MFs hardsell SIPs to investors

With equity investors increasingly booking profits, mutual fund distributors are pushing SIPs or systematic investment plans to them. A sales head of leading fund house said, “After we saw markets touching the 20,000-levels, several investors booked profits. Some of that money is coming back in the form of SIPs.

He added that distributors are once again being given good commissions from the pocket of fund house to lure such investors back.

R. S Srinivas Jain, CMO of SBI Mutual Fund, said, “We are witnessing sudden rise in SIP and in the last one month we have added 1.5 lakh new SIP accounts.”

SIP is a mode of investing into equity funds, in which instead of lumpsum investments, an investor buys units each month, thereby averaging his cost of units. This is either done by regular transfer from a liquid fund or from the bank account.

However, the mutual funds houses are not giving upfront commission this time, instead they have increased trail commissions to push SIPs. B Sarath Sarma, ED of IDBI Mutual Fund said, “When equity markets go up, interest of investors as well as of distributors increases (for equity funds). We are witnessing distributors selling equity funds once again with some upfront commission. Also the trail commission has been increasing as it gives portfolio advisors an incentive to encourage investors to hold for a longer period.”

Trail commission, as opposed to upfront commissions, are paid either yearly or semi-annually to the distributor as long as the investor stay invested in the scheme.

Now fund houses pay anywhere between 25-50 basis points as upfront commission, while trail has been increased to 50-75 basis points. Before the market regulator bought ban on entry load from August last year, distributors were paid a upfront commission of over 1%.

According to IDBI MF, new SIPs account are coming not only from top metro cities but also from the Tier-II and Tier-III cities like Indore, Vijayawada and Nagpur, where there is renewed interest in equity market. According to a report published by the Boston Consulting Group (BCG), SIP inflows have been the saving grace for mutual fund houses especially during tough times. Also, SIP inflows as a percentage of overall inflows have increased over the years. The report stated that, SIPs accounted for about 19 % of inflows in the first quarter of 2010 while it was 15% in 2009 and 11% in 2008.

Source: http://www.financialexpress.com/news/mfs-hardsell-sips-to-investors/690204/0

Redeeming your mutual fund? Get the signature right

With stock markets near their all-time highs, several investors have been looking forward to cashing in on their tax-saving mutual fund investments made in 2004-2006. But some investors who tried redeeming units have faced rejection of their redemption requests.

“Looking at the market, I sent out a redemption form for my tax-saving mutual fund that was made in 2006-07. I got back a letter saying ‘Your signature is not matching and hence, we cannot process the redemption’,” a Mumbai-based mutual fund investor told DNA.

It is not this individual alone. Several distributors have confirmed that their clients who put in redemption forms have got similar letters.

Paul D’Souza, who runs Cuzinns Investment Services, said, “There have been three-four of cases with my customers where the redemption requests were rejected. One of them is an investment made in 2006. The reason being cited is that there is a signature mismatch.”

“Some asset management companies (AMCs) are not telling investors the reason for rejecting. They are asking customers to get the signature attested by the bank,” D’Souza added.

Another mutual fund distributor — Rajendra Dhulla, a financial planner who runs advisory firm Pratham Services, said: “There have been 7 cases last week, where redemption requests were rejected as the signature didn’t match.”

Though the numbers are small, even these occurrences were earlier rare, say distributors.

“It is not a major or substantial part of the total redemptions. It is around 1-2%. But in the past, we have never seen even this small percentage of cases in redemptions happening. Most of them are in September 2010. I have had 6 customers whose redemption requests got rejected and they were asked to go to the bank and get the signature attested,” says a financial advisor who requested anonymity.

“In one case, the investor was a minor and two guardians had signed on his behalf. So the request was rejected. Upon prodding, we found that the problem was because the guardians had signed at the wrong place. One of them should have signed as the first applicant, but the two guardians had instead signed as second and third applicant,” the advisor added.

When we questioned AMCs about the issue, they said there were not too many cases of rejection due to signature.

“Signatures change over a period of time. It is our fiduciary responsibility to make sure it is matched because we have seen mind-boggling frauds happening in the financial services industry.

We need to be guarded or somebody can take us to court,” said a mutual fund official, explaining the reason for the rejection.

Asked how they distinguish and determine whether the signature is not matching, the official said, “Handwriting is a science. There are strokes and the flow that you look at.”

But actually, it is the mutual fund registrars who determine whether the signatures are matching or not, as they store the data and the application forms.

A senior official at one of the two mutual fund registrars told DNA Money, “There is no significant increase in terms of rejection of number of redemption requests. Largely, signatures match. But in case of an old-time investor, there is a possibility that the signature has changed. We reject only if the strokes are drastically different.”

Some cases are surprising. Dhulla, of Pratham Services, recounted this case of investments made in 2004-05: “In September, we sent two redemption requests by a single investor to the same asset management firm. One request got through the other did not. Coincidently, the markets went up after that day, but it could have been the other way round.”

When DNA Money asked an MF registrar about this case, the official responded, “The specific case has to be analysed, but that may be either because people use regular signatures or short signatures. You may have entered into one scheme with a regular signature and another scheme after two months with a short signature. If you redeem after six months, signatures in both master applications may not match and hence, the signature submitted at the time of redemption may not match.”

Getting a bank attestation of the signature is the only way out. “The compliance is difficult after the signature mismatch. One needs to get a bank verification and PAN card. The bank verification of signature is costly. Banks charge as much as Rs 100 per signature attestation. For each request they will ask for Rs 100, so if you have four requests, then you have to pay Rs 400 just for signature attestation. Some AMCs also ask for the bank official’s name and employee code to be mentioned on the signature attestation. But banks are hesitant to give it,” said Dhulla.

The problem with rejection is that the investor does not get the net asset value (NAV) of the day he put in the redemption request. And the NAV on the day the bank attestation comes in may be lower or higher, depending on the market’s movement.

“There should be a facility to lock in the day’s NAV when the investor put in the redemption request. In case of signature mismatch, MFs should ask the customer to get the verification letter and then process the redemption,” suggested Dhulla.

The registrar official said this is not feasible. “I may submit a request today, and if it is rejected by the system, at the time the intimation comes in I may choose to hold it back. I may not submit the redemption request later it all. It can be either way.”

So when sending in a redemption request for your mutual fund, make sure you sign the way you had in the original application form. That way, you can capitalise on the market rally at the right time.

Source: http://www.dnaindia.com/money/report_redeeming-your-mutual-fund-get-the-signature-right_1444896

U K Sinha is New AMFI Chairman

UTI Asset Management Company chairman and managing director U K Sinha has been appointed as the chairman of the Association of Mutual Funds in India (AMFI), an industry body of the mutual funds. Sinha will replace present chairman A P Kurian.
The board of AMFI has also appointed HDFC Mutual Fund managing director Milind Barve as the vice-chairman of AMFI.
In a press statement released on Tuesday, AMFI said that U K Sinha, Milind Barve would bring with them vast experience in the financial services sector in general and mutual fund Industry in particular.
On his appointment, Sinha said “The mutual fund industry is at the cusp of transformation and we have challenging times ahead. My priority will however, centre around investors and investor servicing”.
Milind Barve, the newly appointed vice-chairman of AMFI, said, “Mutual funds as an asset class are genuine wealth creators for a large number of retail investors. On a long-term basis, mutual funds give investors much better returns than other investment products”.
In February, AMFI appointed H N Sinor as its chief executive officer.

Source: http://www.valueresearchonline.com/story/h2_storyView.asp?str=101408

It's biz as usual for MFs despite load ban

Indian fund houses, reeling under the impact of a ban on entry load or an upfront fee that they collected from investors to pay distributors, may have something to cheer about, with a majority of these intermediaries saying that they expect the ban to either have a positive or no impact on the future of the industry. A survey of 622 distributors in Mumbai and Delhi by Cafemutual, a Mumbai-based mutual fund industry tracker, shows that 57% of the participants expect the ban on entry load to have positive or no impact on the future of the mutual fund industry.

