'The retail momentum is catching on'

Tata Mutual Fund Managing Director Ved Prakash Chaturvedi thinks investor confidence is slowly returning, though large investors are adopting a wait-and-watch strategy. Chaturvedi, who is bullish on information technology and auto sectors, spoke to Swarup Chakraborty on market outlook and participation of retail investors in mutual funds. Excerpts:

How do you see the recent correction in equity markets?
Some issues that the world faced recently like the liquidity crunch, non-availability of credit and low investor confidence are real issues and will recede gradually. Sometimes, stock markets expect the recovery to be dramatic. Therefore, in the last six months, we saw that the rise in valuations and prices was steep and very sharp. So, after a period of euphoria and high returns, there is some correction, which is less than 10 per cent. It was expected as markets do not move in a straight line.

The third-quarter numbers were not bad, yet the Sensex went down by nearly 1,000 points in January. Why?
Stock markets do not react to individual events. They had already factored in an improvement in third-quarter numbers. The rollback that you see is a reflection of what happened worldwide. What happens globally will continue to affect our markets and therefore we will have to moderate expectations based on what is happening worldwide.

Is it the right time to enter equity markets?
The Indian equity markets will be among the most lucrative ones for the next 5-10 years. Though the period will be marked by volatility, as we have seen in the past, there is a gradual return of investor confidence.

How do you see the markets panning out over the next quarter? Which are the sectors you are bullish on?
The markets will be volatile over the next three months and analysts and investors will take cues from the Budget and inflation trends.

For now, analysts and large investors are adopting a wait-and-watch approach. We are bullish on IT, capital goods, construction, auto, auto ancillary, and consumption-driven industries, and cautious on oil & gas and real estate.

Which factors will affect the markets the most over the next two months?
The fourth quarter results of companies and the outlook given by companies for the next financial year will be watched carefully. I am positive about economic growth in the next two quarters.

What is your view on positive inflows into equity funds in January?
There has been a return of business and consumer confidence and an improvement in the outlook of global investors towards India. However, this is happening gradually. From the perspective of growth, the index of industrial production numbers are gradually improving. This is the first phase of return of investor confidence. January and February figures reveal the retail momentum is catching on.

In January, high net worth individuals invested in equity funds while smaller players stayed away. Why?
The participation by investors went up in January and a majority of them were big investors, or rather better-informed investors. However, retail participation in mutual funds is gradually increasing.

Source: http://www.business-standard.com/india/news/%5Cthe-retail-momentum-is-catching-on%5C/386519/

The low-cost way to scale the investment Wall

Investors who choose to invest in index-based funds have one more option — Hang Seng Benchmark Exchange-Traded Scheme launched by Benchmark Asset Management Company. The scheme is an index fund which will be listed on the National Stock Exchange. The investment objective is to provide pre-expense returns that correspond to total returns of securities as represented by Hang Seng Index by investing in the securities in the same proportion as in the index.

Investment strategy
The fund is expected to replicate the index. The fund manager will invest 90-100% of the assets in securities constituting the index. Rest of the money can be invested into money market instruments and such other debt instruments with low-risk profile. The index represents approximately 60% of the market capitalisation of the Hong Kong Stock exchange as on January 29, 2010. The index comprises 42 stocks with financials occupying 50% weightage in the index.

The correlation between the Hang Seng gross total return index and S&P CNX Nifty total return index stands at 0.64 for daily returns for the past three years as on January 29, 2010. On purchasing power-parity basis, China is the second-biggest economy in the world. China is the fastest growing economy in the world. The infrastructure sector in the country is experiencing an unprecedented boom.

For whom
The scheme is ideal for those who intend to invest in China without taking the risk associated with active fund management. The fund gives an opportunity to investors to own the front-running blue chip companies in China.

Taxation
The fund invests in equity shares listed on the foreign stock exchange and hence, enjoys the tax treatment of a non-equity oriented fund. For individual investors, long-term capital gains (applicable for investments of more than 12 months) will be taxed at lower of the two: 10.3% without indexation or 20.6% with indexation. Short-term capital gains (applicable for investment of less than 12 months) will be taxed at 30.9%. There will not be any securities transactions tax payable on the purchase or sale of units of the mutual fund.

Fund details
The NFO closes on February 25, 2010. There is no entry or exit load on units. The minimum amount of investment in this scheme in the new fund offer is Rs 10,000. Post listing on the bourse, one can transact in a minimum lot of one unit and multiples thereof. The units of the scheme will be listed on NSE. The scheme offers only growth option.

Risk — reward
At a time when the world is yet to recover from the recession that followed the financial crisis in 2008, China continued on the growth path. The high-growth economy attracts global investors due to the possibilities of immense wealth creation. Long-term investors in China are expected to benefit from the growth of the Chinese economy. The ‘manufacturing’-backed growth in Chinese economy supplements the ‘services’ backed growth in Indian economy from a portfolio point of view.

There are geo-political issues associated with China that an investor cannot afford to ignore. Slowdown of Europe and the US will have an impact on the China’s export-oriented economy. Experts, of late, have gone ahead, expressing the possibility of a bubble situation in Chinese assets. The high correlation with Indian markets may not really help from the diversification point of view, as both Indian and Chinese equity markets may fall and rise together.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/The-low-cost-way-to-scale-the-investment-Wall/articleshow/5605163.cms