Mutual Funds Also Hit Circuit

The good news is that the markets are up, but the bad news is that fund investors could not benefit as they could not buy and sell, leaving them stuck where they were on Friday last.
Why? Because authorities have announced that Monday will be a taken as a non-business day for mutual funds.
This is the right thing to do by the authorities. The reasoning behind it is that the transaction time for all equity funds on a normal business day is 3 p.m., and on a day like today it would have been impossible to undertake any transactions at all. Therefore, it will be unfair for investors if fresh purchases and sales are allowed while the underlying asset prices are frozen.
The rule-based approach that applies here will then come into effect. If mutual funds get purchase and redemption requests on a non-business day, then these will get executed on the next business day.
On a typical Friday afternoon post-3 p.m., if an investor files a request, his order will get executed on the following business day -- he will get the Monday NAV in effect.
The uncertainty has rubbed off on the mutual fund managers too and they are all groping for suitable answers, but what is certain is that the ball is in the court of the Association of Mutual Funds of India (AMFI).
At the moment, while some mutual funds have said they are going to declare NAVs only as a reference point, others have indicated they will not declare NAVs and the rest are awaiting notification from AMFI before deciding either way.
Be that as it may, but for those interested in ‘what if’ kind of situation, here were the possibilities:
The election results may have been unexpected, but the reaction to it was very much in line with general expectations. After poll results were announced many analysts and asset managers were of the view that come Monday the markets are going go up, the only thing dividing their opinions being by how much.
Still, nobody really expected markets to get shut down prematurely for the day due to excess buying pressure. In the opening session, Sensex jumped to a plus-14 per cent gain, which was the biggest rise on opening since 1995. The scene in the debt market was no different with the benchmark GOI yield going down by 25 basis points to 6.27% -- the lower the yield, bigger the gains. This was the two-week low for the benchmark gilt. Unlike its equity counterpart, the debt market may be forgiven for the lack of exuberance, as later in the week the Reserve Bank of India (RBI) would be coming out with another round of G-sec auction.
Considering the way the markets swung, this would have been a good day for mutual fund investors. At least, even the worst of the funds could not have, after this day, shown a negative return the day after. One-day returns of the funds were slated for a jump if we had got to see the end of the day net asset values (NAV).
Large-cap funds would have been be the biggest beneficiaries from the skyrocketing stock markets. The gains of these funds would certainly have been higher than the mid- and small-cap funds. Thematic funds -- infrastructure-related funds would have seen quite a jump in their fortunes too. Infrastructure-related sectoral indices like Power, Metal, Realty, Oil & Gas, all went up by 20 per cent today.
Likewise, nothing would have been able to stop the rise of the banking funds as banking index had crossed the 20 per cent threshold in the morning itself. Though IT had gone up by almost 10 per cent, still companies like Infosys did not take a major part in the rally, which implies that IT funds would not have gone up like their equity diversified counterparts. Similar would have been the case of funds betting heavily on FMCG and healthcare.
Among debt funds, with yields again falling, gilt funds and funds betting on longer maturity debt, like medium- and long-term debt funds may have seen another round of positive gains, while the funds investing more in short-term paper would have seen muted gains.
In all, Monday has been quite an eventful day, even though it was curtailed to quite an extent, especially for mutual fund players it was a total disappointment. However, if more days like this are going to be in the offing in the future, investors would be able to make up for the immense loses they suffered in 2008, in no time at all.