The , imposed by capital market regulator the Securities and Exchange Board of India (Sebi) and that came into force in August 2009 to prevent distributors from pushing clients to switch across products in shorter durations for fees, has prompted 31% of the IFAs or distributors surveyed to ‘try charging’ fees to their clients, Cafemutual said. Significantly, 79% of those who tried were successful, the survey said.

Prior to this ban, distributors of mutual fund products got their upfront fee of 2.25% money they brought in from the AMCs, which deducted the commission from the investments.. Sebi felt the routing of commissions through AMCs resulted in distributors pitching for products that were not in the best interests of investors.

The regulator said that investors needed to pay distributors directly for selling a product rather than obtain the fee through AMCs. According to wealth managers, most investors, who put money in mutual funds, refuse to pay fees for advice, leading to many distributors shifting to selling other products, including insurance. But even distributors are getting more comfortable with the role of advisors, they said.

“There are fewer distributors and IFAs which are selling mutual funds after the ban on entry loads, but some, including us, are focusing on the advisory business. As long as the investor is ready to pay us for our advice, we will give advice and this can be a product that suits his needs...not necessarily a mutual fund or insurance product,” said Om Ahuja, head-wealth management, Emkay Global Financial Services.

The Cafemutual survey said that according to 63% of the IFAs, Ulip sales rose due to the entry load ban, while 15% said sales of structured products to the wealthy went up.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Its-biz-as-usual-for-MFs-despite-load-ban/articleshow/6648205.cms

Market rally means mutual funds are feeling good too; but novices beware

With the market racing toward record highs, the story of foreign inflows as they pertain to the market as a whole has been well documented. Vijayan Kirshnamurthy, CMD, IDBI Asset Management explained the impact of a rising stock market on equity-based mutual funds. IDBI was awarded rights to MF licensing in May and the ride along the market has been fruitful for the public sector undertaking and the potential for even greater growth is not lost of Krishnamurthy.

However, this week’s events are just part of the big-picture story that is growth of the Indian economy and more specifically the Indian equities market, he explained.

Krishnamurthy puts this week’s action on Dalal Street in perspective, reaching all the way back to May 17, 2004 when the market’s 800 point fall in 23 minutes coincided with uncertainties in economic policies coming from Delhi. What followed was a “knee-jerk reaction” which pushed the market from 5,000 to 14,000 44 months.

In this interview excerpt, Krishnamurthy explains. to Kartikay Mehrotra, the market’s tendencies to pick extremes and how best to play them in a largely unpredictable, highly volatile environment.

What a week, what a last couple of months. How has the activity in the equities market affected equity-based mutual funds?

Our tracking has been at about .26 per cent, so the activity for us has been extremely beneficial. What we’re trying to do is get those who have paid out on one mutual fund or are trying to pay out on another, to get them some cash benefits. Investors under passive management like to take a little cash home when things go up. We are seeing more inflows, as a there is no fund manager involved here. Those who have been around and have seen their net asset values (NAV) going down might want to see their money for a while, then give it back. Then again, I don’t think anyone has ever been able to call the market right, so it’s tough to say which is right which is wrong, which is gaining more.

Do you believe prospective investors have been alerted? Is the 20k mark like an alarm sounding in the wallet of investors who may have had their back to the market since 8K or 15K? Do you expect retail inflows in equity-based MFs to go up now?

Markets tend to exaggerate either way. In 2008, you saw a market float around 8,000 while GDP was at 5-6 per cent. It was down from 8 per cent, a 2 per cent fall which resulted in 60 per cent erosion in the market, so for two years, they waited As they saw the index of industrial production (IIP) go back up, we all waited for the market to go up, but it didn’t happen immediately. It was unpredictable, it took its time. Then suddenly everyone jumped on and the Sensex went from being a lag indicator to being a lead indicator overnight. But when it does that, it does it dramatically. So once it hits 20,000, everyone feels like there is a great likelihood that it’ll breech records. At 21,000 everyone will be looking to book profits. People should remain cautious; there’s no need to throw money at the market, but there’s a lot of upside. Obviously there will be a correction and people need to understand that too.

Were former investors and prospective investors jumping back on the market as it climbed toward 20k or were there more people on the outside looking in, just watching the numbers rise and rise?

Lots of people watched it which is evident in inflow numbers of most mutual funds. People were very skeptical from 15-18,000. Ironically, the best month for trading in the last few years was January, 2008. Buy-in-large, investors don’t come in when markets are bad, they’re already bad for that reason. A good investor comes in when markets are good, but remain through a bad cycle and makes good money when the market recovers again. In a growth market like ours, there will always be volatility. But you can never say that something good won’t happen. In a growth market, there’s never a bad time to invest, but as I said, there will always be volatility.

In a flat-ish economy, the market will remain volatile with less extremes.

What advice are you giving these days? Is it time to play it safe, is it time to dive in head-first, is time to put your money back under your mattress while anticipating another free-fall?

For the last 10-years, as far as India is concerned, there’s no such thing as the wrong time to invest, there is only the wrong time to get out. Industry is growing at 10-14 per cent. In that kind of economy, will the index stocks do less than that? It’s highly unlikely. Then what’s the downside? In certain periods, there will be a down pressure caused by volatility. But that’s it. The longer you stay invested, the better your chances of reaching your personal benchmarks.

You say there’s never a bad time to invest, but under such volatile conditions, it must be tough to tell how to play the game, especially if you’re not an expert trader. What advice do you have for the novice?

See, traders have a lot of competence and can play the market expertly. They know the risk, they can face debt and can recover Then there are investors taking a long-term call. And unless you are capable of going along for the joy-ride, and gambling like a you’re at a casino or in horse race, you should stick with the index stocks. It’s a global phenomenon, the only guys who makes money is the one who sticks around for a very long time or plays very short-term by trading over a couple days, hours or even minutes. So take a position, one or the other. If you take the short-end, you should play the marketplace; you’re trading, you’re playing and you’re not caring about the companies themselves. If you take a long-term call, then say you’ll be invested for 2-3 years. As i said, the best way to do that for a guy who doesn’t have all the information is to buy an index stock.

Tell me about this Nifty Junior. How many subscription applications did you receive? Who’s applied, what’s the makeup?

We have amount the biggest Nifty junior funds a 54 crores. At our NFO period, we didn’t do a big launch, but we collected something like 8000 applications. It mostly serves as a retail product for retail investors.

Generally, how have things gone since SEBI gave you licensing to launch MFs? As expected? Better?

It was May when we received licensing permission, so it’s three months old now. We’re doing pretty good at 3,250 crores on the 26th of August. In those three months, we’ve overtaken 13 of our competitors. We have a very powerful institution in tact. What we’re trying to do is to see whether we can use our 700 branch network to get applications on the retail side. As a PSU we have all the advantages of people thinking were’ here for the long-term.

Source: http://www.expressindia.com/latest-news/-Market-rally-means-mutual-funds-are-feeling-good-too--but-novices-beware--/688502/

Life beyond 20,000: Invest carefully

With the equity markets retesting historic highs, you now need to frame your investment strategy carefully. After all, it’s better to be safe than sorry, as the adage goes.

Though India is in an economic sweet-spot presently, the world economy and the financial system face considerable imbalances and uncertainties. Any adverse global development could cause this gush of liquidity, primarily responsible for the swift run-up in domestic equities, to reverse direction pretty quickly leave India.

The way forward

Here are the possible courses of action available to you while framing your investment strategy at this point of time.

