Good time to invest' SMART TALK/ Nilesh Shah

ICICI Prudential Asset Management Company is India's second largest mutual fund with assets under management of about Rs 60,000 crore. The man responsible for investments across its 40 schemes and personal management services is its deputy managing director, Nilesh Shah. 

In this interview to Jitendra Kumar Gupta, he talks about the current situation of the market, the fallout due to high oil prices, interest rates, inflation and steps investors should take to maximise their returns.

Is the slowing down of India's growth rate responsible for the market's performance? 
India continues to be on its growth path and nothing has changed fundamentally with the Indian economy. 
However, certain events like increasing oil prices and rising inflation have slowed down the pace of growth but have not derailed the economy's growth process. However, the Indian economy and equity markets are two different things. 
Indian equity markets have crashed from January 2008 as the FIIs have pulled out more than $6bn on account of perceived deterioration in macroeconomic fundamentals viz. higher oil prices leading to higher trade deficit which has resulted in a weaker rupee pushing inflation higher and increasing subsidy burden resulting in higher fiscal deficit. 

What's your call in the short term and what should investors do in these volatile times? 
Current market situation is more sentiment driven with high emphasis on global oil prices. Hence, in the near term a lot will depend on direction in which oil prices will move. 
However, in the long term we continue to remain positive on Indian markets provided there is adequate policy response. An investor should never try to time the market. We recommend to investors who have already invested to bear the pain and stay invested. For new investors, we recommend the simple rule of systematic investments with a long-term investment horizon. Additionally buying on each dip could add to their overall return.

Do you like any particular sector or theme, where one can invest for the long term especially when the markets are down? 
Looking at the ownership of Indian equity by retail investors, I can only say that first invest in broad markets itself and then look for specialisation. 
With India growth story being at the helm of all policy decisions, a theme like infrastructure is interesting. Mutual Funds dedicated to this theme could serve as an option. Another interesting sector is the banking and financial services sector which has seen substantial correction in the recent past and are available at attractive valuations. 

Which risks have the markets not factored in as yet? 
Most of the event risk in terms of high inflation and oil prices are being factored in, however sentiments are still weighing higher than fundamentals resulting in downward move of the Sensex. The markets will always find a villain. Currently oil price is the fear factor, tomorrow politics could be the one. The point is to look at valuations and invest. 

Given the current situation, do you expect a downgrade in earnings (for FY09) for India Inc.? If so, by how much? 
Sure there will be a earnings downgrade in the corporate sector. Higher oil prices and higher interest rates will erode earnings. Most analysts wake up to this post facto. When horses have bolted they will close the gates. The good thing is that markets are much smarter than analysts like us and moves ahead of events. 

What are your expectations for Q1 results? Which sectors where you expect companies to surprise positively and negatively? 
We think Q1 results will surprise the market positively, if the advance tax collection in Q1 09 is any indication. We think banking and real estate will shock the market, auto, FMCG and pharma will be in line with market expectations. Tech, metals and infrastructure space can surprise positively. 

In the current environment isn't investing in debt instruments more attractive? 
Investors with the help of a financial advisor should get their financial health checkup done and then arrive at an asset allocation strategy. Under this asset allocation, debt should certainly be a part of the portfolio as it offers stability to returns. However, we do not recommend income and gilt funds at this stage as we expect 10 year yield to go further up. We recommend investors to look at FMP in the current rising rate environment. 

What is course interest rates and the inflation will take going forward? 
The inflation cycle is likely to soften towards the Q4 of FY09. This will be more due to good monsoon, base effect and hopefully lower oil prices. The interest rate cycle will be primarily driven by inflation and then by government's fiscal deficit. We expect yields to remain high on government securities till inflation persists and government has to run higher deficits. Let's hope that the 10 year G-Sec yield starts stabilising at 9.5 per cent yield. 

What happens to interest rate sensitive sectors? 
Interest rate sensitive sectors have corrected sharply. We believe that currently banking and financial services sector has corrected substantially and is available at attractive valuations. 
This sector being the lifeline of any growing economy, has high potential on the upside. The real estate sector has corrected significantly and on a selective basis provides some opportunity. 
Automobile sector has moved from value to deep value or cheap to cheaper segment. It should do well unless oil prices go up substantially. 

What is your view on crude oil prices over the next 3, 6 and 12 months and, the implications for the same on India's GDP and the markets? 
India imports about 70 per cent of its crude requirement. Even though the prices are regulated for end consumers, high oil prices hit most of the industries associated with oil adversely. High oil prices not only impact the input cost but they also influence sentiments, which in turn is adding 
on to market volatility. Oil prices are today a function of demand supply mismatch and speculation. It is extremely difficult to predict how they will behave in the near term but in the long term they will decline reasonably as the law of average catches up with it. High prices will reduce demand and increase supply, and invisible hands of Mr Market will bring oil prices lower. 

