No steep fall in earnings growth

While perceived risks to earnings such as the rise in interest costs and inflation are denting confidence suggesting a slump ahead, the earnings growth wouldn't drastically fall and would remain well above 15% for the next fiscal, market observers said.

While there are risks of some earnings downgrades, the market is "overly pessimistic" , according to Citigroup analysts. "Though we could see some margin pressures, the severity of earnings downgrades may not be large," said A Balasubramaniam , CEO, Birla Sun Life Mutual Fund.

"There is a bit of over-reaction but given the concerns (on higher costs) it is not completely unjustified," he said. Sensex has lost about 14% so far in the year, the second worst performance among major markets, on the back of heightened concerns over rising costs. The MSCI emerging markets index declined only by 2.1% and the world index is up 5.3% in 2011. The markets are now at 15-16 times their estimated earnings for fiscal 2012.

The markets were trading above fair valuations but with the recent correction they are now "getting closer to the value zone" , said Manish Kumar, head of investments, ICICI Prudential Life Insurance. "We were expecting a gradual adjustment . But the pace at which the markets have corrected has taken us by surprise."

The earnings revision index suggests that at the broader level the downward trend in the earnings cycle has begun. However , the pressure seems a lot less for the large-cap companies, said observers. Energy, information technology and banks, which account for 56% of the index's market cap, do not seem particularly vulnerable in the current environment, analysts said. They are the biggest drivers of profit growth and are estimated to constitute 54% of earnings growth in fiscal 2012.

"The current market conditions present a good opportunity to buy some decent Indian stocks," the Citigroup analysts said in a note. The composition of sensex with 50% plus representation from energy, commodities and banks means limited risk, they said. Moreover, the top-3 stocks on the benchmark index account for 22% of the growth, and risks to these earnings look low. Despite risks in sectors such as industrial goods and property, their impact on earnings growth would be limited as they constitute only 12% of profits, observers said.

"While earnings downgrades have edged up in the recent past, there has been a relative balance between upgrades and downgrades, and the number of upgrades remains relatively sizeable even now," Citigroup analysts including Aditya Narain said. FIIs, who pumped a record $29.3 billion into the Indian markets last year, are booking profits as their portfolio is not delivering the expected returns, observers said.

Source: http://timesofindia.indiatimes.com/business/india-business/No-steep-fall-in-earnings-growth/articleshow/7480213.cms

IDFC MF takes a contrarian bet with infrastructure fund

Mutual funds do rarely market sector schemes or thematic plans that are out of fashion. But IDFC Mutual Fund is taking a contrarian stand in launching an infrastructure fund when those stocks are the least wanted and have been underperforming.

Although the fund does not have a target, it believes that investors may benefit from investing in infrastructure stocks when valuations are off 30% from the peak when the nation needs to build roads, ports and power utilities.

“Policy inaction, higher interest rates and slow activity were the reasons why investors were selling infrastructure stocks,” said Kenneth Andrade, head-investments, IDFC Mutual Fund, which launched an infrastructure equity fund on Thursday. “This will stop once the government starts spending on core sector projects.”

IDFC Infrastructure Equity Fund is open for subscription between February 14 and 28. IDFC Mutual is owned by Infrastructure Development Finance Company which lends only for infrastructure projects.

“Valuations are attractive now and cashflow visibility is very strong in infrastructure and construction companies now,” said Andrade. “We expect some companies in the sector to peak valuations and order book by 2012.”

According to Indian Earthmoving & Construction Industry Association estimates, infrastructure investments totalling Rs 14 lakh crore ($308 billion) are in the pipeline in India over the next five years.

By 2015, up to 25,714 km of roads are expected to be constructed in India at an estimated cost of Rs 2.7 lakh crore while railways are expected to benefit from Rs 1.4 lakh crore in investment over the next five years alone.

In the ports sector, investments to the tune of Rs 83,800 crore are planned while airport infrastructure companies are expected to invest Rs 24,500 crore over the next five years and the power sector is anticipated to receive as much as Rs 9.3 lakh crore for new projects. But infrastructure has been one of the worst hit sectors with policy paralysis and huge debt.

The BSE CG index, which includes top engineering companies and allied industries, and BSE Power Index have fallen 5% and 15%, respectively, over the past one year. The 30-share Sensex has returned about 10% during the considered period.

Mutual funds investing in infrastructure companies have been the biggest casualty of this aversion. Most funds have logged negative returns in the range of 2-20%.