1. Invest: Indian equities still offer attractive wealth creation opportunities over the long term. You may hence consider investing into this market if:
Your investment horizon is at least five years and
Your allocation to equity is less than what you had desired or planned and
You are ready to stomach the interim gyrations of the market

Mr. Vikramaaditya, Chief Executive Officer, HSBC Asset Management (India) Pvt. Ltd., shares, “There may be volatility in the short term but the long term growth story is intact. The key to any investment strategy would be identifying the right investment opportunities.’

You may phase out your investments by using Systematic Investment Plan (SIP) for deploying fresh inflows into predominantly large cap funds. If you have a lump sum, you may consider a Systematic Transfer Plan (STP) from short term debt fund to equity fund, gradually.

Tax saving ELSS investments may be phased out over the remaining six months of this financial year. You may consider arbitrage funds for shorter terms as higher market volatility is conducive for such funds.

2. Rebalance: If the sharp run-up of the recent past has skewed your asset allocation towards equity, it’s time to rebalance. You may consider pruning your equity exposure progressively, using STPs to divert flows into a debt fund. This is also the time to rebalance your exposure to mid and small cap funds in favour of large cap ones. Saurabh Nanavati, Chief Executive Officer, Religare Mutual Fund says, “Get your financial planning done with a certified financial planner/adviser and stick to the asset allocation”.

3. Exit: If you need your money within the next two or three years, you should aim to preserve the gains that you’ve already made. You would do well to plan your exit in a phased manner using Systematic Withdrawal Plan (SWP), to minimise the risk of bad timing.

End Note

As Sandesh Kirkire, CEO, Kotak Mutual Fund says, “Investors must remain true to their investment objective, and the consequent investment design flowing from it. Therefore, any event must not be the determining factor in changing your long sought out strategy”.

Source: http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/Life-beyond-20000-Invest-carefully/articleshow/6633053.cms

Mkts strong: What should be your investment strategy now?

The markets have had a remarkable week, the Nifty has hit 6,000. That’s almost now close to the highs that we have seen, the all time highs. So, that’s a very crucial figure that it has hit.

The markets have been on a bull run, we have seen quite a good run up in stock prices. What really should you be doing at this point of time, if you have already invested or if you are intending to invest?

In an interview with CNBC-TV18’s Vivek Law, Anup Bagchi, ED, ICICI Securities says if one is already sitting on profits, it is a good thing to take some profits out.

He further says if one wants to invest at this point of time, he/she should not invest in a lump-sum manner. “Pick your stock, divide it into four or five or six parts, may be every week you invest and average it out or every day you average it out or every month you average it out.”

Here is a verbatim transcript of the exclusive interview with Anup Bagchi on CNBC-TV18. Also watch the accompanying video.

Q: Increasingly given the manner in which the market has run up, we get calls saying is this the right time for me to invest and of course at the same time you get calls for somebody who is already invested for a fairly long period of time, that is it the right time for me to sell. I know that this is an answer which would depend from stock to stock, sector to sector, but, overall, what is your view of what should a retail investor be doing at this point of time?

A: We also are getting lot of both kind of calls. Two things, the good thing is that most of the retail investors for whatever reason while they have not participated too much in the rally, but they have not got off the trade either. So, people who have had stayed in the market continue to stay invested in the market. For them, a little bit of profit taking could be good because markets are running on three fundamental factors, one is the economy doing well, is the sector doing well, is the company doing well, which is more specific.

Second one is on the valuation. Okay if it is doing well, at what price does it become better or at what price does it become out of reach, which is a valuation factor. And the third factor really would be the momentum factor, which is, is it being driven by liquidity or is it being driven by fundamental and because the valuation is very attractive.

I must confess that I would put 60% weightage right now on momentum, 30% I would put on fundamental factors and only 10% on valuations. Valuations from rich have only become richer. Fundamentally, of course, it is supporting, but large part of this movement and these sharp movements have happened because of gush of liquidity that has flown into the Indian markets, particularly by foreign institutional investors (FIIs). The domestic institutions don’t seem to be buying that much. They do not even have that much of liquidity to buy into the market. So, this is largely a very liquidity driven, momentum driven rally.

So what should one do? If one is already sitting on profits, it is a good thing to take some profits out and put it in debt instruments as well because interest rates are also luckily quite attractive. Good quality fixed maturity plans (FMPs) are coming from the mutual fund. So, they can put in there.

Clients who need to invest or who want to invest at this point of time, one really doesn’t know whether the market is going to go too much up or whether it is going to correct because it has already run up quite a bit. So, what we are suggesting to them is you must be invested in the market, but at this point of time do not invest in a lump- sum manner. That is if you have got a lakh of money to invest, do not go and jump one day and get overly excited and invest all of one lakh in one day. Pick your stock, divide it into four or five or six parts, may be every week you invest and average it out or every day you average it out or every month you average it out. But essentially get into the systematic investment plan not of the mutual fund type, but of the equity type, if you figure out that this is the stock that I need to buy. That way one will be able to average, one will be able to get the benefit of not timing the market or not trying to time the market and a benefit of a slightly long-term investing and getting the benefits of both upside and if there is a correction on downside as well. So, that is a generic thing.

Q: I am a new investor entering the market, would it be a safe bet to start with oil and gas sector?

A: I would tend to agree that when you do your first few investments, up to 70% should be in largecap diversified where you get an overall benefit of the market, 20%- 40%, from time to time you can take sectoral bets. There I would say that it might be a better idea to put part of it, 60%-70% in the largecap diversified funds, so that if the markets tend to move up then you get the benefit of the overall movement of the market.

Coming to oil and gas sector, I think oil and gas sector is a policy bet. We all believe that all these companies, all the PSU companies are very strong, they are very asset rich, they are very well run and this is more of a policy bet and that if reform comes then it will start to do better.

Within oil and gas sector if you have some knowledge and if you have done some reading in oil and gas sector, if you were to pick up a stock, I would still say that GAIL could be the better of the stock because I don’t think you will be able to diversify too much between oil and gas sector. But I would say first 70% of your money, whatever is the money, try and invest it in the large cap diversified. Thirty percent if you want to get a sense of stock market, in oil and gas sector you can invest with the stock that I am just suggesting.

Source: http://www.moneycontrol.com/news/market-outlook/mkts-strong-what-should-be-your-investment-strategy-now_486847.html

‘Infrastructure stocks, a good bet' CIO-EQUITY, ICICI PRUDENTIAL MUTUAL FUND

The market does offer pockets of opportunity such as infrastructure stocks, where money can still be made. However, investors should not make any sudden shifts in their allocation to equities, cautions Mr Sankaran Naren, CIO- Equity, ICICI Prudential Mutual Fund, when Business Line spoke to him about the Sensex at 20,000.

The Sensex has hit 20,000 again and there is a lot of scepticism about the markets holding up at these levels. Normally markets never correct when everyone expects it to! What are your thoughts on this?

In the Indian markets, there are two types of investors — locals and foreigners. Yes, the locals are very sceptical about the markets and valuations because India is the only market where they invest.

We can afford to be sceptical! The foreign investors don't see growth in their home markets, and thus, find Indian stocks with their strong growth potential, attractive. Local investors have not invested in the markets and local institutions have been consistent sellers in this rally.

You must understand that mutual funds sell only if they have an outflow from their retail investors. We don't operate like hedge funds! In our case, the outflows have been small. However, the industry-wide outflows must be significant, given the consistent domestic institutional selling in stocks that we have seen over the past few months.

One clear theme driving this rally has been domestic consumption. The sectors leading it were consumer durables, to automobiles to FMCGs. What's your take on those stocks now?

I think infrastructure should be the driving theme for India. If you compare China and India, the consumption part of GDP is lower in China and is higher in India. China has a current account surplus while we run a deficit. If you see infrastructure bottlenecks, it is in India that we face them to a large extent. That makes a case for playing the consumer theme in China and the infrastructure theme in India, while the reverse is happening! I think as we approach the retail consumption season with festival sales and so on, this would be cyclically the appropriate time for the consumption theme to peak out.

