JM Basic Fund: Aggressive play, but lower returns

Launched in June 2005, JM Basic Fund is focussed on the industrial sector of the economy. The open-ended equity-diversified fund has an objective to provide capital appreciation through deployment in sectors categorised under “basic industry” in the normal parlance and in the context of the Indian economy. These include, but are not limited to, energy, petrochemicals, oil & gas, power generation & distribution, electrical equipment suppliers, metals and building material. The scheme has not been a star performer, but over a life span of three years, it is an average performer in the category. But the fund has raised eyebrows by showing a jump in returns since 2007. That year, it took the fifth position in overall equity-diversified schemes, by delivering 31.90% compounded annualised returns over a two-year timeframe. But the ranking slipped since the beginning of this year due to a major slump witnessed in the markets, so much so that its long-term trailing returns have also been negatively affected. The fund takes concentrated bets on stocks in the core and infrastructure sectors.

The scheme, under the management of Asit Bhandarkar, was earlier biased in favour of large-cap stocks. However, the entry of Sandip Sabharwal into the fund house in December 2006 as its chief investment officer — equity has brought many changes in the fund’s outlook. The scheme began to aggressively invest in mid-cap stocks. At present, 57.43% of assets are invested in stocks of companies with a market capitalisation of less than Rs 6,577 crore. The scheme, which used to invest its portfolio across fewer sectors, also increased the diversification to over 16 sectors. At present, the engineering & industrial machinery sector, housing & construction, steel and electricals & electrical equipment are the fund’s big holdings. It has not touched the energy and power sectors much. Apart from conventional core industries, JM Basic Fund has also held stocks in packaging, paper and sugar sectors. Also, the fund does not hesitate to put large sums in few sectors — currently, the Top 3 sectors account for about half of the fund’s assets. Recently, it has been hit hard by its continuous high allocation to housing and construction. The fund manager is also active in managing holdings. Thus, the portfolio has been churned every month. The scheme seemed to struggle over the years and enjoyed little popularity amongst investors. The rally in 2007 saw the fund take off, but that performance could not be sustained once the markets turned bearish, which is a point worth noting for investors. JM Basic Fund, due to its inconsistency in returns, is a risky choice.

Source: http://sify.com/finance/fullstory.php?id=14799211

Rupee ends weaker than 50/dlr for first time

The rupee closed weaker than 50 per dollar on Wednesday for the first time as it was sideswiped by a falling stock market and demand for dollars to arbitrage a gap to offshore non-deliverable forward rates.
The partially convertible rupee ended at 50.02/03 per dollar, 0.7 percent weaker than 49.66/67 at Tuesday's close. It hit a low of 50.03 in late trade, its weakest since Oct. 27 when it hit a record low of 50.29.
"I still feel there is very good room for the dollar-rupee to go up to 52," said V. Kumar, chief dealer with State Bank of Travancore.
One-month offshore non-deliverable forward contracts were quoting at 50.80/95, 1.5 percent weaker than the onshore spot rate, providing a good arbitrage opportunity.
Dealers said some banks were buying dollars in the onshore market to sell offshore and cash in on the price difference.
"We have closed above 50 for the first time, it is a very bullish close for the dollar-rupee," a senior dealer with a private bank said.
Losses in the share market also hurt sentiment. The share market fell 1.8 percent, and has now lost nearly 17 percent over the past six sessions.
Foreign funds have withdrawn more than $13 billion from Indian shares so far in 2008, after buying a record $17.4 billion last year.
Dealers said the central bank was seen selling dollars via state-run banks to try to halt the rupee's fall through the day, but said volumes were not large. They estimated the central bank sold about $200 to $250 million.

