'Risk aversion is decreasing'

Punita Kumar-Sinha, senior managing director at Blackstone Asia Advisors, is a person of many parts. An IIT graduate and a holder of a doctorate in finance from Wharton School, University of Pennsylvania, Punita has managed funds investing in Indian equities.

She has worked earlier with Oppenheimer Asset Management as a senior fund manager and her views on stock markets are sought by investors from all quarters. She told in an exclusive interview that risk aversion is decreasing and investors are redeploying some of their money into equities.

There is a thought expressed in the market that this is just a long bear market rally. Is that true?
Definitely. It is not a bull market rally because bull markets have some very strong fundamentals backing them and this one doesn’t have the strong fundamentals. But this is a rally obviously that has happened after a very strong correction in the markets.
So you could call it a bear market rally, but in India, in particular, if the Budget is good and the economy continues to grow, the fundamentals might start supporting this rally and at that point you wouldn’t really call it a bear market rally anymore.

What to your mind is driving liquidity? Do you think it is the fact that central banks are shifting money? Is that the real reason that liquidity is coming back?
Risk aversion was very high last year. After the crisis, people pulled money out of equities and went into treasuries and put it in money-market funds and these funds saw unprecedented amounts of inflows and even the mutual funds are sitting on cash. So a large part of it is just redeploying some of the cash that was in the equity funds as well as people taking some money out of money-market funds.
As risk aversion has come off, some people have pulled out a little bit of money out of treasuries and gone into commodities as well. So I think it is not that necessarily huge amount of new allocations have happened or new mandates have really caused money to be allocated to equities. I think it’s mostly money that was already there and that was taken out has come back in.

In terms of an allocation, have you changed anything regarding the weightage of the overall portfolio towards India? Have you reduced it or increased it?
We have increased our allocations to India. We were underweight versus China and now we have shifted some money back into India and at the moment, I think India and China are both probably slightly overweighed.

Let's understand your expectations from the Budget. What do you think is the importance of the Budget this time for the Indian market?
I think this time around the Budget is actually more important than its ever been because right now, the market has rallied very sharply in India based on the outcome of the general elections and a strong or stable government. So now, everyone is waiting to see what this government is able to deliver given that it is no longer much of a coalition government, but you know, it’s a stabler government than its ever been.
That’s why the Budget is important because it’s going to outline what this government is able to do and it is very important that the government takes some very strong measures to reassure both investors, domestic as well as foreign, that India can actually realise the promise that it holds.

Source: http://economictimes.indiatimes.com/articleshow/4735903.cms?flstry=1

Indian MFs dominate world top-100 stock funds in Q2

Fifty one India-focused funds were among the world's top 100 performing stock funds in the quarter to June as domestic shares leapt by nearly half, recording their biggest surge in 17 years, data from fund tracker Lipper showed.
They are led by those investing in shares of infrastructure firms, a favoured theme in Asia's third largest economy after the Congress-lead coalition won a strong mandate in April-May polls raising hopes for higher spending on roads, ports and bridges.
The Lipper's list of 29,942 world stock funds with a track record of at least a quarter showed India funds recording an average 50.45 per cent jump in their net values in three months to June as compared to just over 18 per cent gain for the fund group.
India funds were led by Naya Bharat Property Company fund, domiciled in the Isle of Man, which gave a return of nearly 135 per cent, followed by JM Core 11 Fund, a concentrated 11-stock portfolio, which rose more than 100 per cent.
"Stocks in India were spurred on by a steady diet of positive macro data and the strong victory of the incumbent Congress party in national elections mid-May" said Rajeev Baddepudi, a senior research analyst for ASEAN at Lipper.
Indian shares surged 49.3 per cent during April-June, the fastest in Asia after Vietnam, on signs of economic recovery and hopes for market-friendly policies by the re-elected Congress-lead government.
The gain was the biggest rise for the benchmark in any quarter since it soared 124.5 per cent in January-March in 1992 when Manmohan Singh, the then finance minister, kicked off reforms to open up the economy.
INFRASTRUCTURE
Hopes are high that Manmohan Singh, currently in his second-term as prime minister, would further open up the economy to foreign investment and remove policy bottlenecks.
This has led to sharper surge in shares of infrastructure firms, with capital goods stocks rising nearly twice as fast as the benchmark index in June quarter, lifting portfolio gains for funds primarily investing in the sector.
For instance, all top five Indian funds part of the Lipper's top-100 list are infrastructure or property funds.
Fund houses JM Financial Asset Management and Sundaram BNP Paribas Mutual Fund have four funds each in the list, while Benchmark, India's passive fund manager, DBS Cholamandalam, SBI Funds Management and Taurus Mutual Fund had three schemes each.

