Top fund managers view on markets

A Balasubramanian, CEO,Birla Sun Life Mutual Fund

SECTORS BULLISH ON: Banking and finance, infrastructure, construction, capital goods, IT, power and auto & auto ancillary. Overall accelerated reforms, increased investment activity and rising production capacity in manufacturing will drive the growth. The economic revival, margins expansion on the books and level of provisioning of NPAs and overall efficiency will be main growth drivers for the banking industry.

SECTOR WE ARE AVOIDING: Telecom sector. Valuations are still not attractive for us.

MARKET OUTLOOK 2010: We are bullish on Indian markets. The economic revival,accelerated reforms,good rains and stable interest rates will be good for corporate earnings. If these fall in place,we are expecting a top line growth of 18% and bottom line growth of 15-16% for the corporate sector.

Srividhya Rajesh, Vice President – Equity, Sundaram BNP Paribas

SECTORS BULLISH ON: Auto,infrastructure and consumer goods. Consumption is holding up quite well. With rising income level—it is observed that income levels have risen by CAGR of 10-15%. People want to upgrade and those having twowheelers are opting for a car. We think the auto space will see good growth.

SECTOR WE ARE AVOIDING: Telecom and metals. The expected demand slowdown in China and the economic troubles in Europe don’t augur well for the metals sector. There is a bit of uncertainty,regulatory hurdles and hence we are staying away from the telecom sector.

MARKET OUTLOOK 2010: Growth is visible for the Indian markets. However, high fiscal deficit is a concern. If interest rates fall and inflation reigned in, our ratings for FY11 will be overweight.

S Naren, CIO,ICICI Prudential

SECTORS BULLISH ON: Pharmaceuticals, technology and telecom. Valuations in these sectors are quite attractive. While the telecom sector has lucrative valuations, the technology sector we believe is the export engine of the country.

SECTORS WE ARE AVOIDING: We are avoiding real estate, large cap cements and oil marketing companies right now. Valuations are still not attractive for us.

MARKET OUTLOOK 2010: Valuations are higher end of fair value. We foresee a correction. We are expecting less volatility this year. We are of the firm opinion that huge returns are unlikely to get repeated this year. Overall, we think that market will be close at a fair value—maybe earnings growth of around 20%.

Krishna Sanghvi, Vice President, Equities, Kotak AMC

SECTORS BULLISH ON: We are bullish on the banking, pharmaceuticals, IT and infrastructure space. Domestic pharmaveutical companies are expected to be net beneficiary of the new patent regime in the sector.

As regards the information technology sector, we see volume growth, while in the banking sector we see no concern for non-performing assets (NPA).

SECTORS WE ARE AVOIDING: We are avoiding real estate, telecom. Valuations are still not attractive for us. There is too much of competition and regulatory problems in the telecom sector.

MARKET OUTLOOK 2010: We have positive outlook on Indian markets. We believe one can expect earnings growth of 20%.

Prateek Agarwal, Head,Equity,Bharti AXA Investment Managers

SECTORS BULLISH ON: We are bullish on large and mid-cap IT companies. In banking we are bullish on second-rung banks and are not very bullish on large private sector banks. We are comfortable with valuations in these sectors. These sectors have good price to free cash flow and are cheaply available.

SECTORS WE ARE AVOIDING: We are avoiding telecom and FMCG. Competitive intensity is too high and hurdles in the form of regulatory norms don’t augur well for these sectors.

MARKET OUTLOOK 2010: 2010 will be a year of gain for us. We have high expectations. This is going to be first year of global growth and Indian markets should move up in comparison to its global peers. For FY11, we are expecting earnings growth of 20%. This estimation purely hinges on the liquidity situation in the market.

Source: http://economictimes.indiatimes.com/quickiearticleshow/5939353.cms

Fidelity MF Pays Loyalty Premium to since inception investors in Fidelity Equity Fund

Fidelity celebrates 5 years of operations in India

Fidelity Mutual Fund today announced a unique Loyalty Premium for investors in Fidelity Equity Fund (FEF) who have stayed invested since inception. This coincides with Fidelity completing five years of business in India. The eligible investors will receive 2 free units at current NAV for every 500 units of FEF held since inception. The units will be added to the eligible investors' portfolios on 18 May 2010 at the applicable net asset value.

