Market had it so good only in ’91

Stock market investors will certainly call for an encore of 2009. As the last trading session of the year drew to a close on Thursday, the Indian stock market had something to show off to the world; it had its biggest yearly gain since 1991, along the way helping investors to recoup their losses the year before.

The Bombay Stock Exchange (BSE) has risen 81% in 2009, driven by record inflows from foreign institutional investors (FIIs) and a rapidly improving economic environment. At close to 17,465, the 30-scrip BSE Sensex is now at a 19-month high, as is the broader 50-scrip Nifty at 5201.

Sensex, incidentally, will enter its silver jubilee year on Saturday. Sensex was launched by the BSE, the oldest bourse in the Asian continent, on January 2, 1986 with 1978-79 as the base year.

This year, FIIs have been big buyers of stocks across emerging markets and they pumped in $17.20 billion into the Indian market in the process. Of the inflow, about $3.3 billion came in through initial public offerings (IPOs) and American and global depository receipts. The pace of flows picked up sharply after the results to the general elections were announced in mid-May, with investors reassured of a strong coalition government at the Centre that could take forward the reform process.

Says A Balasubramanian, CEO, Birla Sun Life Mutual Fund, “In 2009, the markets were driven by the continuous improvement in the macroeconomic variables in the wake of some unprecedented stimulus both from the government and the central bank. “ Balasubramanian believes that while 2010 may not be as eventful for the market, equities should continue to do well, especially since it was unlikely that interest rates would go up in a hurry.

FIIs and domestic insurance firms have been the biggest buyers of Indian equities, with retail investors taking the sidelines. Indeed, many recent IPOs saw very subdued participation from retail investors. Domestic mutual funds, for their part, have seen muted inflows into equity schemes, especially after the entry load was done away with from August. Among the best performing sectors during the year were automobiles, metals and technology while realty was among the worst-performers.

The rally has been broad-based and volumes too have been large. The daily average turnover in the derivatives segment of the NSE in the last six months has been over Rs 72, 000 crore while the average daily turnover in the cash segment has been Rs 17,800 crore.

Volumes are expected to remain strong in 2010 though market watchers believe that the huge supply of paper, especially from public sector undertakings, could keep the secondary market in check. About 18 issues have been lined up and between them they are expected to help the government raise over Rs 28,000 crore, with NMDC alone expected to fetch Rs 14,000 crore. However, with India and China expected to remain among the fastest growing economies in the world, there is unlikely to be any let-up in foreign inflows.

Source: http://www.financialexpress.com/news/market-had-it-so-good-only-in-91/562031/0

Huge inflows into SIPs expected in 2010: ICICI prudential

ET NOW talks to S Naren, CIO Equity, ICICI Prudential AMC.

We have seen fresh mutual fund inflows on equities kind of languish in 2009 as we step into 2010 do you think the situation is going to reverse itself?
S Naren: I mean if investors are taking out money for profit booking I think it is welcome because we have seen one of the highest rise apparently in 18 years in the index so that part of it would be welcome. People are taking out money to invest in product where the costs are much higher I think than it would not be welcome. What we are hoping for in 2010 is that there are much huge inflows into SIPs because that's our wish because we believe that SIPs would be a very very attractive way to collect money, to invest money from these levels over a period of time and with no entry loads the costs are also much lower so we believe that there is good scope for people to look at investing through SIPs which has not been fully utilised in my opinion to the extent that it should be of course we also are optimistic that tax plan collections in 2010 will be much better because you know the first investment for most investors in mutual fund should be a tax plan given the kind of tax concessions which are available through the ETC route this is what as our hope for 2010.

So you are expecting Jan to March quarter to be the one where ELSS schemes will see fresh inflows for you what kind of numbers are you looking at right now?
S Naren: Yeah, we specifically don't look at numbers our interest is that we invest the money that we collect in a stocks and sectors where we think we will get good risk adjusted returns that is our focus rather than collecting money from the investment side. I think overall if you see the situation last year and this year the situation in the employment market all these situations is much better. So last year was a down year in one sense for the last quarter investment cycle but because at the way the markets were at that point of time but this year the environment being much better the potential for (17:50) flows is much better than what we would have expected in 2009.

So stepping in a 2010 portfolio profiles which sectors would you like to stay invested in, which ones would you like to avoid?
S Naren: Our broad belief if you study the Indian economy the consumption side of the economy has done extremely well in the year 2009. Our belief is that in 2010 there would be a increase taxation on the consumption side of the economy to fund investment in infrastructure so what we believe is an investment in infrastructure through the year or should actually yield good returns because if infrastructure investment does not pick up over the next two to three years then lot of constraints will develop and inflation would also go higher. We also believe that many of the sectors which are in exports will do much better over (18:50) course of the next two to three years than what we have seen in the last two years. So we believe from an equity market angle people have been less focussed on export industry and therefore we see much better opportunities in this area. From a value perspective of course we have been recommending telecom and we see a good opportunity in telecom because the sector has underperform the market, we are seeing competitive intensity at its highest at this point of time and therefore the opportunity is much higher in telecom for long term investment than in many of the other sectors in the economy.

One quick word on technology as a pack you have Infosys a top holding in your tax plan fund it is a space you have liked you have liked it has performed very well for you, would you still like to stay invested there?
S Naren: We would love to stay invested there but I think there returns are that we expected some part of the return has already come in may be front ended but we see the opportunity for export oriented sectors like technology to be very good in 2010 and 2011 and therefore we would like to stay invested whether we trim a part of it and reduce a weightages from a tactical perspective these are things we could still look at doing but overall I would say technology is a pack is likely to do well over the next two years the entire business environment has turned out to be a much better than what even the optimistic felt six months back.