Reliance Infrastructure Fund has fallen over 20% over the past one year. Investors have been reducing their exposure to infrastructure and allied companies on fears of declining foreign direct investment (FDI), low government spending in the second half of 2010, firm interest rates and rising raw material costs.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/idfc-mf-takes-a-contrarian-bet-with-infrastructure-fund/articleshow/7472426.cms

Power Grid, Sintex India, Sterlite Ind top picks: Kotak MF

Kotak Mutual Fund has increased its exposure in oil & gas, information technology and utilities sector. However, it reduced its investments in banking & financial services, media & entertainment and food & beverages space.

Power Grid Corporation, Sintex India and Sterlite Industries were top buys while IFCI, Orient Paper & Industries and Zee Entertainment were top sells by the fund.

The study of Kotak Mahindra Asset Management for the month of January 2011 showed that in the oil & gas space, it bought Reliance Industries, IOC and Petronet LNG. But it sold BPCL and exited Oil India.

In the information technology pack, the fund purchased HCL Technologies, Wipro and Mphasis. It also introduced Tech Mahindra. However, it sold Oracle Financial Services Software and TCS. It bought Power Grid and NTPC in the utilities space.

In the banking & financial services sector, it exited Dena Bank, United Bank of India, Indian Bank and IFCI. It also sold ICICI Bank, Power Finance Corporation and Bajaj Finance in the same space. But it bought HDFC Bank, HDFC and IndusInd Bank.

It sold Zee Entertainment Enterprises, Hathway Cable and Jagran Prakashan in the media & entertainment pack, while it purchased HT Media and Sun TV Network in the same space.

In the food & beverages space, the fund sold Balrampur Chini Mills, Shree Renuka Sugars and EID Parry. But it bought GlaxoSmithKline Consumer Healthcare.

Source: http://www.moneycontrol.com/news/mf-analysis/power-grid-sintex-india-sterlite-ind-top-picks-kotak-mf_521895.html

Equity funds do well under bear attack of January

Among the best-performing fund houses was Reliance, JM continues to be the laggard in the pack

In January, the Indian markets came under a bear attack, when the Sensex and the S&P CNX Nifty fell by 11% each.

However, equity mutual funds on the whole did better than their respective benchmarks.

Out of the 228 equity growth schemes, 118 have outperformed; 82 schemes have underperformed and 26 schemes have just about managed to equal their benchmark returns.

The top-performing three schemes for January 2011 were-JM Core 11, Reliance Natural Resources and Reliance Small Cap. JM Core 11 fetched a return of -4%, while its benchmark was down 11%. Reliance Natural Resources and Reliance Small Cap fetched returns of -5% and -8% ((benchmark return of -10% and -12% respectively).

Among the top performers of January 2011 were nine funds from Reliance Mutual Fund-Equity Advantage, Equity, Reliance Growth, Natural Resources, NRI Equity, Quant Plus, RSF, Small Cap and Reliance Vision. They suffered an average loss of -8% and have beaten their benchmarks by 3%, on an average.

If Reliance was the best fund house, JM's funds continued to destroy investors' wealth, barring one fund, the JM Core 11, which was a top performer for January, in our current analysis. This is not a surprise.

As we pointed out in our article in Moneylife (1 July 2010), JM is indeed the worst fund house by any parameter.

Among the 20 worst-performing schemes over past one month, JM has as many as ten. These include Agri & Infra (-13%), Basic (-15%), Contra (-14%), Emerging Leaders (-16%), Equity (-12%), Hi-Fi (-13%), Large Cap (-11%), Mid Cap (12%), Multi Strategy (-13%), Small & Mid-Cap (-13%).

The others in the bottom 20 were ICICI Prudential Emerging STAR (-13%), Taurus Discovery (-12%), Birla Sun Life India Reforms (-12%), SBI Magnum Multiplier Plus 93 (-12%), Birla Sun Life Mid Cap (-12%), Kotak Midcap (-13%), Principal PNB Long Term Equity (-13%), ICICI Prudential Equity Opportunities (-12%), Sahara Star Value (-13%), HSBC Midcap (-15%), Sundaram Rural India (-14%), HSBC Progressive Themes (-14%), SBI Magnum Sector Umbrella-Emerging Businesses (-14%).

Out of the various schemes in this category from the Tata stable, the only underperformer of the lot was Tata Equity Opportunities Fund (-12% underperformance with respect to its benchmark).

Source: http://www.moneylife.in/article/equity-funds-do-well-under-bear-attack-of-january/13858.html

Canara Robeco MF Launches Capital Protection Oriented Fund

Canara Robeco Mutual Fund has launched a new fund named as Canara Capital Protection Oriented Fund - Series 1 - 36 Months (Plan A), a close ended capital protection oriented fund. During the New Fund Offer (NFO) period, units will be offered at Rs. 10 per unit. The new issue is open for subscription from 11 February and closes on 24 February 2011. The scheme has been rated CARE AAAf (SO) by CARE.

