India no longer attractively valued, corrections expected: Fortis MF

``With markets trading at approximately 15 times PE multiples on FY11 estimates, we are wary of the fact that India is no longer attractively valued (within the emerging market basket) and any reversal of the carry trade could trigger corrections``, says Fortis Mutual Fund.

Highlighting the equity market scenario the AMC pointed out that the month of November witnessed the 5th consecutive month when DXY, a measure of value of USD as a basket of 6 major world currencies, closed lower.

The USD has been weak ever since the Federal Reserve has maintained its intent to keep liquidity high till the economy is back on track and unemployment rate starts ticking down.

Fortis which oversees average AUM of nearly Rs 91 billion in November believes that this cheap liquidity has been feeding the carry trade in riskier assets like emerging market equities and commodities (both hard and soft) and Indian markets were no different - November saw a strong up move of 13% from the month lows.

Further foreign investors have been aggressive iwith cumulative USD 16 billion of inflows and good corporate results along with positive sound bytes from the political and bureaucracy with regards to tax reforms have sustained the euphoria.

Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20091218130503707&dir=2009/12/18&secID=livenews

Get the right advisor, see your investments grow

SEBI’s directive, removing entry loads on mutual funds from August 2009 has now put the onus on investors to decide how much their distributors’ services are worth. On their part, many distributors have prepared a tariff of rates for their services.

Since both sides are on the process of price discovery, various models are being tested in the market on which fees can be calculated. Some distributors have decided to offer free services for certain asset sizes while there are a few who charge a fee for every transaction, others with a deeper relationship charge annual advisory fees.

For the investor, these are confusing times as they try to figure out how much fees to pay and what kind of service to expect.

The beauty parade
The first step is to identify the right advisor. The best way to seek a reference from someone who is happy with his advisor’s services. You also need to figure out if he is competent enough to service the areas that you are looking at.

For instance, if you are a sophisticated investor and would like access to structured products, you need to know if your advisor can offer you the same or not. “It is very important to get the right advisor first, as the quality of the advisor can make a huge difference to your portfolio,” says Vishal Kapoor, head of wealth management at Standard Chartered Bank.

He further adds that the maximum fee difference between advisors would be a maximum of 200 basis points, which is negligible when compared to the impact a portfolio can have, based on the quality of advice.

A la carte
Broadly, there are three services which a financial planner provides to a client. The first part is the most crucial since it involves understanding the customer, diagnosing his needs and making a financial plan for him.

The second service provided is that of execution of the plan, wherein the advisor helps you in buying, selling redeeming, and such other operational aspects. The third service provided is the periodic review and advice given. Before you get your prescriptions from your advisor, find out what is the kind of service that he is offering.

Fees
When it comes to paying fees, there are various models available in the market today. There are financial planners who could make a detailed financial plan for you at a cost of Rs 2,500, while if it increases sophistication, the fees could extend up to Rs 15,000.

Once your plan is done, you could execute it through the same person, or use another organisation. Just like every doctor or lawyer is different and charges as per the value he gives you, so does an advisor. Then there are banks that charge fees based on the number of transactions the client does, or as a percentage of the average assets that the client maintains with them.

Take the case of ICICIdirect. Here if you have assets worth Rs 8 lakh with them, the services offered are free. However, if the assets with them is less than Rs 8 lakh, they charge you a transaction fee of Rs 100 for every transaction you do with them. Personalfn, which provides advisory services, could charge you anywhere upward of Rs 5,000 per annum, depending on the size of assets you maintain with them.

Source: http://economictimes.indiatimes.com/articleshow/5345649.cms?flstry=1

MFs told not to club new schemes with ongoing open-ended plans

The Securities and Exchange Board of India (Sebi) on Tuesday said fund houses will have to launch additional plans as separate schemes for any ongoing open-ended scheme, other than dividend and growth plans, which differ from the main scheme in terms of portfolio or maturity.

“Some of the mutual funds have launched additional plans of different maturity periods as a part of existing schemes. The mutual fund advisory committee recommended that the additional plans being launched under the existing schemes, which have substantially different characteristics from the main scheme, shall not be launched as part of an ongoing open-ended scheme, and should be launched as separate schemes,” said the Sebi circular.

