Net outflows from gold ETFs hit 52-month high

Indian gold exchange traded funds (ETFs) are witnessing their highest net outflows in 52 months. With some recovery in the stock markets and gold prices surging to Rs 30,000 for 10g, investors have started booking profits partially, say fund managers.

According to data from the Association of Mutual Funds in India (Amfi), gold ETFs saw net outflows of Rs 41 crore in May. Though a small number in absolute terms, it gains importance as the category last saw such outflows in January 2008.

The asset category, which has emerged as one of the most attractive investment avenues over the past three years, has been already witnessing a slowdown in inflows since the second half of FY12.

Says Dhirendra Kumar, chief executive officer of Delhi-based fund tracking firm Value Research, "Inflows into gold ETFs have been riding on momentum. Now, that momentum has decelerated."

Some fund managers say gold would be the first asset class to correct when the situation improves. Says Akshay Gupta, chief executive officer, Peerless Mutual Fund, “I do not see gold prices increasing much. They have risen one way for the last two years, which may not sustain.”

“We are cautious and have cut our asset allocation towards gold in some schemes by around 15 per cent,” he adds.

Gold prices have surged around 10 per cent so far this year. Between 2007 and today, the yellow metal has given a whopping return of over 180 per cent as it jumped from Rs 10,650 to Rs 29,860 for 10g.

Experts say that recent depreciation in the rupee helped gold surge. The increase in import duties to four per cent also pushed gold prices up in the Indian markets.

For the last several months, independent experts had been getting worried about the pace of inflows into gold ETFs, fearing the built-up of a bubble. For instance, between FY09 and FY12, net inflows in gold ETFs increased over 43 times, from Rs 84 crore to Rs 3,646 crore. All through these years, investors have been pumping money into assets such as income funds, real estate and gold.

Says Navneet Munot, chief investment officer, SBI Mutual Fund, “Gold should be used only for hedging purposes, against extreme inflation or deflation and in case of a major economic or financial market breakdown. It should form a small, not a major, part of investors' overall portfolio."

As on May 31, the mutual fund industry had 14 gold ETFs and assets under management worth Rs 10,312 crore, around two per cent of the industry's total assets.

Source: http://business-standard.com/india/news/net-outflowsgold-etfs-hit-52-month-high/477364/

Debt scores over equity but bond market far from perfect

Bonds, especially tax-saving bonds, were a hot favourite among investors in 2011-12, as volatility in the Indian markets prevented retail participants from investing in equity IPOs.

Retail investors' flight for safety has helped corporate India raise Rs 35,610.7 crore through public issuance of debt which was 33 percent higher than funds mopped up through equity offerings during the year, said an Economic Times report today.

High bank deposit rates, a volatile, range-bound equity market, and uncertainties over ELSS (equity-linked savings scheme) due to the Direct Tax Code overhang are the factors that have led to a fall in inflows into equity funds last year.

Tax-free infrastructure bonds, which offer assured returns of 8 to 9.25 percent, turned out to be a major draw, as opposed to ELSS schemes.

Also mutual funds saw high net worth individuals (HNIs) pulling their money out of the equity schemes in 2011-12 due to the bearishness that prevailed.

Clearly, when the market goes down, high net worth investors (HNIs) shift money to safer havens like tax-free bonds and term deposits. These instruments bear a coupon rate exceeding 9-9.5 percent on an annualised basis, making them more attractive than equity funds.

With foreign investors shying away from investing in India, the finance ministry plans to create a $1 billion sub-limit for QFIs in corporate bonds and mutual fund schemes. As of now, foreign investors are allowed to invest $20 billion in the country's corporate bond market. With the latest ministry move, that ceiling will increase to $21 billion.

But tapping only institutional investors rather than retail investors is not going to reinforce investor confidence in the Indian markets as in the Indian investor understands equities better than markets.

According to Nilesh Shah, president, (corporate banking), Axis Bank, retail particpation in corporate bonds can be increased by making them an acceptable security in collateralized borrowing and lending obligation with reasonable margin, incentivising insurance companies to sell them, allowing PF trusts to invest in higher credit corporate bonds and allowing them to sell the shorter maturity corporate bonds in the market to create liquidity at the short end and appetite for investment at the long end.

It is clear that the government is banking on public debt to woo investors. But there is no denying that the corporate bond market in India is relatively underdeveloped and illiquid, which makes pricing of new credit instruments difficult.

Moreover, the corporate bond market is dominated by high-rated papers, which are few in number. According to ratings agency Crisil, not even 5 percent of the companies it rated in India carried the premier 'AAA' rating, which leaves limited options for foreign investors looking for papers with investment grades in the country.

Source: http://www.moneycontrol.com/news/mf-news/debt-scores-over-equitybond-market-farperfect_717954.html

Axis AMC floats fund focused on large caps

Axis Asset Management Company (AMC), the mutual fund arm of Axis Bank, has launched a new fund offer, Axis Focused 25 Fund, an open-ended equity fund. The fund will invest in large-cap companies selected from the top 200 companies.

“The fund will have a concentrated focus on select 25 best ideas at any point of time, with a majority of companies being drawn from the top 200 Indian companies (based on market capitalisation),” Axis AMC said in a release.

Portfolio will be biased to larger companies with up to 90 per cent in top 200 companies by market cap.

The fund is expected to outperform market in adverse situations based on the fact that quality companies tend to maintain their growth trajectory despite downturns.

Data from 2003 to 2011 performance analysis of the companies show the top 10 companies within the BSE 100 Index delivered an average return on equity of 37 per cent, compared with 26 per cent for the BSE 100 index, the fund house quoted a Bloomberg analysis.

The share prices too, for these companies have witnessed significant outperformance.

The share price of these top 10 companies appreciated by as much as 30 per cent, compared with a negative-15.8 per cent for the bottom 10 BSE 100 companies, Axis AMC added.

“Axis AMC will rely strongly on its internal research capabilities to identify these companies,” the fund house said adding, “Axis Asset Management will ensure that the portfolio though restricted to a maximum of 25 companies, is well-diversified across sectors and is not illiquid.”

Rajiv Anand, MD and CEO, Axis AMC said, “The key feature of the fund is the fact that we will attempt to nurture these companies over their business cycle without being unduly concerned by short-term market volatility. It is thus ideal for patient and long-term equity investors with an investment time horizon of more than five years.”

Chandresh Nigam, head investments, Axis AMC said, “We believe sustainable business performance drives stock returns. Picking business cycles therefore is important.”

The new fund offer closes for subscription on June 25.

Investors can either invest in the new fund offer through monthly instalments of Rs 1,000, or a one-time investment of Rs 5,000.

Source: http://wrd.mydigitalfc.com/mutual-funds/axis-amc-floats-fund-focused-large-caps-916