Source: http://valueresearchonline.com/story/h2_storyview.asp?str=100234

India Stocks, Rupee, Bonds Surge on Congress Win; Shares Halted

India’s benchmark stock index jumped a record 17 percent, bonds rose and the rupee gained the most in two decades after Prime Minister Manmohan Singh’s Congress Party won nationwide elections.
Share trading was halted for the first time ever because of a surge in the Sensitive Index, or Sensex. The rupee climbed 3.1 percent against the dollar and the benchmark bond yield fell 16 basis points, the biggest decline in a month.
“Markets are euphoric,” said Rahul Chadha, the Hong Kong- based head of Indian equities at Mirae Asset Global Investment, with $46 billion in global equities. “The focus by federal and state governments on development will lead to a structural re- rating of India.”
The ruling Congress party won the most seats since 1991, when then-finance minister Singh abandoned Soviet-style state planning and introduced free-market reforms that have helped India’s economy quadruple in size. With almost twice as many seats as the main opposition, Singh, 76, may further reduce barriers to foreign investment in insurers and retailers, plans that had been frustrated by communist lawmakers.
Bharat Heavy Electricals Ltd., whose turbines and generators light up three of every four homes in India, leaped 33 percent. The Congress victory will clear the way for the government to proceed with billions of dollars in pending orders and should also give foreign investors confidence in the country, Bharat Chairman K. Ravi Kumar said in a telephone interview.
Kamal Nath, trade minister in the outgoing administration, said in an interview the government “should aim” to boost growth to 8 percent in the business year that started April 1. The $1.2 trillion economy is expected by the central bank to expand 6 percent, compared with average growth of 8.6 percent in the previous five years.
Winning BRIC
The Sensex extended its year-to-date gain to 48 percent from 26 percent, surging to first from last among the so-called BRIC countries including Brazil, Russia and China. Among global benchmarks, only Peru’s stocks have performed better. The Indian measure now trades at 15.6 times earnings, twice the 7.7 multiple of November, data compiled by Bloomberg shows. That’s still lower than China, at 26.8 times, or Brazil.
The Bombay Stock Exchange, founded in 1875, halted trading within seconds of the market’s opening at 9:55 a.m. local time as shares surged. Trading resumed at 11:55 a.m. and stocks jumped further, triggering an automatic shutdown for the rest of the day for the first time ever.
Oil & Natural Gas Corp., the country’s biggest energy explorer, added 13 percent. “It will not be surprising if the government allows some amount of freedom on fuel pricing, including gas,” ONGC Chairman R.S. Sharma said in an interview. “These issues have been languishing with the government as there were pressures from allies.”
‘Extremely Positive’
The Sensex surged 17 percent to 14,284.21, while the Nifty soared 18 percent to 4,323.15. The rupee jumped 3.1 percent to 47.86 a dollar as of 3:37 p.m. in Mumbai, the biggest advance since March 1986. The yield on the most-traded 6.05 percent note due February 2019 dropped 16 basis points to 6.27 percent in Mumbai, according to the central bank’s trading system.
“The election result is extremely positive and very, very bullish,” Madhusudan Kela, head of equities at Mumbai-based Reliance Capital Asset Management, the nation’s largest money manager overseeing $18 billion of assets, said in an interview. “This will provide a government which is stable and has powers to take decisions.”
Today’s euphoria is a contrast from the Congress victory five years ago. The Sensex plunged 11 percent on May 17, 2004, the most in more than a decade, on investor concern a government formed by the Congress Party and communist allies would slow the pace of reforms.
Rally Risk
Credit Suisse Group said while India will benefit from a “large amount of capital flowing into” the country, the rally may be halted by “global markets, monetary and fiscal constraints, and data disappointment.”
The latest victory exceeded the most optimistic prediction in exit polls released by NDTV television channel after the five-week elections ended on May 13.
Kela predicted the rupee will gain as much as 15 percent by the end of next year and said stocks will rally after election tallies ensured a stable government.
The nation’s benchmark stock index may surge as much as 20 percent over the next week as overseas investors purchase up to $3 billion of Indian shares within a month, Singapore-based Samir Arora, who oversees Helios Capital Management Pte, an India focused hedge fund, said before the market opened.
Overseas Investment
The stock market may draw overseas investments worth $10 billion this year as stimulus measures around the world increase trading, Kela said on May 16. Purchases of Indian equities by overseas investors last month exceeded sales by the most since October 2007 on waning risk aversion and on optimism India’s $85 billion stimulus plan will revive economic growth.
Domestic-driven industries such as banking and autos will perform well, Kela said, without naming any companies.
ICICI Bank Ltd., India’s second-largest, surged by a record 25 percent to 719.80 rupees, while Tata Motors Co., the nation’s biggest maker of trucks, added 15 percent to 305 rupees, the most in 16 years.
State Bank of India, the nation’s largest lender, had its global depositary receipts climb 22 percent to $67.20 on the London International Exchange. Reliance Industries Ltd., India’s most valuable company, jumped 26 percent to $98.80 in London.
New Base
The Sensitive Index won’t fall to its March lows, and probably will find a new base at between 10,000 and 11,000, Kela said. The Sensex rose 2.5 percent on May 15 to 12,173.42.
“Bull markets are back, unless we see complete chaos in global markets,” Kela said. “India will outperform over the next one to three years.”
The rupee may appreciate 10 to 15 percent against the dollar over the next 12 to 18 months, Kela said. That’s more bullish than the median of 28 analysts in a Bloomberg survey for the rupee to end next year at 47 per dollar. The currency closed May 15 at 49.395 per dollar.
Asia’s third-biggest economy expanded 5.3 percent in the quarter through Dec. 31, the slowest pace since 2003, while factory output in March shrank the most in 16 years.
India will outperform other emerging markets as long as the government adopts a pro-growth, pro-reform stance, Chadha said.
“We needed a stable government especially in the context of the global environment, which is still challenging,” Chadha said. “We need the government to kick-start the economy.”

Source: http://www.bloomberg.com/apps/news?pid=20601110&sid=arC6cevZCu88

Mutual funds may invest heavily in equity markets

With a stable government likely to lead to a strong rally in the equity market, mutual fund houses are expected to invest in equities in a big way, thereby bringing down their cash holdings.“The equity market has bottomed out and mutual funds having cash will deploy it in the market in the next couple of months,” says Rajan Krishnan, chief executive officer of Baroda Pioneer Mutual Fund.R K Gupta, MD, Taurus Mutual Fund, says “There was a view that the market may see a correction in the runup to the poll results. That didn’t happen. Mutual funds will reduce their cash levels now,” said Gupta. Jayesh Shroff, head of equities at SBI Mutual Fund, however, said “Fund managers take the call on cash levels based on their investment and fund goals.”AP Kurian, chairman of the Association of Mutual Funds in India (Amfi), said “This poll result will clear the cloud of uncertainty and boost equity markets.”He, however, said how much cash a fund holds depends on a lot of factors, including investment goals.Some experts, however, have a different take. “Most fund houses missed the recent market rally. Now, they have no option other than holding on to their cash as it is not a bull market and it will require a meaningful correction for them to park cash in market,” said Dhirendra Kumar, CEO, Value Research.

Source: http://www.mydigitalfc.com/personal-finance/mutual-funds-may-invest-heavily-equity-markets-311