The new guidelines will be applicable to all the additional plans that have been launched in the past and the plans/schemes to be launched in the future as a part of existing schemes, unless the fund house obtains a confirmation from the regulator that the additional plans do not have substantially different characteristics from the existing schemes.

Besides, mutual funds will be liable to pay interest to investors at 15% per annum in the event of failure to despatch the redemption or repurchase proceeds.

“You are advised to ensure that the interest for the period of delay in despatch of repurchase/redemption warrants is added to the proceeds when such payments are made to the investors,” said the regulator.

In a bid to improve the standard of disclosures in advertisements through hoardings/ posters, Sebi said these statements should be displayed in black letters of at least 8 inches height or covering 10% of the display area on white background. Likewise, in ads through audio-visual media the statement will have to be displayed for at least 2 seconds. The regulator has also been receiving proposals from mutual funds for merger of schemes.

“Such consolidations shall be viewed as changes in fundamental attributes of the related schemes and the mutual funds shall comply with the requirements laid in the Sebi regulations,” said Sebi.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/MFs-told-not-to-club-new-schemes-with-ongoing-open-ended-plans/articleshow/5341797.cms

Quantum MF sees Sensex at close to 22,000 by June 2010

There have variations in Assets under management (AUM) collections by mutual funds in the past three months. There has been some impact on collections since direct sales agents were not given compensation. The Sebi has recently also allowed trading of mutual funds through the exchanges.

In an interview with CNBC-TV18, IV Subramanium, Director, Quantum Mutual Fund spoke about his reading of the markets, fund flows and his outlook on the market and sectors.

Q: What has been the experience in terms of AUM collections by mutual funds in the past three months? They have had to face some kind of vicissitude, first the DSAs were not given compensation and that brought its impact. Now trading through the NSE has been allowed. Basically how have been the fund collection trends?
A: Immediately after August when the new regulations were announced, there was a lot of hue and cry and there was some uncertainty on how the mutual funds would be distributed. You did find flows into the mutual funds declining because the touchpoints were not as effective as they were a year back.
But having said that for the last few months we have also seen things stabilizing and the flows have certainly improved. Going forward with new channels like the NSE and the BSE terminals, I think the touchpoints would definitely be far higher than we had in the past. That should really auger well for the mutual fund flows.

Q: We have seen mutual funds sell pretty aggressively above that 5,000 mark. Insurance companies have been buying, FII figures have been positive. If we see the last two weeks, the week ended December 4, MF’s were net sellers of Rs 430 crore and the week ended December 11 about Rs 1,100 crore. Is it pretty much skittish retail bringing about some redemption pressure or is there just lack of value above these 5,000 levels because this has just been a zone that we have been in for the past three months?
A: That depends on the strategy which each mutual fund follows. By and large if you look at people who follow value philosophy and as long as they find value in the market they will remain invested.
So having said that there are certain segments or certain pockets within the market like consumer discretionary and some of the media stocks or some of the IT stocks, they certainly look a bit expensive compared to their historical valuations. There could be some mutual funds out there wanting to cash out on those and wait for the broader markets to correct.
But it is very difficult to say as what exactly is driving this because each mutual fund follows its own strategies and there could also have been some redemption pressure not only from retail but I think it could also have been from some of the larger institutional players in the market. And that could have also resulted in cash levels going up in mutual funds.
Coming to Quantum, we have raised some cash and that is purely a function of valuations. We are still comfortable with the stocks which we hold in the portfolio but those which we sold were purely from a valuation point of view. And if the valuations look attractive going forward we will definitely redeploy the money back into the markets.