The ICICI Pru Infrastructure Fund has managed a five-year return of 25 per cent, but has underperformed diversified funds in one year. What's the argument for investing in infrastructure stocks now?

That makes it a good time to invest in the fund. There is a big gap between what has happened on infrastructure and non-infrastructure stocks. Look at the stocks that represent the infrastructure theme; the theme has been a substantial underperformer. Whether you take power utilities, capital goods or even construction stocks they have all underperformed very sharply. If you look at the non-infrastructure space, whether FMCGs, autos, pharma or technology that is where all the outperformers have come from.

Here, consumer stocks have also moved to a premium over the market while infrastructure stocks have seen valuations correct significantly. If you had to invest now, this makes infrastructure a good bet. Valuations in the sector today are much more comfortable than valuations of sectors that have led this rally. I think Indian infrastructure stocks benefit from the fact that demand potential is so high. In the US, for instance, power utilities are dividend yield stocks. In Europe, again, such stocks are not growth plays.

Are infrastructure companies delivering the expected earnings growth?

One factor that is acting against short-term earnings for the sector is the fact that we have had a good monsoon this year. A bad monsoon aids construction activity but a good one leads to a seasonal disruption. This is reflecting in the quarterly numbers. But it does not in any way alter the outlook for the infrastructure sector. We think the period from 2011-2014 will see an infrastructure-oriented cycle.

Another factor is that infrastructure spending is now being driven to a large extent by the private sector and not just by government. If you break it down, power generation capacity is now being driven mainly by the private sector. If you take roads, you have a fair number of projects happening through BOT route. In ports, a number of projects are coming in through the public-private partnership route.

The earnings growth for Indian companies over the past two quarters has not been too high, the earnings for the CNX 500 companies, for instance, has grown only in the single digits. Is that not a risk to the current valuation of 23 times for the market?

The problem is that market valuations have really climbed and stocks have become more expensive. Expectations have risen to a very high level and those expectations are barely being met by earnings.

There is also divergence, where some companies are meeting those expectations while others are not. The problem about valuations is that we cannot today say that Indian markets are cheap. They are expensive relative to rest of the world. For this valuation to sustain, the results have to be good and the GDP outlook has to remain good. If you look at where we were six months ago and where we are now, there is risk. On the positive side, food inflation is not accelerating any more and the monsoons have been good.

What explains the surge in FII inflows in the past month, where over $3 billion of funds has come in within a month? Is it the upward revision in GDP outlook which has made the difference?

In my view, there has been a growth scare in the Western world and a growth scare in China as well. Consequently, all the growth-oriented money has come to India. That has, however, resulted in a situation where the Indian market is no longer cheap. Certain segments such as infrastructure may be cheap, but not the market as a whole.

A lot of the recent inflows into Indian markets are said to originate from passive Exchange Traded Funds who are only chasing the index. Do you thus, see the gap between index stocks and other stocks widening?

I am not sure if that is entirely correct. If a good portion of that money was ETF money then why would we see such a big sectoral deviation in performance? And it is not as if only benchmark stocks have performed. Even smaller stocks within the consumer theme have performed. The advantage with large caps is that they are less dependent on how interest rates pan out. Small and mid-caps are vulnerable to interest rate risks, especially in infrastructure stocks.

We believe interest rates will peak over a six-month period and then one can move from large caps to mid-cap stocks. You are also approaching the busy season in credit, with activity in the short-term money market peaking in March each year.

If retail investors have lost out on this rally, what should they do now?

I would suggest three things. Investors should look out for pockets of opportunity such as infrastructure stocks, which remain attractive. They should invest through systematic investment plans. And they should not make any sudden shift in their asset allocation towards equities.

Source: http://www.thehindubusinessline.com/iw/2010/09/26/stories/2010092651171200.htm

Equity schemes make a dividend splash in Sept

With Sensex soaring to 20,000 levels, equity fund managers have started booking profits and declaring dividends. Over 13 equity funds have declared dividends in September, with many more planning payouts during the forthcoming festive season.

Equity schemes of Birla Sun Life Mutual Fund (MF), DSP Blackrock MF, UTI MF, Canara Robeco MF and Fortis MF have recently declared dividends. Around 55 schemes, or 25 per cent of all the schemes, have declared dividends in the last three months. Markets as measured by the BSE Sensex are up 11.5 per cent in September. Said Amit Nigam, senior portfolio manager, equities at Fortis MF: “Declaring dividends is a regular process and rising equity markets isn’t the only reason.” He adds that dividends are a systematic way of distributing returns earned by the fund to investors.

Equity funds have declared 7-22 per cent dividends in September. Interestingly, the dividend payout has not been higher this time. Fortis Dividend Yield declared 15 per cent, which amounted to a payout ratio of 11.5 per cent. In the past, payout have been above 20 per cent levels. Templeton India Equity Income (4.2 per cent), DSPBR Top 100 (5.7) and Birla Sun Life Buy India (6.7 per cent) were among the funds to make lower dividend payouts. Payout ratio is calculated by dividing dividend declared by the net asset value (NAV) as on on the record date.

Fund managers are finding their hands tied with the latest rules barring them from paying dividends from unit premium reserve. MFs can pay dividends only out of their realised gains now. “Recent regulatory changes on dividends are prompting fund managers to book profits regularly in rising equity markets to distribute dividends,” said Dhirendra Kumar, CEO of Value Research. Any correction, after all, could spoil their chances otherwise. Kumar expects more equity funds to declare dividends in the coming months.

The sales head from a leading fund house said: “Dividends are also a way of targetting new investors.” Even though post dividend declaration, fund NAV falls to the extent of dividend declared, MF investors often tend to get lured by it, by associating higher dividends with better performance. -FE

Source: http://www.indianexpress.com/news/equity-schemes-make-a-dividend-splash-in-sept/687567/0

Bond traders see sell-off if borrowing not cut

Indian bond traders are bracing for a sell-off if the government sticks to its planned 1.7-trillion-rupee ($37.2 billion) borrowing plan for the second half despite a sharp rise in federal revenues. Six out of 10 market participants in a Reuters survey expected no change in the borrowing when the October-March schedule is announced on Thursday, traders said.

Four participants saw a possibility of 100 billion to 150 billion rupees reduction in the borrowing. "The market will react negatively if there is no cut in borrowing and the 10-year yield could rise by about 5 basis points and the 5-year OIS rate could rise by 2-3 basis points," said Anindya Das Gupta, head of treasury at Barclays Capital.

The government had planned to borrow a gross 4.57 trillion rupees in 2010/11. Of the budgeted 2.87 trillion rupees to be raised in April-September, it has borrowed 2.73 trillion so far. Government revenues have been boosted by an auction of 3G and wireless broadband spectrum that raised 1.06 trillion rupees, about three times more than expected, thanks to aggressive bidding by firms in the world's fastest growing mobile market.

Tax receipts have also been buoyant on the back of a rebounding economy. April-August net direct tax receipts rose 13.9 percent to 1 trillion rupees from a year ago. The benchmark 10-year bond yield could rise to 7.98 percent if the government does not reduce the borrowing, traders said.

The bond was trading at 7.94 percent by 0626 GMT, steady from its previous close. Traders said a token reduction in borrowing was unlikely to spur a rally in bonds, with some hoping the government may await divestment proceeds from state companies in the coming quarter before deciding on a cut. State-owned Coal India Ltd, the world's largest coal miner, is set to launch an initial public offer in October to raise up to $3 billion, with the government selling a 10 percent holding.

"Divestment proceeds remain a surprise factor and they (the government) could look to mop up more than budgeted," said Dwijendra Srivastava, head of fixed income at Sundaram BNP Paribas Mutual Fund. "They may not look to borrow much in the months of Feb-March." In early August, the government had approved an additional expenditure worth about 550 billion rupees, which could absorb revenues.

