Fund managers see marginal stocks rise; eye engineering stocks

Indian fund managers expect shares to move up but only marginally, making them averse to raising equity exposure in the next three months, a Reuters poll of 10 domestic fund houses showed on Friday.

Four of them expect shares to rise up to 5 percent, two managers see shares rising up to 10 percent and one bet on a rise of more than 10 percent. Fund managers said they expect shares to consolidate with a marginal rise rather than show a sharp upmove.

"We are not increasing exposure to equity. I will increase exposure in mid-cap and reduce in large-cap and thereby seek alpha," Jayesh Shroff, fund manager at SBI Mutual Fund said.

Alpha is the excess return over the benchmark fixed by the fund.

India's benchmark stock index which is trading at a 19 times forward earnings ended flat in October at 20,032.34 points. The 30-share index is still up 14.7 percent year to date, as foreign funds have invested a net $24.7 billion in Indian primary and secondary equities in the period. About half of the fund managers polled plan to increase exposure to mid-caps, while decreasing in small cap and large-cap stocks.

Engineering tops buy chart

Six money managers said they would increase exposure to engineering stocks as they were positive on the back of the Indian growth story.

"Engineering has not performed very well this year for couple of reasons like they due they were low on returns...if this underperformance was to be bridged over next three months then this trade should play out," said Amit Nigam, senior fund manager at BNP Paribas Mutual Fund .

India's economy is seen growing by 8.5-9.7 percent in the 2010/11 fiscal year, according to a report released by the finance ministry. The International Monetary Fund projects growth at 9.7 percent for calendar 2010.

Fund managers are also betting on the spending in the engineering and construction sector which is likely to accelerate due to backlog in the 11th Five Year Plan.

Indian fund managers said they see the stocks fairly valued at the current levels.

Source: http://economictimes.indiatimes.com/markets/analysis/Fund-managers-see-marginal-stocks-rise-eye-engineering-stocks/articleshow/6835911.cms

Top equity funds maintain growth tempo in Q2

Top-ranking equity funds have been consistent in their performance over the past three months. Seventeen of the 22 equity funds that were ranked one (Fund Rank 1) for the quarter ended June maintained their rankings during the September quarter, according to a press note issued by CRISIL .

"Investors prefer to hold funds that are superior and consistent in their performance over time to avoid churning costs. Top-ranking equity schemes showcased strong performance and outperformed the relevant index during the latest quarter," said Tarun Bhatia, director-capital markets, CRISIL.

Rank 1 diversified equity schemes gave the highest return among all equity categories at 14.95% and outperformed both the S&P CNX Nifty and the S&P CNX 500 which gave returns of 13.50% and 11.41%, respectively, the press note added.

CRISIL's MF rankings covered 452 open-ended funds accounting for 72% of the average assets managed by Indian mutual funds in September 2010. Among fund houses, HDFC Mutual Fund led the tally of top ranked funds - with 16 funds under rank 1 - across equity and debt categories. HDFC MF was closely followed by DSP BlackRock Mutual Fund with eight funds and Birla Sun Life Mutual Fund with seven funds under Rank 1. Taking a category wise split, Fidelity India Growth, HDFC Top 200 and ICICI Prudential Focused Bluechip led the large-cap equity fund group while Birla Sunlife Dividend, DSP Blackrock Opportunities and Fidelity Equity Fund topped the diversified category.

Birla Sunlife Basic Industries Fund and DSP Blackrock Natural Resources Fund managed top slots under thematic funds. DSP Blackrock Micro Cap Fund, DSP Blackrock Small & Midcap Fund along with HDFC Mid-cap Opportunities Fund were ranked best among small & midcap funds.

While Canara Robeco Equity Tax Saver and Fidelity Tax Advantage bagged top slots in the ELSS segment, HDFC High Interest Fund and HDFC Income Fund were ranked first among long-term income funds.

DSP Blackrock Equity Fund, HDFC Equity and HDFC Top 200 were adjudged consistent performers by CRISIL.

