Fund managers see range of 16,000-18,700 for Sensex by Mar 12

``Most of the fund managers expect the Indian equity markets to be in the range of 16,000-18,700 by the end of March 2012,`` according to ICICIdirect Fund Managers Survey.

``Earnings growth expectations have been revised downwards both for the current as well as the next fiscal year. Although most of them believe that valuations are more reasonable, a majority of them are cautious in the short-term,`` it added.

``A majority of the fund managers believe that allocation towards equity markets at current levels should be increased with an investment horizon of one year and above. Due to current higher yields and expectations of overall interest rates coming down in 2012, the Indian debt markets remain the most preferred asset class,`` it further added. 

ICICI Securities in its Fund Managers Survey has covered 16 domestic fund managers from the mutual fund industry. The Fund Manager Survey is conducted on a quarterly basis. The previous survey was done in August 2011. 

Equity Markets

Where do you expect BSE Sensex at the end of March 2012?

Total 75% of the fund managers do not expect major downsides for the markets from current levels and do not expect the market to be below 16,000 levels by the end of March 2012. Half of the fund managers surveyed believes the market will be in the range of +/-5% from current levels till the end of the current fiscal year FY11-12.

Where will you broadly position the Indian equity market on a valuation scale?

Most of the fund managers continue to believe that the markets are fairly valued while none believe it to be overvalued. As compared to the last survey, a higher percentage of fund managers believe that the markets are undervalued.

What is your broad outlook for the markets in the next three months?

There has been a marginal increase in optimism where 19% of the fund managers are bullish towards the overall market as compared to 13% in the last survey. Majority of them remain neutral in the short-term.

Compared to the previous three months, are you more confident about investment in the equity market?

Most of the fund managers are now less confident towards equity market investment as compared to the previous survey. The number of fund managers who are cautious toward equity markets have increased from 30% to 50%.

What could be the major global risk for Indian markets?

According to most of the respondents, the European sovereign crises are a major cause of concern for Indian equity markets. Higher crude oil prices also remain a major risk.

What is your corporate earnings growth expectation for FY11-12 and FY12-13?

Earnings growth expectations have been revised downwards by the fund managers for both FY12 as well as FY 13. Earnings growth for the current as well as next year has been revised down to less than 10% by a most of the fund managers while the outlook seems incrementally better for the year FY12-13 with higher number of them believes growth to be in 10-15%.

Which segment of the market would you prefer with an investment horizon of one year?

Preference toward large caps has increased due to increased volatility. However, midcaps also remain preferred for many of the fund managers due to attractive valuations.

Rank the sector according to your preference..

FMCG and pharma sectors continue to be the most preferred sectors. Preference for both sectors has, in  fact, increased as compared to the previous survey. IT sector has again found favour among the fund managers. Selective stocks in Infra/Capital goods sector have also seen increase in preference.  Sectors that have seen a decrease in preference as compared to the previous survey includes BFSI, auto, oil & gas, telecom and metals.

Debt Markets

Where do you benchmark the 10 year G-Sec yield in three months?

Total 75% of the fund managers expect the 10 year benchmark G-sec yield to be in the 8.50-9% range. Select few of them believe the yields will be above 9%.

With a six months horizon, which segment of the debt market do you expect to deliver better returns?

Short-term debt funds remain the most preferred segment due to elevated short-term rates and better risk-return trade-off. Many of the fund managers were more optimistic towards G-sec funds due to a sharp rise in yields. 

Investment Strategy

Which asset class do you think will outperform in the rest of the year 2012?

Opinion seems to be divided over the asset that will outperform in the year 2012. While debt markets Due  to current higher yields and expectations of overall interest rates coming down  in 2012, the outlook for Indian debt markets remain positive. Range bound with volatility on global news flows is the verdict for the equity markets. Most of the fund managers advise a buying on dips strategy for the equity markets.

What equity market strategy would you suggest now?

With valuations more reasonable, most of the fund managers believe allocation should be either maintained or increased towards equity markets. However, as compared to the previous survey, less percentage of them advise to increase allocation at current levels.

Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20111207110904043&dir=2011/12/07

Savvy investors flock to STPs for higher returns

Systematic transfer plans or STPs — an investment route that allows mutual fund investors to shift a fixed sum from one scheme to another at regular intervals — are gaining popularity among affluent investors.

With heightened uncertainty over the stock market's prospects and debt schemes churning healthy returns, these investors are increasingly opting for STP to ensure they do not miss out on higher debt returns, while waiting for opportunities in equities.