Source: http://economictimes.indiatimes.com/Bonds/articleshow/6612101.cms

Presently, short term funds are more suitable: Mahhendra Jajoo

Mahhendra Jajoo, Executive Director & CIO - Fixed Income, Pramerica AMC in an exclusive interview with Harsha Jethmalani of Myiris.com spoke about their newly launched fund and products in pipeline, his views on the FII inflows in the Indian markets, etc.

Mahhendra Jajoo has over 19 years of experience in financial services and capital markets. Prior to joining Pramerica AMC he was working with Tata Asset Management as Head - Fixed Income and Structured Products managing Fixed Income investment/portfolio from June 2008 to Dec.2009. Mahhendra Jajoo has completed his B.Com, ACA, ACS, CFA ( from CFA Institute, USA).

>What is your investment philosophy for debt schemes? Could you throw some light on the structure of your research team?

Our investment philosophy focuses on constructing a diversified portfolio of highly rated instruments with the objective of generating competitive returns within the scheme investment objectives and constraints.

>Pramerica Liquid Fund collected Rs 6.65 billion; what kind of response are you expecting for recently launched Ultra Short-Term Bond Fund? How are you going to target potential investors for the same?

We have seen our AUM increase over the last month as more and more investors consider Pramerica Liquid Fund to meet their investment needs. With further increase in interest rates by the RBI, debt is becoming more attractive. Pramerica Ultra Short Term Fund offers better tax efficiency to investors therefore, we expect many new investors to invest in this fund.

>Can we expect more new product and innovative products from your AMC this year?

Pramerica Mutual Fund aspires to provide innovative products that will help the investors to create wealth. We will launch new as well as innovative products from time to time reaching to retail investors and bringing to them solutions rather than just products. We will also help our investors to bridge the gap between their aspirations and their current financial positions.

We are already managing the Pramerica Liquid Fund and we recently launched our Ultra Short Term Bond on the Sep. 16, 2010. Two other products are lined to be launched in October, although the exact dates have yet to be finalized.

>What is outlook for Rupee, home loans and deposit rates after RBI has raised benchmark interest rates?

Given the strength of Indian economy and continued inflow of foreign investors, we expect rupee to trade with a strengthening bias. Home loan and deposit rates may go up a bit more given the RBI`s current stance of tightening rates.

In the current market scenario, what investment strategy an investor can follow while investing in different kinds of debt/income based funds? If an investor only prefers to invest in debt funds what can be his right portfolio mix.

Presently, short term funds are more suitable as interest rates are still going up and liquidity is tight. Once a clear trend for lower inflation emerges, longer tenor funds may become attractive.

>Where do you see the yields on g-sec heading in the short term?

Given the offsetting factors of likely improved fiscal deficit and higher inflation, we expect g-sec to trade sideways in a narrow range.

>Foreign fund houses have invested over Rs 710 billion (USD 15.6 billion) so far this year and analysts believe that FII investment in stock markets will cross the last year`s record level. What is your take on this?

India is the second fastest growing economy at present. Structural factors will ensure that this trend is maintained in the foreseeable future. India is also, one of the few markets to reach a new high since the fiscal crisis. As global capital searches for high returns, India will remain attractive to FIIs for a long time to come.

Source: http://www.myiris.com/shares/company/ceo/showDetailInt.php?filer=20100923115620707&sec=fm

'There's no scope now for poor performance'

Nilesh Shah has tracked the Indian stock and bond markets for nearly two decades now. The deputy managing director of ICICI Prudential AMC points out that few markets have traded on a sustained basis at the kind of multiples that India trades at today and tells Shobhana Subramanian that there is now virtually no room for error.

Now that the Sensex has hit 20,000, where do you think the market is headed?

It’s a journey and yes, while 20,000 is an important psychological benchmark, it too will be forgotten like 10,000. It’s difficult to take a short-term call on where the market is headed but the positive that is supporting the market is flows, more from foreign institutional investors than locals. That’s probably because an Indian investor evaluates his investment opportunity by comparing it to the 8% risk-free return on the government benchmark whereas an American investor evaluates the Indian opportunity against the 3% government benchmark and a Japanese investor against a 1% return. So, the expected return for an Indian investor is very different from that for foreign investors. That possibly explains why they are bullish and are investing whereas we are becoming somewhat hesitant. But it’s the flows that are driving prices higher.

So, are valuations looking terribly expensive?

Yes, valuations do look expensive; they may not be outlandishly expensive like they were in 1991, 2000 or 2008 but they are not cheap like they were in 2009. And they are looking expensive both in absolute and relative terms. Historically, India has traded at an average multiple of 15 times one year forward earnings but today we are trading at 17.5 to 18 times one year forward earnings, so we are clearly at a premium. We are also more expensive compared to Russia, which is probably trading at 8-9 times or Brazil which is at 11-12 times or China which is at about 15 times. If I compare India to the developed world, which is probably not the right comparison, we are expensive. And even within BRICs, we are expensive.

But doesn’t India deserve the premium?

There’s no doubt that India deserves a premium, the question is how much of a premium. In the past we have seen that when the difference increases too much and too fast, then it starts cooling off. So, there’s no debate about whether India deserves a premium over Brazil or Russia because we have rule of law, better corporate governance standards, better entrepreneurs, we have democracy and all this reflects in the higher return on equity in India. But at the same time, how much higher can the premium be?

Where do you feel India should trade vis-à-vis peers like Korea or Taiwan?

It’s difficult to put an estimate on the premium today because it would depend on how Korea and India behave. Apart from fundamentals, there is also the issue of sentiment. All we can say is that today we are trading at reasonable premiums over our peer group and this is justified based on long-term fundamentals. But this means we have to deliver in line with expectations. And there is absolutely no scope for poor delivery or tardy delivery.

What is your reading of the June 2010 quarter numbers and do you feel that there are downside risks to earnings estimates?

The June quarter numbers were more or less in line with expectations in some segments like mid-cap tech, which turned in results below expectations. Is there a risk to downside earnings based on the June quarter numbers? The answer is no. But those were the earnings required when the market was at 16,500. But now that the market has crossed the 20,000 mark, obviously the earnings expectations have gone up and those enhanced earnings expectations will have to be met in the coming quarters. With the index having moved up, earnings expectations have gone up.

From what you’re seeing on the ground, do you feel companies will deliver?

That’s a million dollar question but I get the feeling that the market is expecting companies to deliver. My own feeling is that for the broad market to deliver the enhanced earnings expectations is going to be a tall order. We have to run faster and work much harder to meet those expectations. Certainly we have raised the bar for our companies and in a world where variables are changing virtually every day, it requires greater effort to get there. That doesn’t mean we won’t be able to do it. What you’re saying is that rather than the market trading at these high multiples, it’s earnings that need to grow faster now… How many markets have traded at 18 times one year forward on a sustained basis? Very few. So companies will have to grow and that won’t always be easy because our companies have also scaled up significantly so the base is no longer small. What I’m saying is that I don’t think valuations can remain at 18 times forward forever, they will change either way depending on how companies perform. So let’s not take this 18 times one year forward for granted.

What do you believe is a sustained multiple that India can command?

We are now priced for perfection. From 10 times forward in 2009, we have travelled to 18 times; in less than 24 months, we have shifted from all-disappointment to no-disappointment. There is a potential for a re-rating but it’s hard to say right now at how much of a higher multiple India can trade relative to the historical average. To take a call on earnings itself is difficult, to take on a call on earnings re-rating is adding to the complexity.

Given that there is going be abundant liquidity in economies overseas and that interest rates are going to remain low, do you see flows continuing?

In the longer term, chances of flows moving from developed markets to developing markets like India in search of growth are high. But it doesn’t mean that this can continue at every level of the market. At some point in time, the gap in the valuation of say India and China, Brazil or Russia could force the money towards those markets rather than ours, depending on which economy is doing well.