Speaking on the occasion, Ashu Suyash, Managing Director and Country Head - India, Fidelity International, said: “We are delighted to offer this loyalty premium to our long term investors and believe that our vision of always acting in the best interest of customers in helping them reach their financial goals will help us build a solid long term business in India.

“At Fidelity we have always maintained that equities as an asset class outperform over the long term and it pays to stay invested in equity funds irrespective of market cycles which is borne out by the performance of the Fidelity Equity Fund over the last five years. The fund has delivered a CAGR of more than 25% over the last 5 years and helped triple investor money.

“We hope that this initiative will encourage many more customers to invest and stay invested in our equity funds in their own best interests,” she added.

Sandeep Kothari, Fund Manager, Fidelity Equity Fund commented: “Fidelity's bottom-up, research driven stock picking approach combined with a focus on the consistency of risk-adjusted returns has contributed significantly to the fund's long term performance.

“We have maintained a disciplined approach to understanding the companies that we have invested in - their business models, their growth prospects, the scalability of the business, the management team which runs the business and the valuations. We expect the investors in Fidelity Equity Fund to continue benefiting from this approach”.

FIL Fund Management Private Limited (FFMPL), Fidelity International's Indian asset management company started operations in the country in 2004. Its first fund, the Fidelity Equity Fund, opened for ongoing subscription in May 2005. This initiative, aimed at rewarding the long term investors, is possibly the first from a mutual fund in India and is in line with Fidelity's philosophy of investing in the interest of customers.

Source: http://www.indiainfoline.com/Markets/News/Fidelity-MF-Pays-Loyalty-Premium-to-since-inception-investors-in-Fidelity-Equity-Fund/3074170330

MF Schemes on basis of risk-adjusted performance

The ET Quarterly MF Tracker lists MF Schemes on the basis of their risk-adjusted performance, based on a detailed number crunching exercise carriedout by the ET Intelligence Group. Research has been done in-house, while data was sourced from Accord Fintech. The Sortino ratio, a superior risk-adjusted measure, was used to assess the fund performance. We take three years performance as the yardstick for the five broad categories of funds—equity diversified, equity-linked savings scheme (ELSS), balanced, monthly income plan (MIP) and debt. Schemes with similar risk-return profiles are clubbed.

The return score is arrived at by allotting 60% weight to the past three year’s absolute return and 40% weight to the past one year’s return. These weighted returns are then compared to the weighted benchmark return for the period and the resultant figure denotes the return score for the scheme. We have assumed BSE 500 as the benchmark for the equity schemes and risk-free interest rate by SBI, corresponding to the periods under consideration as the benchmark for non-equity categories.

To measure risk, we look at the downside risk. Downside risk is any return below the minimum acceptable rate of return (MAR). Benchmark returns have been taken as MAR. We looked at the monthly returns for the past three years. The monthly returns were analysed vis-à-vis the benchmark returns for that particular month for each of the categories under consideration. Any underperformances, for each scheme, were added. These underperformances signify the risk associated with the schemes and thus forms the risk score for each of the scheme.

The return score is then divided by the risk score to arrive at the Sortino ratio for each of the categories. Higher the Sortino ratio, the better is the fund’s performance. The top 10% funds in each category are then classified as ‘Platinum’ funds; the next 20% are graded ‘Gold’ while the next 40% are classified as ‘Silver’.

Source: http://economictimes.indiatimes.com/articleshow/5937656.cms

MFs: Entry barriers will not increase investors' safety

Last week, there was news of Sebi recommending that the minimum net worth for mutual fund companies be increased from the current Rs 10 crore to Rs 50 crore. While this move has obviously been demanded and welcomed by the bigger mutual funds, I am unable to see it achieve any outcome except to make the bigger fund houses a little safer from smaller competitors.