Source: http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/MF-News/Indian-MFs-dominate-world-top-100-stock-funds-in-Q2/articleshow/4733260.cms

Dena Bank ties-up with Fidelity Mutual Fund

Dena Bank, one of India's established public sector banks, has announced that it has inked a mutual agreement with Fidelity Mutual Fund, for the distribution of its products.
With this tie up, Fidelity Mutual Fund’s entire range of mutual funds will now be available at the branches of Dena Bank.
Dena Bank authorities stated in a communiqué that this strategic distribution tie-up with Fidelity Mutual Fund will offer our clients a variety of savings and investment solutions.
As per media reports, Dena Bank has a robust footprint across India.

Source: http://www.stockwatch.in/dena-bank-tiesup-fidelity-mutual-fund-22414

Mutual funds' assets rise 5% in June

The mutual fund industry’s assets continued to grow in June. The average assets under management grew (AAUM) from Rs 639,129.81 crore to Rs 670993.13 crore, a rise of 5 per cent, or Rs 31,863.32 crore.

Market experts attributed this to a sharp rise in inflows in liquid and debt schemes. Assets of equity schemes increased mostly due to rise in stock prices. High liquidity in the system also helped mutual funds as they were able to garner excess funds.
Lakshmi Iyer, head (fixed income), Kotak Mutual Fund, said, “Inflows were observed in ultra short-term and short-term funds as well as arbitrage funds.”
In terms of percentage growth, Edelweiss Mutual Fund registered the highest growth of Rs 117.11 per cent to Rs 45 crore compared with the last month’s figure of Rs 21 crore. Morgan Stanley Mutual Fund and DBS Chola Mutual Fund’s assets grew over 15 per cent (see table)
Bharti AXA witnesses the highest fall of 10.6 per cent. Taurus and Canara Robeco saw dips of over 5 per cent.
The largest fund house, Reliance Mutual Fund, registered 5.5 per cent growth. The fund house, which crossed the Rs 1 lakh figure last month, saw a rise of Rs 5602.01 crore.
Sundeep Sikka, chief executive officer, Reliance Mutual Fund, said, “We have seen inflows in all the categories this time. While there was participation from all classes of investors, institutional inflows were significant.”
ICICI Mutual Fund’s assets grew 7 per cent to Rs 70,169.4 crore while HDFC Mutual Fund’s assets grew 3.7 per cent to Rs 78,197.9 crore.
Saurabh Nanavati, chief executive officer, Religare Mutual Fund, said, “There were inflows in equity schemes as well as short-term funds. Corporate money, which had gone out of the industry in September and October, is beginning to come back because of the good performance of the equity markets.”

Source: http://www.business-standard.com/india/news/mutual-funds%5C-assets-rise-5-in-june/362758/

In the best quarter in 68, active funds trail index

The past quarter has been the best in 17 years --- or 68 quarters --- for the Sensex during which the benchmark rallied nearly 50%.
Naturally, there was a case for investment in passively managed funds --- that which just buy the benchmark index.
But actively managed funds, which claim that through systems, processes and fund manager's abilities pick and choose stocks that outperform, have failed miserably. The 78 such schemes, which charge a fee for their outperformance, have not matched the 49.3% rise in the Sensex during the quarter ended June 30.
Of these, 26 schemes returned less than 40% and three below 30%. The others have returned between 40% and 49.1%
At the same time, five of seven index funds that track the Sensex have returned in excess of 50%.
The top-performing one, UTI Master Index (G) returned 50.96%, the Tata Index Sensex (G) 50.83%, the HDFC Index Sensex Plus(G) 50.82%, and funds from Franklin India and LIC Mutual 50.71% and 50.55%, respectively.
Remember, these funds charge less fees compared with active funds.
Clearly, fear was the key to underperformance as fundmen, burnt by the October meltdown and falling markets in the first quarter, took a cautious approach and stayed out of stocks.
At the end of March, over 15% of the equity diversified funds' assets were held in cash. Even after the substantial rally during April, funds continued to hold significant cash and shied away from investing in high-beta stocks such as infrastructure, real estate and midcaps.
"Both investors and the mutual fund industry missed out on the rally. Many were sitting on cash and deployed it only towards the latter half of the rally," said Vivek Pandey, equity fund manager at SBI Mutual Fund.
Funds which had stayed invested in so-called high growth sectors such as infrastructure and high-momentum midcap space were winners during the period.
What's interesting is four of top five best performing schemes come from one fund house. JM Financial's Core -11-1, Basic doubled investor money.
JM'sEmerging Leaders,and Small and Midcap Funds have given returns in excess of 85%. Other big gainers include mid cap funds of Principal, Magnum, Sahara and ING. Fund managers argue that looking at returns over such a short term is not advisable.
"Investors should not try and time the market. They should invest in a disciplined fashion with a horizon which is longer than 3-6 months. They should at least be looking at a period of 2-3 years, and the longer the better," said Harsha Upadhyaya, fund manager at UTI Mutual Fund.
Much of the rise in the markets has been attributed to foreign fund flows.
Foreign institutional investors (FIIs) have put in Rs 36,560 crore over the period of the rally. The outlook for the Indian markets is still strong over the long-term added experts although over the last two weeks they have been net sellers by Rs 2,889 crore.During the period, the Sensex has risen by 6,500 points.
"FIIs have come into India in 2009, except for the last two weeks.They were selling last year because of redemption pressure, but at some level FIIs would turn buyers," said Harsha Upadhyaya.
A better political scenario post the elections also bode well for the Indian markets says Pandey.
"Previously FIIs have pointed to the stable political authority in China as a reason for their preference of the country to India. Now our country has a stable and strong government which should be a positive for flows to the country," he said.