But it’s also a fact that India is underweight in many global funds…

That is true; we haven’t seen too much money from many of these big foreign funds. But at the end of the day, the money will come in depending on how we perform. There is possibly unlimited quantum money sloshing around in the system, globally. In the American money markets, funds have $3 trillion, virtually yielding less than 0.5%. Logically, they should shift all their money into Indian equities because these are expected to post better returns. But things don’t always work on logic. There is a balance of Rs 4 lakh crore in Indian banks yielding a 3.5% return; this should also have shifted.

But we’re talking only of equity funds...

Allocations are not made only on the basis of fundamentals, but also sentiment and valuations. It would be unfair to think that all global equity funds would have a 1% allocation at today’s valuations, which are priced for perfection; though I would love to get such a high allocation. They are expecting delivery in terms of growth, equilibrium of our macros in terms of interest rates, inflation, fiscal deficit and current account deficit. They’re expecting seamless growth in earnings. We are carrying the burden of too many expectations.

Once again, small investors have missed the rally…

We haven’t encouraged an institutional culture in equity investments. Our pension funds never invested in equities and our insurance companies came pretty late and while there was an LIC, the investments were tilted towards fixed income rather than equities. So, somewhere the institutional participation hasn’t been too high. Also, the relative performance of real estate and gold in recent times has attracted retail flows since investors are more comfortable with those assets.

Source: http://www.financialexpress.com/news/theres-no-scope-now-for-poor-performance/686238/0

Market voice: Prateek Agarwal, Bharti AXA Investment Managers

Prateek Agrawal, head, equity, Bharti AXA Investment Managers, tells Krishna Merchant that the current valuations are not worrisome, as they are at much more comfortable levels compared to the last time when the Sensex was trading at 21,000. Edited excerpts:

The markets have been on an upward spiral for the past few sessions, with a good number of stocks touching new highs. Do you expect this to continue?
The last time when the Sensex was higher than 21,000, PE ratios were significantly higher than the current levels. Since the last rally, earnings have expanded and there is much more valuation comfort now.

The markets are likely to move higher, and the up-move in terms of percentage will trail the rise in earnings. The markets did not move much for eight-nine months. It is only in the last one month that they have rallied and have undergone a serious amount of time correction.

Once this up-move is through, we expect to see a time correction again, rather than a price correction. We expect the index to move sideways. Over the time, earnings will catch up with valuations.

Is this a good time to book profits in the midcap and small cap stocks?
Market participants have been booking profits of late. If you look at the mutual fund (MF) data, it is clear that MF as a category has been experiencing strong outflows at higher levels in the market.

Considering that markets will rise further, what will be your best bets?
Banking will be one of the drivers. Metal and mining can also do well, besides infrastructure, as the economy is booming. At a later stage, once the confidence in the level of the market is restored, we may see the breadth of the rally expanding.

Source: http://www.business-standard.com/india/news/market-voice-prateek-agarwal-bharti-axa-investment-managers/408846/

MF NAVs make new highs, but selloff continues

More than a third of all equity schemes that are over five years old have already surpassed their previous net asset value (NAV) highs, reached in 2008. Despite this, mutual fund schemes continue to see redemptions.

Data from fund house tracker Value Research show out of 177 such equity schemes, 60 hit lifetime highs at the beginning of this week.

Anand Shah, equity head at Canara Robeco Mutual Fund, said, “Our schemes have already surpassed the previous peak of 2008. I see no reason why they will not be at lifetime highs. The same will be true for the industry.”

HDFC MF’s nine equity schemes have hit all-time highs. Seven schemes of Birla Sun Life MF and six each of Franklin Templeton, ICICI Prudential MF, Reliance MF and UTI MF have hit all-time highs.

There are 404 equity schemes. Of these, 227 are less than five years old. If one takes the entire lot, 173 schemes touched all-time high at the start of this week.

Navneet Munot, chief investment officer, SBI Mutual Fund, said, “I believe that in a high market situation, the money entring into mutual funds through systematic investment plans (SIPs) will not be impacted. The industry gets the major portion of inflows through the SIP route and not lump-sum amounts.’

Shah, in agreement with Munot, said investments through SIPs were quite robust and would continue despite the high NAVs.

As on August 31, the industry's total average assets under management rose 3.3 per cent to Rs 6.87 lakh crore from Rs 6.65 lakh crore last month.

However, equity schemes continued to see high redemptions in August. Overall net outflow from these during the current financial year is Rs 7,613 crore.

Source: http://www.business-standard.com/india/news/mf-navs-make-new-highsselloff-continues/408757/

IDFC MF to Revise Exit Load Structure for its Monthly Income Plan

IDFC Mutual Fund has decided to revise the exit load structure for its IDFC Monthly Income Plan. The changes will be effective from 01 October 2010.

Accordingly, the exit load would be 1.50% of the NAV for redemptions/switch outs anytime within 18 months from the date of subscription applying First In First Out Basis. No load shall be applicable for switches between options of the schemes.

Moreover, the exit load /CDSC of up to 1% of the redemption value charged to the unit holders by the fund on redemption of units shall be retained by each of the schemes in a separate account and will be utilized for payment of commissions to the ARN holder and to meet other marketing and selling expenses. Any amount in excess of 1% of the redemption value charged to the unit holder as exit load/ CDSC shall be credited to the respective scheme immediately.

IDFC Monthly Income Plan aims at generating regular returns primarily through investment in debt oriented mutual fund schemes and to generate long term capital appreciation by investing a portion of the schemes assts in equity oriented MF schemes.

Source: http://www.indiainfoline.com/Markets/News/IDFC-MF-to-Revise-Exit-Load-Structure-for-its-Monthly-Income-Plan/3302907454

Ahead of the fundamentals?

Not only is it riding an unprecedented inflow from foreign institutional investors (FIIs), the market cap has actually grown more than the size of the economy --- the only economy among leading nations where this is the case. The stronger GDP growth rate for India (IMF projects India’s growth at 9.4 per cent for 2010-2011, next only to China) may justify this kind of movement to an extent, but experts say the Indian markets have moved ahead of fundamentals.

“The companies are becoming expensive and the fundamentals are not justifying the current optimism,” said the head of a mutual fund who did not wish to be named.

The German economy is more than two-and-a-half times the size of India, but India’s market capitalisation is now ahead of the European giant.

Over the past one month, the Sensex has outperformed markets across all major developed and emerging economies, and has grown by 8.7 per cent on the back of the strong FII inflows. Germany’s DAX followed closely with a gain of 8.4 per cent in the period, while all other major economies grew 3-5 per cent.

This FII enthusiasm on the India growth story has now brought it into a territory that is even concerning the best of the fund managers to take fresh positions, and both broker and MF community is advising the retail investor to practice caution and not get carried away by the momentum.

http://www.hindustantimes.com/Ahead-of-the-fundamentals/Article1-603082.aspx

For mutual fund investing, online is the way to go

Good and bad times are going hand in hand for retail investors in mutual funds. While Sebi has stepped in with a slew of regulatory changes, bringing down the cost of investing significantly, incentives for the mutual fund distributor community has come down drastically as a consequence of these changes. This has left investors without the services of mutual fund agents. What will investors do? Help of financial advisors may be sought by high net-worth individuals. For others, other channels have to be explored.

There are two modes for retail investors to choose from – offline and online. The comparison between the two modes is easy. With the offline mode, the investor will be required to fill up forms and write cheques for every investment. Also, one will not get a consolidated view of investments. In the online mode, one can either go via demat/exchange route or via mutual fund websites that deal directly with mutual fund companies. Paperwork is one-time after which subsequent transactions can be made with a few mouse clicks.