The main reason for this increase is that fund houses need to have enough capital to absorb shocks of the kind that were faced by them during the liquidity freeze of October 2008. This is a strange argument because it legitimises a scenario whereby a fund house will use its own capital to either smooth returns or fill in liquidity in its funds. This is a slippery slope because it completely nullifies one of the basis of the very concept of a mutual fund — that it is a pass-through vehicle, which simply provides investment management services for its customers. All the risks and losses must be customers’ alone.

To accept that the fund house’s capital should be a factor in managing liquidity and other market-related problems immediately raises the question of the logic of this particular figure of Rs 50 crore. Why Rs 50 crore? During October 2010, if the liquidity crisis had to be managed by using AMC’s capital alone then hundreds or even thousands of crore may not have been enough. At the time, this pass-through nature of funds was not maintained. To manage the crisis, the RBI opened a special financing window for funds. Also, some fund houses’ parent organisations were said to have helped.

After the crisis, Sebi has gradually tightened many rules that make debt funds better aligned to underlying markets. These changes have generally been well thought out and thorough. However, investors should not get the idea that if either the equity or the debt markets freeze up, or even if one particular security has a problem, then the risk is there’s alone. Anything else would basically convert funds into banks. If the funds’ capital has to stand behind the investor, then they’ve really become banks and Sebi should hand it over to RBI so that CRR and SLR can be applied to funds too.

Actually, that points to another flaw in this net worth argument. If the net worth is needed to back up a fund, then surely it must be proportional to the assets being managed by an AMC. It hardly makes sense for AMCs at two ends of the size spectrum — the Rs 1.11-lakh crore Reliance Mutual Fund and the Rs 103-crore Quantum Mutual Fund — to both need Rs 50 crore of net worth.

My suspicion is that the bigger fund companies are so enthusiastic about the net worth being raised is simply because they would like to narrow the competitive field in terms of fund performance. Some of the smaller AMCs have funds that routinely generate better returns than those from the big AMCs. Increasing the net worth requirement will not do anything tangible to increase investor safety. However, it will definitely increase entry barriers in a field that needs more competition.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/MFs-Entry-barriers-will-not-increase-investors-safety/articleshow/5938338.cms

How to select a fund?

There are over 700 mutual fund schemes running in India today and about 35 different companies that run these funds. So, how will you choose which fund to invest in?

Goals. Are you investing to fulfill a short-term or a long-term goal? Or, are you investing just because you over heard in your office cafeteria that you should invest in a certain fund? Not all mutual funds serve the same purpose, so you should know why you are investing.

If you want capital appreciation for your child’s education 20 years from now, it is better to invest in an equity fund rather than a bond or money market funds. Equity funds are definitely high on risk, but they have the potential to generate higher returns over 20 years compared with a debt fund. However, if you want to save and protect your capital for funding your child’s education in two years, then you a more conservative fund like a bond or money market fund should be your choice. A short time period does not give you the flexibility to take on a lot of risk.

Time horizon. This is one of the most critical factors while penciling on a mutual fund scheme. Ideally, an equity fund should be held for at least 3-5 years because equities are long-term investment vehicles. Debt or money market funds, on the other hand, can be invested in for shorter periods of time.

Promoter of the fund. A lot of new companies are starting fund houses. Many of them will not be as successful as the ones that already have a successful track record built over the past 5-10 years. Therefore, it is advisable to do some homework before selecting a mutual fund scheme. One should not give in to the marketing tactics of a company or a scheme. Invest in funds that have been launched by companies that have a track record and are not new into the Indian market.

Past performance. Many investors look at the past performance of a fund or fund house and assume that the fund will continue to generate the same return in the future as well. This is not always true. Therefore, do not invest in a fund just because it has done well in the recent past. Look at various factors like fund managers, the objective of the scheme, its portfolio and comparison with peers before making the final choice. Invest in funds that have done well across market cycles and investment cycles..

Source: http://www.financialexpress.com/news/how-to-select-a-fund/619634/2