The investment objective of the scheme is to seek capital protection by investing in high quality fixed income securities maturing on or before the maturity of the scheme and seeking capital appreciation by investing in equity and equity related instruments.

The scheme offers growth & dividend payout option.

Canara Capital Protection Oriented Fund - Series 1 - 36 Months (Plan A) would allocate 75% to 100% of assets in Indian Debt Instruments and Money Market Instruments with low to medium risk profile. It would further allocate upto 25% of assets in equity and equity related instruments with medium to high risk profile

The minimum application amount is Rs. 5,000 and in multiples of Rs. 1 thereafter.

The fund seeks to collect a minimum subscription amount of Rs. 1 crore under the scheme during the NFO period.

Entry and exit load charge will be nil for the scheme.

Benchmark Index for the scheme will be Crisil MIP Blended Fund Index.

The fund manager for the scheme will be Ritesh Jain and Anand Shah.

Source: http://www.indiainfoline.com/Markets/News/Canara-Robeco-MF-Launches-Capital-Protection-Oriented-Fund/3548613992

Investors flee India's inflation war

Want to see why investors worry so much about the world’s emerging markets that they are taking money out? Just take a gander at India.

In an effort to fight inflation, the Reserve Bank of India has raised interest rates seven times in the last 12 months. So far, the effort hasn’t slowed inflation -- India’s wholesale price index, the Reserve Bank’s inflation measure, was up at an 8.43% annual rate in December. But it does look like the interest-rate increases may have started to slow the economy. Industrial production in India climbed at an annual rate of just 1.6% in December. That’s a big drop from the 3.62% rate of growth in November.

And, with inflation still racing higher, Reserve Bank governor Duvvuri Subbarao has signaled the bank will keep raising rates, even though growth has slowed. The bank’s benchmark repurchase rate went up another 0.25 percentage points to 6.5% in January, a two-year high.

The effect on the Indian stock market has been exactly what you’d expect. With interest rates headed higher and growth slowing, the Mumbai stock market was down 15% year to date as of Feb. 10.

Economists have started to lower their forecasts for Indian GDP growth. For the fiscal year that ends in March 2011, the Indian economy is projected to show growth of 8.6%. Recent revisions from economists put growth for the fiscal year that will end in March 2012 at 7.7% to 8.1%. That’s not a huge drop -- but investors fear that growth will be revised still lower.

That’s a real danger, since the Reserve Bank is giving no indication that it sees victory in the battle against inflation or indeed any sign that inflation is moderating. Bank governor Subbarao recently raised his projections for inflation for the fiscal year that ends in March 2011 to 7% from his earlier estimate of 5.5%.

With those trends in place, it’s hard to make an argument for investing in India now, and that means cash flows out of the Indian market are likely to continue and prices are likely to erode further.

Investors can, of course, make exactly the same arguments for Brazil, Indonesia, Turkey, China, and other emerging stock markets.

Source: http://money.msn.com/top-stocks/post.aspx?post=9958982a-959d-417c-b623-a434ba41f07a

Peerless shelves JV plan in MF venture

The Peerless Group has shelved its plan for a foreign joint venture partner for its mutual fund venture as solo growth in the first year gives an assurance that it doesn’t need a partner for the local market.

“There is nothing the foreign partner can bring to the table right now,” Peerless Funds Management Co managing director & CEO Akshay Gupta told ET.

The company’s assets under management at Rs 4,500 crore in less than a year gives it the confidence that it could be on its own in the domestic market which is at Rs 6.9 lakh crore. Principal Mutual found more than a decade ago has assets at Rs 5,642 crore and JM Mutual Fund’s is at Rs 6,524 crore, according to data from the Association of Mutual Funds in India (Amfi) website.

Many funds from Australia, France, Japan and the US were interested in buying a stake.

“The best fit partner will be the one who will give access to an overseas distribution network, enable it to build an international presence and tap investors’ abroad,” said Peerless director and PFMC board member Jayanta Roy.

He said the option of building an overseas distribution channel would be considered in the medium term. Whenever it happens, Peerless would like to remain the principal sponsor. “We would like to consolidate our position in the market first with a full range of product suite,” said Gupta. “We still need time to test out a lot of market movements.” In last 12 months, the company has mainly targeted institutional clients to grow business.

Source: http://economictimes.indiatimes.com/articleshow/7472302.cms?prtpage=1