Between the two online modes of investments, the comparison gets a little tricky. If an investor chooses to go via the exchange, he/she should have a demat account which comes with an account maintenance cost. The non-demat route, provided by some online service providers does not require an investor to have a demat account. However, it should be noted that mutual fund units are held in a digital (dematerialised) form regardless of the route chosen by an investor.

Consolidation services are available in both modes. However, in the demat mode, all the holdings of the investor (including stocks) are consolidated into one statement. This is beneficial, especially if an investor is an active stock trader too. Some non-demat service providers allow investors to maintain their separate demat account along with their mutual fund account, allowing a virtual consolidation. However, the two instruments (mutual fund units and shares) are maintained separately.

Many brokerages offer zero-cost trading for mutual fund units. Some non-demat service providers also provide zero-cost mutual fund transactions. However, brokerages are bound to charge for mutual fund transactions in the long run, just the way delivery-based share trading is charged.

The cost comparison can be better understood from a business perspective also. In the demat mode, there are five entities involved — broker, exchange, clearing agent, depository and registrar of mutual fund — apart from the investor and the mutual fund. In the non-demat mode, there are only two entities involved – the service provider and the registrar of mutual fund. The former will prove more expensive for an investor in the long run.

Hence, going online would be the best way. Between the two online modes, choose the demat mode if you are an active stock trader and would not mind the costs incurred in the long run.

Source: http://www.financialexpress.com/news/for-mutual-fund-investing-online-is-the-way-to-go/683163/0

Tata Equity Management Fund declares dividend

Tata Mutual Fund has declared a dividend of 10% (Rs 1 per unit on face value of Rs 10) in Tata Equity Management Fund. The record date for dividend is September 24, 2010.

All investors registered under the dividend option of the scheme as on September 24, 2010 will receive this dividend. The NAV under the dividend plan of the scheme as on September 17, 2010 was Rs 14.456.

Tata Equity Management Fund is an open ended equity fund. The primary objective of the scheme seek to generate capital appreciation & provide long term growth opportunities by investing in a portfolio constituted of equity & equity related instruments and the secondary objective is to generate consistent returns by investing in debt & money market securities.

Source: http://www.moneycontrol.com/news/mf-news/tata-equity-management-fund-declares-dividend_485610.html

Union Bank's AMC to become operational by Dec

Union Bank of India on Monday said its asset management company will start operations by December and plans to corner 3 per cent of asset management business in the country within three years of its operations.

"Union KBC Asset Management Company will start functioning by December 2010 and we plan to corner 3 per cent of the asset management business in the country within three years," Union Bank CMD MV Nair told reporters on the sidelines a meeting on 'Opportunities and Challenges for financial services in India and Europe' here today.

The meeting was organised by industry chamber CII and the European Union.

Nair also said the bank has got the Reserve Bank of India nod to open a branch in Brussels, for which it already had secured the necessary permission from the Belgian and EU authorities.

The meeting was addressed by RBI Deputy Governor Subir Gokarn, EU ambassador Daniele Smadja, UBI's Nair and a host of European envoys among others. Addressing the gathering, Gokarn spoke about the need for better regulatory mechanism in the financial services space so that another global financial crisis could be averted.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Union-Banks-AMC-to-become-operational-by-Dec/articleshow/6594861.cms

Religare Mid Cap Fund declares maiden dividend

Religare Mutual Fund has declared a maiden dividend of 27% (Rs 2.70 per unit on face value of Rs 10) in Religare Mid Cap Fund. The record date for dividend is September 24, 2010.

All investors registered under the dividend option of the scheme as on September 24, 2010 will receive this dividend. The NAV under the dividend plan of the scheme as on September 17, 2010 was Rs 15.71.

Religare Mid Cap Fund is an open ended equity scheme. The investment objective is to provide long term capital appreciation by investing in a portfolio that is predominantly constituted of equity and equity related instruments of mid cap companies.

Source: http://www.moneycontrol.com/news/mf-news/religare-mid-cap-fund-declares-maiden-dividend_485598.html

Get asset allocation right for better returns

Building a corpus good enough to meet your long-term financial goals is a meticulous process that involves selecting the best from the lot and investing in them on a consistent basis. But you wouldn't be able to get there if you don't get your asset allocation right.

Often investors place their bets on seasonal frontrunners only to see them lose steam in a subsequent cycle. Since a plethora of options including equity mutual funds (MFs), ETFs and an entire universe of debt funds are available, investors have to get the mix right not only to maximise returns but also to protect their savings from sudden downturns.

The thumb rule is that the proportion of investments in equities should be 100 minus your age. This is because as you age your risk profile changes. You have to be more conservative with your investments with advancing age. Aggressive investors should have at least 75% of their corpus in equities and those with moderately aggressive outlook must have about 60% in equities, say financial advisers. "Fixed income (returns) is not even matching inflation and real returns (actual minus inflation) are still negative," says Suresh Sadagopan, certified financial planner, Ladder7 Financial Advisories.

And most persons who come for financial planning understand that they have to invest a large portion of their savings in equity-related instruments to meet their financial goals, he says. "Aspirations have grown now. You can't meet those aspirations from traditional options such as the post office deposits," says Sadagopan.

Asset allocation should be arrived at after checking the financial health of the investor, risk profile, time horizon for investments and expected returns. "If the person has liabilities such as a housing loan it would not be possible to create an aggressive portfolio," says Rupesh Nagda, head, investments and products, Alchemy Capital Management, a wealth management firm. An aggressive portfolio with about 70% of the investments in equities would be able to generate 15-20% returns over the long term, say experts. Even a moderately aggressive portfolio with only 50-60% in equities can bring 12-15% returns, they say.

"A post tax return of 10% would be decent enough for conservative investors above 45 years of age," Nagda says. Debt should occupy a major part of the portfolio with advancing age. And persons above 45 years of age should slowly start moving money from equities to debt. While aggressive investors can keep their exposure to debt related instruments at 25-30%, conservative investors and persons nearing retirement should have 70% of their surplus in the debt category.

Source: http://timesofindia.indiatimes.com/business/india-business/Get-asset-allocation-right-for-better-returns/articleshow/6588165.cms

Go for a lucky fund manager than an intelligent one: Anoop Bhaskar

Being in the hot seat is not easy. Ask Anoop Bhaskar, head of equity at UTI Asset Management Company, the fund house with probably the largest number of investors in India.

“Ours is the only job where you are tested everyday. That’s the only part that is a strain,” says Bhaskar, whose UTI Mid Cap Fund and UTI Master Value Fund have delivered 42.88% and 49.23% one-year returns as on September 18, 2010.

“If a sales person achieves his target in the first 10 days, he can rest for the month, but I can’t do that,” he says. In an interview immediately after the Reserve Bank of India hiked rates last Thursday, he tells DNA of the impact the move will have on the markets in the mid-term and about mid-cap stock selection.

Are there new leaders for the rally’s next leg?
They are here already. We did an exercise last week. If you were to analyse the BSE 100 during the peak of January 2008, the winners were in the capital goods, power utilities and infrastructure space. Today, when the market is still below the peak, we find domestic consumption —that is. staples, two-wheelers, auto — have moved up 2-3 times, while the previous winners are down 20% from the peak.

Nobody said IT would be the best performing sector because of a strong stable government, but it has given 180% returns. When a stock gets overly expensive — 35-36 times two-year forward earnings, you know that the analyst has tried very hard to convince you to buy it. So the earnings themselves must be suspect. This is not in India alone, but a phenom across emerging markets.

Sectors that were totally avoValuations don’t give much comfort. You have to see whether the earnings growth will deliver and sustain these valuations. If a mid-tier pharma company trades at 14 times next year earnings you are worried as these have usually traded at 10 times one-year forward. Valuations per se can be stretched.

I would not take very large holdings but restrict myself to smaller stakes in more companies.ided in the last part of the rally of 2007-2008 have done well, and the ones that have done the best in those two years are lagging.