Most of them are investing a lump sum in liquid schemes which, in turn, transfer a fixed amount every month to equity schemes. This is how an STP works. If an investor has Rs 1 lakh to invest, but is not comfortable with putting the entire money in the stock market, he can lock in the money in a short-term debt fund that has STP options. The investor then sets a time or event trigger on the debt scheme.

If the investor has set a time trigger —say a monthly trigger — a pre-determined portion of the investment moves out of the debt scheme into the chosen equity funds every month. An event trigger will allow the investor to put in a portion of the money every time the market falls to acertain level.

"STP gives investors the best of both worlds. It allows investors to build an equity portfolio without taking huge risk. The time the money is not invested in equities, it generates huge returns in the debt portfolio," said A Balasubramanian, chief executive officer, Birla Sun Life Asset Management.

The advantage of STP is that investors are able to pocket higher returns till such time the money is invested in equity schemes. At current rates, investors get 8.5-9.5% on their liquid fund portfolios vis-a-vis 6% on bank's fixed deposits.

"Affluent investors are opting for STPs to pocket higher short-term yields, while waiting for investment opportunities in equities market.

Apart from higher yields, investments in liquid funds get better tax treatment than bank FDs," said Srikanth Meenakshi, director, Wealth India Financial Services. Returns on liquid funds are taxed at about 14% annually, while gains from bank FDs are taxed at 30%.

Over 10% of the money flowing into systematic investment plans (SIPs) of equity schemes comes through STPs, as per industry estimates. The fund industry receives about Rs 1,800 crore though SIPs every month.

Fund houses like HDFC, Reliance Mutual, Franklin Templeton, Birla Sun Life Mutual and Tata Mutual, among others, are promoting STPs in a big way. They are giving 'daily transfer', 'event transfer' and 'weekly transfer' options to investors.

Some fund houses also give the option to transfer gains (made on liquid portfolio) into equity funds. "Fund houses are promoting STPs to attract lump sum investments from investors.

It's the easiest way to convert them into equity fund investors," said the marketing head of a bank-promoted fund house.

Source: http://articles.economictimes.indiatimes.com/2011-12-07/news/30485797_1_equity-schemes-liquid-funds-affluent-investors

Investments depend on liquidity needs and interest rate outlook

With debt being the flavour of the season, this week has seen launch of two debt mutual fund schemes. Birla Sun Life Mutual Fund is offering a short-term fixed maturity plan (FMP), while L&T Mutual Fund has launched a short-term debt fund.

L&T’s short-term debt fund is a three-year fund, benchmarked against Crisil’s short-term bond fund index. Birla’s fixed term plan, Series DV, is a close-ended income scheme, for a duration of 546 days or a year and a half.

Joseph Thomas, head- investment advisory and financial planning, Aditya Birla Money, says, “With inflationary expectations getting moderate and the resistance that short-term interest rates are facing, investing into short-term funds offer an appropriate risk-return trade off for investors.”

He advises, investors to go into schemes with a maturity profile of above six months to two years.

Though everyone agrees we may have reached the sharp end of the interest rate curve, it may still be some time before a reversal in trend. Which is why, depending on the investor’s liquidity needs and his view on interest rates, one could opt for either an FMP or a short-term debt fund.

According to Bekxy Kuriakose, senior fund manager, L&T Mutual Fund, “Investors who are fairly confident of rates having peaked out and have no urgent need of liquidity can lock in their money into short-term FMPs.”

FMPs invest in debt securities, that mature just before the scheme’s maturity. FMPs with over a year duration are popular because of the possible double indexation benefits.

For instance, if an investment is made in December 2011, one can claim indexation benefits for both financial years 2011-12 and 2012-13, as the product will mature in 2012.

With inflation at around nine per cent, a double indexation benefit (of 18 per cent) would make the investment tax-free. Those in the highest tax bracket will benefit the most.

On the other hand, those willing to take the interest rate risk but wanting to minimise their capital losses, can invest a small part of their portfolio into short-term debt funds.

“Unlike a gilt fund or a long-term bond fund, short-term funds should be giving positive returns and one can look at investing, say, between 20-30 per cent of their portfol-io into them,” says Dhurva Chatterji, senior research analyst, Morning Star.

In the event of interest rates beginning to reverse, short term debt funds will benefit and not FMPs. This is because with an FMP you are locked in with both the tenure and the interest rate, unlike a debt fund which is open-ended.

L&T’s scheme is an open ended scheme that gives the investor the freedom to exit when he wants.

In the last one year, short-term FMPS have given returns of 8.82 per cent and short-term debt funds 8.69 per cent.

Source: http://www.business-standard.com/india/news/investments-dependliquidity-needsinterest-rate-outlook/457869/