Source: http://in.reuters.com/article/topNews/idINIndia-36583120081119

India's New Rural Roads May Buffer Economy From World Recession

The 100 kilometers (62 miles) of rural roads India is adding each day may save Asia's third-largest economy from the worst of a global recession.
New roads built so far under the $27 billion program have brought urban markets within reach of 60 million village dwellers over the past five years, letting them earn money selling fruits, vegetables and milk that would have spoiled otherwise. They are now spending their cash just as the world economy falters.
``Rural demand is keeping the economy kicking along,'' said Shashanka Bhide, chief economist at the privately funded National Council of Applied Economic Research in New Delhi. ``Growth will slow in India, but not as dramatically as the rest of the world.''
Some of India's biggest companies are already benefiting: shares ofHindustan Unilever Ltd., the biggest maker of household products, and Hero Honda Motors Ltd., India's largest motorcycle maker, are up this year while the benchmark stock index has plunged 56 percent. Domestic spending will help cushion India from the worst global meltdown since the Great Depression, according to the Reserve Bank of India.
When the roads program is completed in two years, every village with 1,000 or more inhabitants will have access to all- weather roads, up from 40 percent when construction started in 2003. Spending on the project, run by the National Rural Roads Development Agency, was worth about 5 percent of gross domestic product when it was announced.
More to Come
Even at its current pace of investment, India still needs to spend more to buoy growth. The South Asian nation requires $100 billion annual investments in its highways, railways, power systems, ports and other infrastructure for the next five years, according to the government. Inadequate capacity shaves two percentage points off the nation's growtheach year, the finance ministry estimates.
Rural connectivity is increasing people's income and adding to domestic consumption, which makes up 55 percent of India's economy, compared with 37 percent of gross domestic product in China.
Hazari Lal Negi, 55, a farmer in the northern Indian state of Himachal Pradesh, says this year's crop of cabbages, potatoes, beans and cauliflower was his first not to perish on the way to market because of lack of transport.
``Earlier, we would have to haul our produce and walk all night to the nearest town to catch the early morning trucks,'' Negi said. ``We could sell only about a quarter of our produce and the rest got wasted. Now, we sell everything.'' Negi plans to expand into organic farming to boost his income.
`Consumer Boom'
``New markets are opening up for our products,'' said Pranay Dhabhai, chief operating officer at Haier Appliances (India) Ltd., the local unit of China's biggest home appliances maker. ``People's aspirations levels are rising with higher incomes. There's a huge consumer boom waiting to happen because penetration levels are so low in India.''
Haier, which opened its first factory in India last year, estimates that only 19.6 percent of Indian households have refrigerators, 27 percent own television sets and just 3 percent of homes have air-conditioners installed.
Sanjeev Chadha, chief executive officer of PepsiCo Inc.'s India unit, said the September-October period ``has been one of the best ever'' for sales.
``Buying power is coming,'' said Joerg Mueller, head of India operations for Volkswagen AG, which is building a 580 million euro ($730 million) car factory in the western Indian city of Pune. ``We are optimistic and happy to be here. We see a very positive future.''
Cushioning the Slowdown
The International Monetary Fund expects India's economic growth to slow to 6.3 percent in 2009 from an estimated 7.8 percent this year. That's still faster than the South Asian nation's average 4.5 percent expansion since 1947.
China may grow 8.5 percent in 2009, compared with 9.7 percent this year, according to the IMF. The U.S. and the Euro area may shrink by 0.7 percent and 0.5 percent in 2009, the Washington-based lender said.
``Overall, India is still poised to rank as the second- fastest growing major economy after China,'' said Rajeev Malik, regional economist at Macquarie Group Ltd. in Singapore. ``Consumption expenditure is poised to be resilient, but investment spending will be hit owing to scarce availability and higher cost of funding.''
Even though India has a domestic consumption-led economy, its growth may be hampered by slower investments by companies as borrowing options dry up in a global recession.
Lending Slips
Investor appetite in the stock market has waned, with overseas funds selling a record $12.7 billion of equities this year. Foreign lenders are shying away from emerging markets like India, as Europe and Japan last quarter slipped into recession.
The rural roads program is financed by the federal government using revenue from an additional tax imposed on the sale of diesel.
``India can't be fully insulated from what's happening in the rest of the world,'' said Rajat Nag, managing director at the Manila-based Asian Development Bank. ``Infrastructure financing will be tight for a while.''
Nag said India's banks are well capitalized and can afford to step up lending. They have just $1 billion of toxic Western assets out of a total loan portfolio of $510 billion, according to the central bank. The global credit crunch has seen financial institutions around the world write off or lose $965.8 billion.
To stimulate investments, India's central bank has slashed lenders' reserve requirement in cash and bonds by 3.5 percentage points and one percentage point respectively and cut interest rates by 1.5 percentage points in the past month.
``India is connected with the global crisis, but not as severely as other Asian countries,'' said K.V. Kamath, chief executive officer of ICICI Bank Ltd., the nation's second- biggest. ``We will have to get back to the consumers to get India back on a higher growth path.''

“This is the right time to invest”

People should invest in the equity market now through mutual funds because of the attractive valuation of stocks, but should not expect short-term gain, says Association of Mutual Funds of India (AMFI) Chairman, Mr A P Kurian.
“This is the right time to invest in the market through mutual funds as the valuations of stocks are now very attractive,” Mr A P Kurian told a programme organised by Dun & Bradstreet here.
Investors should not expect short-term gain from their investments. They are required to stay put for three years and beyond, Mr Kurian said.
The global economic meltdown and subsequently huge churn out by the Foreign Institutional Investors (FIIs) from the country's stock market have led to bear run with the sensitivity index falling from 21,000 points at the beginning of the current year to 9,385 on the last trading day on November14.
Mr Kurian said that highs and lows were not an unknown phenomenon in the stock market and that should keep the long-term investors to have faith in the market.
“The Indian story is strong and will remain strong for decades, because we are a demand-driven economy. We are sure to bounce back either in 2009 or in 2010. No business cycle remains a one-way traffic. This country is too strong to collapse,” he said.
Stating that the Indian corporate entities were of world-class standard, Mr Kurian asked, “Do you think Tata Steel, L&T and Reliance will close down?”

Source: http://www.thehindubusinessline.com/blnus/00161906.htm