What about valuations in these segments?
Valuations don’t give much comfort. You have to see whether the earnings growth will deliver and sustain these valuations. If a mid-tier pharma company trades at 14 times next year earnings you are worried as these have usually traded at 10 times one-year forward.

Valuations per se can be stretched. I would not take very large holdings but restrict myself to smaller stakes in more companies.

Do you see market rally continuing?
The short-term looks worrsiome as we have had a very high flow of money into India despite premium valuations to some emerging markets with better macro economic fundamentals. But then, as the saying goes, success begets success, which is leading to sustained flows, which may reverse once global macro situation worsens.

Will you still stick with consumption-related sectors despite the fifth rate hike this year?
Generally the assumption is that these are safer companies though valuations are excessive. So, what if they correct by 5-10%? It’s better to stick to these companies rather than shift to unknown infrastructure stocks. What you would need is a global mindset change where fund managers globally figure it out that these valuations are expensive.

Its not just an India phenomenon, even in China we have some consumer staples companies trading at 40 times, and some media companies trading at 30-35 times and they have much lower return on equity of 15-25%, whereas in India, companies still have RoEs above 25%. So if happens, it will be a trend decided by foreign flows rather then Indian fund managers deciding to take a call that these stocks are expensive.

The BSE Consumer index never used to top 13 times and today it is at 21 times. I can’t figure it out and my fingers twitch pushing me to sell it, but then I say I will sell 5% at a time rather than dump the entire holding. These are fairly well-managed companies.

You will see 15 companies coming and setting up power plants, but you will not see 15 companies coming and selling a Horlicks-equivalent. The barrier for entry is very high, so you will have to give them some premium for that.

How big a role does an institution play in stock selection?
Luck is a big part. You can’t say it’s only because of my skills to analyse balance sheets and meet managements that my fund is doing good. If somebody is saying that, he’s fooling himself — rather than lying. Take the case of the results of the general elections in May last year. Did anyone say that domestic consumption stories would do well over next 12 months? Everyone was upbeat on infrastructure and capital goods due likely increased spending by the government. You can’t say that I was so visionary that I saw the domestic consumption demand. It’s luck. If someone says that I bought cheaper stocks which were these consumption-related stocks rather than highly priced infrastructure or capital goods, fine, but to claim foresight would be wrong. If you have to choose a fund manger, choose one who’s lucky rather than one who’s intelligent. In the end that matters more, because you can be most intelligent guy making most deep analysis but if something goes wrong, then that’s it. Tell me, you think balance sheets aren’t doctored in India? So to claim that I am fundamental analyst and will look at balance sheets and dig out information works only so much…

Business and economic cycles have become shorter in the last few years. So how do you provide for the downside?
If you are lucky and you are very smart and able to identify companies that can consistently grow at a fast pace, and you have them in top 5-6 schemes, your fund would keep on doing well. But that is difficult. So you take a wider portfolio of say 60-70 stocks so that you are not over emphasising on 1-2 stocks to deliver the performance and as when their target prices are achieved you sell a part of these. Another way is to have a core portfolio concept in midcaps where there are certain stocks you will always hold whatever be the situation. These are very growth-stage companies and they move up in a lumpy fashion.

Do you look at the business model or the management of the company while picking a stock in your portfolio?
This isa very MBA-type question. Aap bolo, in a 2-hour meeting what business model can you understand of the company? What I look at is the business cycle stage in which they are. If the business cycle for them is at a stage which will give them an upturn, they will do well. How would you differentiate a construction company? There’s no company which is specialist in particular skill as 95% of the work which they do in India is often sub-contracted to other smaller teams or sub-contractors. You take a call — either you buy the cheapest stock, or the one that you believe is the most honest or the one where Ebidta margins have consistently been the highest or one that’s generating free cash.

How do you go about stock selection in midcaps?
You need to go and meet more companies in midcaps than in largecaps and you should have a slightly longer view on them because many of these companies tend to have drivers for growth that are mainly internal rather than driven by the environment. If you were to pick up a blue-chip steel stock, the same brokerage might have changed its recommendation three times a year based on external factors like prices of steel in China and total production going up or down. But in the case of a midcap steel company, you need to look at the company’s capacity or its coal mines getting operational.

So the price performance of a midcap company doesn’t vary much with change in global prices. These are more slightly insulated companies and you can take a slightly longer-term view. If you meet management, you are aware of trigger that can happen over period of time that would boost the earnings. Some of these companies tend to have a more stable view on them compared with the large caps, which are now very global on account of the environment in which they operate.

What are the characteristics that you look for when buying midcaps?
They’re no different from large caps. You look at companies that have done well consistently in the past and are available at cheaper relative valuations which fell due to some event like some 2-3 large sellers unloading. There are also some companies that were doing good, say 3-4 years back, but had raised a lot of capital and then the global situation led to their businesses suffering. In the case of midcaps, the expectations of investors tend to move ahead of what companies can deliver. This leads to investor selling or disinterest despite their performance stabilising and cheap valuations. Such opportunities are there in the market where you can now meet the management and find out about earnings growth in the next 3-4 quarters and take a call.

How do you manage the risk in midcaps?
It is more on the small-caps side. You have to be cautious. They have a new plant and they will say they will stabilise in a year. In India, plants don’t get commissioned on time, they never stabilise on time and then the products won’t get sold on time.

So, if a company tells you it has ‘x’ capacity and targets 3x capacity, the point to assess is, is there a market for that? The plants can be expanded. But it might take two years to actually go and fill the market and get to the capacity utilisation levels that generate the margins the company is talking about. So, you have to take new projects with a pinch of salt. Whatever deadline a company gives, you need to take it with a delay of 12 months. Good promoters may get it executed with a delay of 6 months.

Also, all these companies have gone through a cycle - they have acquired another company, have lost money, raised capital, sold stake to private equity. There is a fair amount of due diligence done by outside investors. To find a total virgin in the Rs5,000 crore market cap bracket is rare, if at all.

How big is the liquidity problem in small and mid-caps?
I believe what the late Harshad Mehta said that in stocks only if the price goes up does the demand go up. If you are the only buyer of stock it might be the best time to buy it if you have the guts. But I don’t. I need to have other people to buy it to give me some comfort. There is no stock that has gone from Rs500 crore to Rs5,000 crore and still trades 100 shares a day. It’s a fallacy to say it is illiquid. It is illiquid because nobody wants it. To assume that at your exit price it will be as illiquid as it is today then either the stock will not go up or if it goes up then it will not be as illiquid as at the time of buying. Illiquidity is an issue only when buying, not selling.

How do you juggle between the different objectives of Master Value and Mid Cap fund?
We try to focus on companies that are more value-oriented for the Master Value Fund. It is not a pure value fund. If we have two companies in the same sector, the one which is more expensive and has got high growth will go into mid cap and the one which is cheaper but might have slower growth will be in the Master Value.

We are going to reposition the fund to have a 30% large cap and 30% small cap composition so that you get both sides of the curves in it. The 30% large cap will give it the stability and the small cap will give it volatility and sharp-rise movements, so that the fund is not cyclically volatile. It also gives you liquidity. It is a good combination for investors.

Any sectors that you find attractive in mid caps?
I think across the sectors, infrastructure looks good. A lot of investors have recently taken a liking to cement stocks that you can call cheap. Last year, investors were negative and promoters were positive, and THE stocks just went up. This year all the promoters are negative and investors are positive and the stocks are still going up. I can’t figure out why.

Cement could be the next one working in your favour. Construction is a safe bet. The next big thing would be capital goods. The perpetual dark horse is real estate. I think the problem there is that the business model is not suited for the stock market because it cannot have linear growth.

Source: http://www.dnaindia.com/money/interview_go-for-a-lucky-fund-manager-than-an-intelligent-one-anoop-bhaskar_1440329-2