Source: http://www.dnaindia.com/money/report_in-the-best-quarter-in-68-active-funds-trail-index_1270264

MF distributors to get fee from 1 pc of redemption proceeds

After scrapping the entry load on mutual funds, the Securities and Exchange Board of India (SEBI) has said a maximum of one per cent of the redemption proceeds, or exit load, should be maintained in a separate account which can be used by the asset management companies (AMCs) to pay commissions to the distributor and take care of other marketing and selling expenses.

“Any balance should be credited to the scheme immediately,” said a Sebi circular. Sebi had abolished initial issue expenses and mutual fund schemes were allowed to recover expenses connected with sales and distribution through entry load only. Further, investors making direct applications to the mutual funds were exempted from the entry load.
In terms of existing arrangement, though the investor pays for the services rendered by the mutual fund distributors, distributors are remunerated by AMCs from loads deducted from the invested amounts or the redemption proceeds. SEBI (Mutual Funds) Regulations, 1996 also permit AMCs to charge the scheme (under the annual recurring expense) for marketing and selling expenses including distributor’s commission.

Source: http://www.indianexpress.com/news/MF-distributors-to-get-fee-from-1-pc-of-redemption-proceeds/483991

Cap put on MF sales expenses pie in exit load

Earlier, the entire exit load charged could be used for sales and marketing
expenses by AMCs

The Securities and Exchange Board of India has put a cap of one per cent on the maximum amount an asset management company can retain from the exit load or the contingent deferred sales charges (CDSC) on mutual funds for marketing and selling expenses.
“Of the exit load or CDSC charged to the investor, a maximum of one per cent of the redemption proceeds shall be maintained in a separate account which can be used by the AMC to pay commissions to the distributors and to take care of other marketing and selling expenses”, SEBI said in a circular. The balance should be credited to the scheme immediately.
This would be applicable to redemptions from mutual fund schemes including switch-out from other schemes from August 1. Earlier, the entire exit load charged could be used for sales and marketing expenses by the AMCs but now it would be restricted, said the CEO of a mutual fund house.
The market regulator, which had said in June it would scrap entry loads for all mutual fund schemes, said this would be applicable from August 1.
This would also apply to additional purchases and switch over from one scheme to other schemes, new mutual fund schemes launched on and after August 1 and systematic investment plans (SIPs) registered on or after August 1.
If the AMC and the distributors want to make money there is a possibility that they could encourage an investor to exit one scheme and invest in another and encourage “churning” in order to earn from the redemption proceeds, said an industry official.
MF application forms will have to carry suitable disclosures that the upfront commission to distributors has to be paid to them directly by the investor.
SEBI clarified that distributors should disclose all the commissions payable to them for the different competing schemes of various mutual funds, one or more of which they may be selling to the investor.

Source: http://www.thehindubusinessline.com/2009/07/02/stories/2009070252450100.htm

MFs park funds in CDs

Mutual funds purchased short-term money market instruments today on view that rates could fall next week in the wake of persistent ample liquidity in the banking system, dealers said.

“We expect the rates on one-year certificates of deposit (CDs) to fall to 5 per cent by next week. The liquidity is abundant in the system, which is one reason why the rates have fallen,” said a fund manager with a mutual fund.
Short-term rates have already slipped by 60-80 basis points in the last one month due to ample liquidity.
“Mutual funds also purchased papers today as they expect cash to come back into their schemes by next week,” said a dealer with a mutual fund. Banks refinanced the redemption of their existing CDs by borrowing at lower rates today, dealers said.
United Bank of India placed six-month CDs at 4.20 per cent, 20bps down from Monday. Three-month CDs were quoted at 3.30-3.50 per cent, unchanged from Tuesday.

Source: http://www.business-standard.com/india/storypage.php?autono=362673