Is there value in the market at current levels? 
Currently there is not only value but also deep value in the market. You are unlikely to get such a good environment to invest in the markets. The best way to tap the market is to either do hard work yourself and invest or seek professional help. Markets look attractive at current levels. We continue to believe in the long term story of the Indian economy and also the Indian equity markets. We are certain that markets will strengthen over the long term. 

Are you facing redemptions in some of your schemes? Please elaborate on the recent trend in AUMs? 
Indian investors are maturing when it comes to planning their financials. To some extent, credit goes to the education efforts undertaken by various stakeholders including government, regulator, AMCs and distributors. 
More and more investors are adopting mutual funds as a route for investment and interestingly we have not seen redemption pressure during recent market corrections. Instead more monies were invested at every fall.

UTI MF enhances features of UTI-ULIP

UTI Mutual Fund has enhanced the features of UTI-Unit Linked Insurance Plan (UTI-ULIP) and has introduced monthly systematic investment plan (SIP) under the scheme. 

UTI-ULIP is an open-end tax-saving-cum-insurance scheme and its investment objective is primarily to provide returns through growth in net asset value or through income distribution and reinvestment thereof, a press release issued in Mumbai stated. 

To provide additional benefits to investors, UTI MF has enhanced the features of UTI-ULIP. 

The target amount is increased from Rs five lakh to Rs 15-lakh with the flexibility to invest higher than the maximum target amount, the release said. 

There is also a higher insurance cover up to Rs 15 lakh. A fixed term cover has been introduced under the scheme and choice given to investors for fixed or declining term cover. 

Membership would continue even in the event of non-receipt of instalment and premium would be paid to LIC by redeeming existing units, the release said. 

UTI AMC's Chief Marketing Officer, Jaideep Bhattacharya, said, "UTI ULIP helps investors to create wealth at low-cost while safeguarding their families from any unforeseen event." 

"UTI ULIP is positioned as a balanced fund with not less than 60 per cent of the funds invested in debt instruments with low-to-medium risk profile and not more than 40 per cent of the funds in equities," Bhattacharya said.

Fidelity poaches ING Asia fund exec Venes

Mutual fund giant Fidelity International has poached a senior marketing executive from ING Groep NV's (ING.AS: Quote, Profile, Research)(ING.N: Quote, Profile, Research) Asia Pacific fund arm as part of its expansion in the region, a source told Reuters on Thursday.

The international affiliate of the world's largest mutual fund company has hired Carlo Venes to join the firm on Aug. 4 in a newly created role as head of institutional business for non-Japan Asia, said the source, who had direct knowledge of the situation.

Venes, who joined ING in 1994, was most recently the Hong Kong-based regional chief marketing officer for the fund arm of the Dutch financial services group.

ICICI Prudential MF launches Banking and Financial Services Fund

CICI Prudential Mutual Fund has launched ICICI Prudential Banking and Financial Services Fund, an open-end equity scheme. The scheme opened for subscription on July 9, 2008 and will close on Aug 07, 2008. The units of the scheme will be available at Rs 10 per unit.

Objective

ICICI Prudential Banking and Financial Services Fund seeks to generate long-term capital appreciation by investing in equity and equity related securities of companies engaged in banking and financial services.

The scheme will offer for redemption/switch-out of units at daily intervals at NAV based prices. 

The scheme offers growth option and dividend option. The dividend option shall have payout and reinvestment facility. 

The minimum application amount is Rs 1,000 and Re 1 thereafter. 

During the NFO period fund aims at raising Rs 10 million, however there is no upper limit.

Asset Allocation

The scheme aims at investing 65% to 100% in Equity & Equity related securities of companies engaged in Banking and Financial Services Sector, 0% to 35% in debt instruments.

Investment Strategy

The fund will follow the bottom-up approach to identify bargain stocks. This will involve intensive company visits and research to arrive at an intrinsic value of the company and identifying and investing in stocks with promising potential for long-term growth. The stocks may be at any levels of market capitalization.

Banking and financial services includes and is not restricted to the following types of companies / industries banking companies, broking companies, asset management companies, wealth management companies, insurance companies, non-banking financial companies (nbfc), investment banking companies, leasing and finance companies, term lending institutions and any other company engaged in providing banking and financial services.

