak said.

"Fourth, we are foraying into the general insurance business, which will be a 100 per cent subsidiary of the Bank.

"And finally, we have agreed to invest up to 20 per cent in a proposed payments bank by Airtel M Commerce Services Limited - an area where we see immense potential."

Kotak said that the different arms of the group have shown healthy growth and its asset quality has been "top notch, riding on low gross NPAs and net NPAs, and lowest restructured assets in the Indian banking sector".

"We expect our fee income from foreign exchange business, equities, brokerage, or distribution of products in the mutual fund space to grow further, as we build our franchise. We are also emerging stronger on account of our robust liabilities and assets.

"Further, we have deepened and widened our customer base, which is growing steadily. With the merger of ING Vysya Bank, our national footprint has grown. Our brand campaign 'Kona Kona Kotak' signifies our expanded reach across hundreds of towns and cities of the country.

"As I evaluate our 'Concentrated India, Diversified Financial Services' business model, I am excited about all segments of our business," he said.

Kotak said he also sees tremendous growth potential in the capital markets and investment banking businesses, while other promising businesses are life insurance and asset management.

"I see a turnaround in both the businesses as we leverage the additional distribution network. There is also some traction in our alternate asset businesses.

"Therefore, banking and financing, capital markets and investment banking, life insurance and asset management give us a complete menu of diversified financial services, which we believe will help us leapfrog to significantly higher growth rates in the coming years.

"I am a great believer in creating long-term shareholder value... If you look at the Kotak story, an investor who invested Rs 1 lakh in Kotak in November 1985 - when we just started the company, would today have a shareholding worth over Rs 1,100 crore," he said.

"The journey has been enjoyable so far and I am looking forward to an even more exciting time in the context of India's Marathon story. I am confident that brand India and the potential that it promises will provide us the platform to build an institution of global repute, size and stature," Kotak said.

Source: http://economictimes.indiatimes.com/markets/stocks/news/india-on-marathon-path-markets-dont-need-steroids-uday-kotak/articleshow/47489253.cms

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

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  • HDFC TOP 200 Fund (Large Cap Fund) 8%
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