Source: http://economictimes.indiatimes.com/Markets/Stocks/Views/Recommendations/Huge-inflows-into-SIPs-expected-in-2010-ICICI-prudential/articleshow/5399260.cms?curpg=2

Are benchmark indices relevant to your MF?

Many funds track benchmarks that don’t suit their mandate. That doesn’t make benchmarks unimportant, but it would help to run other checks

What is the difference between SBI Magnum Global Fund and SBI Magnum Bluechip Fund? While the former invests significantly in medium- and small-sized companies, the latter is a large-cap fund that invests in large and well-established companies.

What is the similarity between the two apart from its SBI parentage? Both are benchmarked against the same index, BSE 100, though their investing mandate is different.

So, can the performance of a mid-cap and a large-cap fund be benchmarked against the same index? Unlikely. But as per the rules by the Securities and Exchange Board of India (Sebi)—or the lack of them, depending on where you are sitting—equity funds are free to choose their own benchmark.

What is it?
A benchmark is, typically, a stock market index that every MF scheme is mandated to compare its own performance with. While Sebi has mandated fixed benchmark indices for debt funds, it has given the freedom to equity funds to choose their own benchmarks.

A benchmark serves two purposes. One, it gives you a point with which you can compare your fund. Two, it sets a minimum standard of performance for your fund manager, who would usually not want to go below that. After all, you pay up to 2.5% of your corpus to your fund manager.

The fund managers need to get their trustees’ approval before finalizing a benchmark index for equity funds.

Does it matter?
Let’s say, you invest in a scheme and it returns 50% in 2010. How do you decide whether the performance is good or bad? Here’s where your benchmark index comes in.

Every time you open your fund’s fact sheet, you will get a snapshot of your fund’s performance over various time periods. You also get to see your benchmark fund’s performance across the same time periods. Your first check point would be to compare your fund’s performance with that of its benchmark index.

Although, typically, funds do not prefer to veer too far from their benchmark indices, especially in falling markets, they venture away to find stocks that may not be there in your benchmark index but those that your fund manager believes would do well.

“A benchmark index defines the universe of stocks in terms of market capitalization. It, therefore, defines the characteristics of a fund,” says Kenneth Andrade, head (investments), IDFC Asset Management Co. Ltd.

There’s another reason why your fund’s benchmark index matters. Usually, we compare a fund’s performance with other funds. However, comparing a fund’s performance with that of the one having a different objective or strategy may give you a wrong picture. You need to compare apples with apples. For instance, Fidelity Equity Fund (FEF) and DSP BlackRock Top 100 (DT100) are both large-cap equity funds. But the former can invest in scrips across market capitalization, while the latter sticks to the top 100 scrips by market capitalization. FEF’s benchmark index is BSE 200, while DT100 benchmarks itself against BSE 100 index.

What really happens
Although fund managers swear by benchmarks and place a lot of importance on them, in reality, there is a disconnect between funds and their benchmark indices. Many mid-cap oriented and large-cap oriented funds have the same benchmark indices. Largely, there are three problems with this.

First, many funds invest in scrips across market capitalization. Different schemes in this space have different benchmarks. For instance, UTI Opportunities Fund is benchmarked against BSE 100, while Fortis Opportunities Fund is benchmarked against BSE 200. Not just benchmarks, they also differ in style. While the former is large-cap oriented, the latter is mid-cap oriented, as per MF tracker Morningstar classification. Says a fund manager, on conditions of anonymity: “Most multi-cap funds benchmark themselves against indices such as BSE 100 or BSE 200 as no benchmark index truly captures their style. The relevance of benchmarks in this case, where funds are so dynamic, goes down.”

Dhirendra Kumar, CEO, Value Research, a mutual fund tracker, adds: “A large-cap fund that invests 15% of its corpus in small-cap scrips drastically adds risk.” Such funds, Kumar says, can outperform the Sensex in rising markets, but underperform in falling markets.

Second, some MFs that were launched seven to eight years ago started off their diversified equity funds then. As the industry grew and launched funds with sharper focus, such as dedicated large-cap or dedicated mid-cap funds, many older schemes sharpened their focus, too. They, however, stuck to their old benchmarks. SBI Magnum Global Fund, which started as a diversified fund, has turned into a mid-cap fund, but continues to be benchmarked against BSE 100, an index that is typically used by large-cap funds as a benchmark.

Third, experts doubt the capability of benchmark indices themselves. Kumar feels that beating the benchmark is not as great an achievement as it ought to be. “For instance, not all globally competitive companies and businesses are present in the Sensex yet. On the other hand, the 30 shares in the Dow Jones index of the US are all globally competitive businesses,” he says.

What it means for you?

It’s good to have a benchmark index to get a broad sense of how your fund is performing, unless it’s a thematic or a sectoral fund. These funds are too concentrated and, therefore, benchmark indices are useless.

However, even if you’re invested in a diversified fund, don’t get too elated to see your fund outperforming its benchmark index. While consistent underperformance across market cycles are red flags, it’s better to check your fund’s performance against similar peers.

Source: http://www.livemint.com/2009/12/29205059/Are-benchmark-indices-relevant.html