Performance and Management

The performance of the scheme will be measured against benchmark, BSE Bankex and the fund manager for the scheme is Prashant Poddar.

MFs lap up Rs 3,000 crore shares amid market meltdown

Funds houses in the country are lapping up the opportunity presented by the slump in the market and have emerged net buyers in equities for the third month in a row in June, a latest report says. 

Mutual Funds continued to be net buyers to the tune of Rs 3,179 crore in the secondary market compared to a net buyer position of Rs 64 crore in May, a study by fund evaluation and risk solutions provider Crisil FundServices stated. 

This is the third month in a row that mutual funds have been net purchasers in secondary equity market signaling that equity fund managers appear to be finding value in stocks that are looking under-priced in the bear phase engulfing the equity markets f rom the beginning of the year, Mr Krishnan Sitaram, Head of Crisil FundServices' said in the study. 

Fund houses have made net equity purchases close to Rs 7,614 crore till June end this year. Meanwhile, the assets under management (AUM) in equity mutual funds dropped 24 per cent while the benchmark index S&P CNX Nifty fell as much as 34 per cent in th e first six months of the year. 

However, the fact that the AUM of the equity funds has been falling lesser than the benchmark indices is a sign of increasing maturity of investors. 

“Investors now seem to be looking to buy at lower levels. Also systematic investment plans have gained popularity which means inflows into funds to some extent are insulated from market movements”, the study said 

“Thus while the declining AUMs is a reflection of the markets declining, retail investors with a reasonably long term investment horizon seem to be continuing to be loyal to equity funds as one of the avenues to get inflation beating returns,” the study further said.

Global investor John Templeton dies at age 95

John Templeton, a pioneering mutual fund manager, global investor and billionaire philanthropist, died of pneumonia in a hospital in the Bahamas on Tuesday, a spokeswoman at his foundation said. He was 95.
Templeton, who started his career on Wall Street in 1937, created several successful international funds before selling the Templeton Funds in 1992 to Franklin Resources for $440 million in what was then the largest acquisition of an independent mutual fund company.
He remained deeply involved in his business until he was nearly 80. "People keep noticing that I'm 79 years old, and ask me what would happen if I would die," he told Reuters in an interview in 1992 while negotiating the sale of his firm.
"I have to take that into account," he said.
He died at 12:20 a.m. after being admitted about a week ago to Doctors Hospital in Nassau, said John Templeton Foundation spokeswoman Pamela Thompson.
In 1954 Templeton set up the Templeton Growth Fund at a time when few Americans considered investing offshore. The fund has returned 13.3 percent on average annually. A $10,000 investment made when the fund began is worth about $8 million today, according to Franklin Resources.
Templeton's knack for investing was evident as early as 1939, when at the start of World War II he borrowed money to buy 100 shares each in 104 companies that sold for $1 per share or less, including 34 companies that were in bankruptcy.
According to the Foundation's website, only four of those 100 turned out to be worthless, and Templeton made large profits on the others after holding each for an average of four years. In 1999, Money magazine called him "arguably the greatest global stock picker of the century."
A devout Presbyterian, Templeton was known for starting his mutual fund's annual meetings with a prayer. Some of those religious beliefs were reflected in the more than dozen books he wrote or edited.
Templeton contributed a sizable portion of his fortune to his foundation, which now has a $1.5 billion endowment. In 1972 he set up the 1 million pounds sterling Templeton Prize, the world's largest annual award given to an individual, for work related to spirituality. Mother Teresa was the first recipient of the award, in 1973.
"Insights can come quickly and easily when we commit ourselves to the action of the spirit, when have committed ourselves to the awakening of our soul faculties," Templeton wrote in his book "Wisdom from World Religions: Pathways Toward Heaven on Earth".
Born in 1912 in Tennessee, he renounced his U.S. citizenship in the 1960s and moved to the Bahamas, becoming a naturalized British citizen and living free of income taxes in the former British colony.
He was knighted by Britain's Queen Elizabeth in 1987 for his philanthropic accomplishments. He is survived by two sons, Christopher and Jack.
"We owe him a deep debt of gratitude," Franklin Resources President and Chief Executive Greg Johnson said in a statement after his passing.

Have you looked at these promising new MFs?

Dhirendra Kumar, CEO, valueresearchindia.com said that Templeton India Equity MF is a kind of fund which an investor should be regularly investing in, without looking at what is the outlook for the next three years, three months, four months, six months and so on. For naïve and recently initiated investor, this is an investment, which one should just stick on without looking at the performance, he added.