CRISIL's fund ranking framework provides a single-point analysis of mutual funds taking into consideration all factors such as risk-adjusted returns, asset concentration, liquidity, asset quality and asset size. The rankings also include categories that focus specifically on long-term consistency in performance. The ranks are assigned on a scale of 1-5, with 'CRISIL Fund Rank 1', indicating 'very good performance'.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Top-equity-funds-maintain-growth-tempo-in-Q2/articleshow/6839618.cms

RBI calms jittery market, as call rates top 12%

Second LAF window opened, SLR norm temporarily relaxed

Interbank call money rates surged to more than 12 per cent this morning, even after banks on Friday net borrowed Rs 1,17,660 crore from the Reserve Bank of India (RBI) repo window — the highest in two years. Around noon, RBI announced measures to cool the market.

The central bank opened a second liquidity adjustment facility (LAF) window, which it said would be offered on Monday, too. The facility will also be available on Saturday, when it is normally closed.

Simultaneously, RBI temporarily eased the statutory liquidity ratio (SLR) requirement for banks. They will not be penalised if their minimum SLR holding dips to 24 per cent of deposits if they pledge government securities to borrow through Saturday’s repo auction. The leeway is ad hoc and applicable only for the Saturday repo.

Banks have to invest up to 25 per cent of their net demand and time liabilities in government securities to maintain SLR. Any shortfall typically invites penal action from RBI.

As a result of the central bank’s actions, call money rates closed at 7.15 per cent. This was still its highest level this financial year, according to Bloomberg data. In the second LAF auction, banks borrowed only Rs 350 crore, as the window opened too late, say bankers. RBI described Friday’s shortage as “frictional liquidity pressure”.

“The regulator should not wait until panic spreads, which was the situation in the morning,’’ said a dealer.

The liquidity shortage this week averaged Rs 90,000 crore, mainly because of the Coal India initial public offering, which mopped up a record Rs 15,500 crore. Pressure rose as the IPO received 15 times the bid amount. Money from refunds is expected to flow back next week, providing some relief.

Given the scarcity of funds in the banking system, some bankers argue that RBI should leave rates untouched. Many money market dealers and bankers expect a 25-basis point increase in key policy rates on Tuesday, as RBI continues its action against inflation.

Mutual funds are feeling the pressure of redemption by corporates, banks and financial institutions. Rs Rs Banks have sucked out money from liquid funds to a large extent this month. With several IPOs in the pipeline and due to the central bank's intervention, which is squeezing liquidity, banks are no longer parking money with mutual funds," said the chief executive officer of a mid-sized fund house.

“One of the factors precipitating the problem is the lack of government spending, despite maintaining huge balances with RBI,” explained a senior State Bank of India official. Government balances with RBI stood at Rs 25,662 crore on October 22.

However, overall liquidity is unlikely to improve in a hurry, as several companies have lined up fund-raising plans in the busy season. There will be additional pressure from year-end investment liquidation by foreign institutional investors, say fund managers. Adding to the strain on liquidity will be the third tranche of advance tax, which falls due in mid-December.

Moreover, the government has lined up several big-ticket public issuances over the next few months, including those of Shipping Corporation of India, Hindustan Copper, Manganese Ore India and Power Grid Corporation. In January, Indian Oil Corporation is expected to come to the market with an offering of around Rs 19,000 crore -- the largest to date. The private sector also plans to tap the market with mid-sized and large issues.

“The present liquidity situation may improve, but it will take time. I don’t expect any immediate rate hike by RBI, as it will aggravate the situation. There is no real credit uptake and not much is expected in the third quarter, except from the infrastructure sector,” said Bhaskar Sen, chairman & managing director, United Bank of India.

However, the central bank may still be compelled to go for another rate hike, say some bankers. This is because headline inflation has stayed much above RBI’s tolerance level. Food inflation is now becoming structural in nature.

“The market has factored in a 25-basis point hike in both policy rates. As a result, short-term rates have gone up. I don’t think RBI will react to the present liquidity tightness, as it may be temporary, and will probably go ahead with a rate hike,” said Jahangir Aziz, India chief economist at JP Morgan.

Source: http://www.business-standard.com/india/news/rbi-calms-jittery-market-as-call-rates-top-12/413200/