HDFC fund chief sees 20% return from market

Equities may return as much as 20% annually over the next three to five years, HDFC Asset Management chief investment officer Prashant Jain said. “Returns should be in line with earnings growth,” Jain, who oversees six of the 15 best-performing funds in the past decade, said. Earnings growth of 15% to 20% “from a diversified portfolio of equities is not very difficult to achieve,” he said.

The Bombay Stock Exchange (BSE) Sensex has rallied for a record seven straight quarters. The gauge has surged 18% this year as overseas investors bought a record $21 billion of equities on the expectation that surging consumer demand will boost corporate earnings even as global growth slows.

The Sensex has gained 28% from a May 25 low, approaching its record closing high of 20,873.33 on January 8, 2008.

Foreign fund inflows have surged 59% this year, according to data from the Securities and Exchange Board of India (Sebi) compiled by Bloomberg. Gross domestic product (GDP) expanded 8.8% in the June quarter from a year earlier, the most among major economies in Asia after China.

“India is clearly emerging as a key asset globally,” said Jain, who manages $21 billion in assets. “How many economies are there in the world which are of our size, growing at 8% to 9%, where neither the companies nor the households are leveraged?” The gains have made India the most expensive among the world’s 20 largest stock markets, according to data compiled by Bloomberg. Stocks on the Sensex are valued at 19.5 times earnings, compared with 13.7 times for Brazil’s Bovespa, 7.8 times for Russia’s Micex and 15.1 times for China’s Shanghai Composite, among the so-called Bric markets. “The markets are close to being fairly valued,” Jain said on Wednesday. “In three years, the economy and many companies have grown meaningfully. I don’t think it’s overvalued.”India stocks aren’t in a “bubble” territory even with the Sensex approaching its all-time high, BNP Paribas analysts led by Manishi Raychaudhuri wrote in a report on Wednesday.

Source: http://www.financialexpress.com/news/hdfc-fund-chief-sees-20-return-from-market/694120/

Funds turn open-ended, but investors stay on

Many investors now prefer to stay invested in close-ended funds that have just turned open-ended and are mobilising fresh investments from investors. Being mostly mid-cap funds, investors hope these schemes will fare well in the event of a further rally in mid- and small-cap stocks, say fund sellers.

About 10 close-ended schemes have turned open-ended over the past few months; almost all these funds are attracting money from investors. Among a handful of funds, Religare Mid-cap Fund, SBI Infrastructure Fund , Sundaram BNP Paribas Select Small-cap Fund, DSP Blackrock Micro-cap fund and Kotak Emerging Equity are attracting fresh money from retail investors.

According to mutual fund tracker Value Research, ING Optimix Multi-Manager Equity Option Scheme is the only equity scheme that got discontinued at end-of-term. Birla Sunlife Cash Plus Sweep Daily Dividend Fund and Fortis Overnight Institutional Plus Growth Plan are the only debt funds that got discontinued at term end. All the three funds had low asset bases, said fund researchers.

“A good number of these funds are flexicap funds with a mid- or small-cap bias. People invest in these funds on hopes that mid-cap funds will do well in a booming market,” said Hiren Dhakan, associate fund manager, Bonanza Portfolios. Interestingly, close-ended funds have not seen heavy redemptions, unlike most diversified open-ended equity schemes. Asset bases of funds like SBI Infrastructure Fund, HDFC Mid-cap Opportunities Fund , Religare Mid-cap and Kotak Emerging Equity have fallen only in the range of 11-22%. Usually, investors in close-ended funds prefer to redeem (or book profits) their entire investments at end of term.

“Most close-ended funds that got converted recently are 3-year-old schemes; these funds had raised and deployed NFO money when the markets were trading at record levels (in 2007). While these funds have logged decent one-year returns, they have not been able to outperform key indices on a 3-year basis,” said the marketing head of a corporate-promoted fund house, adding, “Investors are staying put in these funds as they don’t want to redeem their investments (of three years) at a loss.”

While existing investors remain invested in the fund for bettering their return profile, new investors are taking a sectoral or market-cap specific call. Themes like infrastructure and stock segments, like mid-caps and small-caps, are ‘flavours of the season’ among mutual fund investors. “Corpuses of these funds (that got converted to open-ended schemes) are fairly stable as there has not been much redemption or large inflows, post-conversion. Schemes with appealing themes and strategies are getting fresh investors,” said Lakshmi Iyer, head, fixed income & products, Kotak Mutual Fund .

Fund houses, on their part, are promoting these funds in a big way. They are paying upfront trail commission (for 2-3 years) to encourage distributors to sell these funds.

Source: http://economictimes.indiatimes.com/markets/stocks/market-news/Funds-turn-open-ended-but-investors-stay-on/articleshow/6695142.cms