On funds that invest abroad, he believes that the difference between a fund through which Indian investors can invest abroad, is little different. He said, "One is that when a new fund is created in India it has no history. It is a story, it is a theme and it is a new offer document, which states that it intends to do this thing and come and invest money." According to him, they are stable investments, diversified adequately and they will do the job. So, don’t chase past performance when choosing these funds as well, he said.  

On Templeton India Equity MF:

It is a relatively new fund but this fund has done extremely well. The real benefit of a mutual fund is that with Rs 500 monthly investment you are able to invest and your portfolio is also well spread. It is a fund, which is nearly on an average, it has been about 80%-85% into domestic stock, 10%-15% has been into foreign stocks and this fund has done extremely well in this falling market. It has fallen the least and these are the point of time when the diversification bid actually shows up that how beneficial it is. In the good times, we just tend to forget the rules that it is time to make easy money quickly and you do not need to follow rules but past six months has reminded us of that. 

It is an excellent fund and because it has fallen less and has been able to guard your assets reasonably well. This is a kind of fund which an investor should be regularly investing in without looking at what is the outlook for the next three years, three months, four months, six months and so on. For naïve and recently initiated investor, this is an investment, which one should just stick on without looking at the performance. 

If an investor can invest more, most welcome because if one is looking at three-five year horizon, that will be guided by his own situation. For long-term allocation invest in a fund like this and if one can invest more one should. 

On funds that invest in international assets:

There are quite a number of options today. There are about 13-15 funds, which invest abroad, and many more are in the pipeline. The difference between a fund through which Indian investors can invest abroad, is little different. One is that when a new fund is created in India it has no history. It is a story, it is a theme and it is a new offer document, which states that it intends to do this thing and come and invest money. 

Compared to that the funds, which are investing abroad in an existing vehicle are structured in a manner that they are an existing fund, which have managed abroad, have a history and in which the Indian investors money will be channelized into. So, you are buying into an existing performance. To that extent, many of these funds qualify on the framework that they have some history. The first and foremost objective of an Indian investor when he is evaluating these funds because it is a new avenue, is to achieve diversification globally, internationally. 

So, don’t get into exotic investment ideas, which are very quirky in terms of this theme, that theme, this commodity cycle, this part of the globe, that part of the globe, these kind of businesses. We have seen it in recent past that the funds which are the simplest ones like the Principal Global Opportunity and Birla Sun Life International Fund, which is a newly created fund but it gives you the widest in diversification internationally in terms of foreign markets. They have been able to guard investor’s assets very well and have been able to deliver superior returns. These investments are not to be evaluated just for the sake of return. They are stable investments, diversified adequately and they will do the job. So, don’t chase past performance when choosing these funds as well. 

On Tata Indo Global Fund:

I am quite downbeat on this sector in India. This was the big story and a lot of investors made money in the past two to two and a half years but the coming year could be difficult for this kind of thematic fund. There is a slightly advantageous position that here is a fund, which will be invested abroad in foreign markets in this space itself. But that does not actually reduce the pain and for an investment horizon of one to one and a half years, there could still be downside because markets have this viral attitude. 

When we get optimistic, we take it to a different level and when we are neutral or negative on a sector then they go completely out of favour and that is why we see this wild swings. For the next one to one and a half year, the investor may not be lucky with the wild swings on the positive side. So one will be in a better position of being in a diversified equity fund, one should just check the pain. There will not be any tax incidents; it is a relatively new fund move to a Tata pure equity or something which he can do on an overall basis. 

On Birla Sun Life Tax Relief Fund: 
Birla Sun Life Tax Relief is a good fund but there are other choices too. For tax saving fund, one has to be little more careful because once you choose it you can’t undo it for three-years. Once you invest in such a fund you have to stay put for at least three-years. So, one has to be a little careful that you don’t go and choose a fund, which completely lacks any credentials and a completely new tax fund is avoidable.  

For a Birla Sun Life Tax Relief or Magnum Tax Gain or a Principal Tax Saver, we will be looking at past three-years and the next three-years could be very different. So generally an investor should choose a fund, which stacks up among the top five-seven over three-five years period and Birla Sun Life Tax Relief will qualify them. These tax relief funds are very smart vehicle because all other tax saving avenues available to Indian investor is a fixed income avenue whether you invest in Public Providend Fund (PPF), NSE or even a bank deposit with a five-year lock in of a certain kind gets you the same advantage.  

On one extreme you have this government-bagged sovereign guaranteed fixed income avenues, on the other extreme you have this tax savings funds and in the middle you have the Unit Linked Insurance Plans (ULIPS). For anybody who is looking at five-years and above, this is the smartest tax saving vehicle.