Q: We have a couple of interesting turning points on the horizon there will be the inevitable profit taking towards December 31 and then we get into an earnings season and the pre budget euphoria atleast normally. What kind of sectors would you put your money on, would it be a midcap index that you will back, or would you go with the heavies and would you basically be bullish?
A: I am extremely bullish even now. Somewhere in the middle of next year we can at least justify in terms of numbers that the market could reach levels of 21,000-22,000. So we don’t have a problem with the direction of the market.
But having said that, it depends on where you invest your money. So at this point I am less bullish on consumer discretionary particularly some of the automobile stocks. They have increased quite significantly over the past year and a half and so valuations look to be a bit expensive. I am still not comfortable with the real estate space and cement space.
Barring these three spaces I think most of the other areas we still find a lot of stocks which are attractively priced even at this point. Even if you look at their long term earnings potential they definitely look attractive to me.
So I am still bullish on the power stocks, we have investments in engineering and banks. We are extremely positive on the IT sector as well. So these are areas where we have invested. But we don’t take a call on the macro where the budget would be announced or when or what kind of a budget. We really look at company specific trigger points. As long as we find value in any company we go ahead and invest.

Source: http://www.moneycontrol.com/news/mf-interview/quantum-mf-sees-sensex-at-close-to-22000-by-june-2010_430724.html

The art of saying no to an investment

As I saw the Osian’s Art Fund story unfold last week, I was reminded of the numerous times reporters had made art fund story pitches to me in the last four years. This was the time of the giant asset bubbles across the globe—real estate, stocks, oil and, of course, art. Everybody was gorging on the cheap cash still in the system.

One of my reporters, who dared ask hard questions at the time of the Osian’s fund float, was told how art was only going to boom by the promoter of the fund, who also advised her to go and learn some art before she covered this area. Three years later, it does seem like she doesn’t need to learn more about art and that he needs to learn more about investing. Needless to say I spiked all rah-rah stories on art and only ran the do-not-invest stories.

Retail investors in India have asset allocations skewed heavily in real estate (illiquid) and bank deposits (no real return) and buying an art fund is inappropriate in terms of what it will add to their portfolio. Remember, speciality investments are return kickers (that carry very high risk) and should form less than 5% of an already diversified portfolio. My hesitation to recommend art funds comes out of three reasons.

One, they are unregulated. While having a regulator does not prevent fraud (as the Satyam case shows), it does lay down rules and redressal procedures. The system may be shaky, ponderous and leaky, but it tends to work for those who keep at it.

The second reason is the valuation of art. Experts may talk about well-defined global processes that are able to construct an art index and value each piece according to some norms, but I don’t understand how fakes would fit into this valuation formula. The memory of fake stock certificates has very quickly faded away as we’ve got used to a superior system of demat shares.

Now, all stock certificates are converted into information that sits on computers and the problem of duplicate and fake shares is over. But stock certificates don’t need to get hung in galleries or living rooms, and paintings, the underlying asset of the art fund, do. So, art in demat is not an option and that leads to worries about fakes and the wrinkle about valuation.

The third reason is liquidity. What Osian’s is facing is a liquidity problem rather than an intent to cheat. It has been unable to sell all the paintings in time, at the value it wanted, to return the money of the investors. The year 2008 showed everybody the true face of the liquidity risk. And the fact that this risk is not just about the lack of money in the system, but also about getting a fair value of the asset you are trying to sell at the time when you are trying to sell. Mutual funds in India were faced with this last year, when there was a sudden run on liquid funds as everybody withdrew cash.

As funds ran to sell their bonds, they realized that while the price at maturity was intact, there was nobody with the money in the system willing to buy. The basic law of economics is that if there are no buyers, prices must go down. And once the word gets out about a distress sale, buyers have bargaining power to hit you hard. And hence the liquidity risk.

For the investors in Osian’s, the good part is that it is not a plantation company that has sunk into oblivion. Perhaps having a high-profile fund promoter worked to the advantage of the investors of this fund. Investors are still being promised a return (and not just the principal) on their investment. Regulators in the US watch for instances where investors scream murder, very carefully. They have come to understand that investors do not complain when markets are up, but they yell loud and clear when they lose money.

While the protests due to market volatility are ignored, those that deal with badly constructed products, sharp sales practices and other regulatory failures are worked on.

The issues for Indian regulators are two. One, the capital market regulator must examine why art funds look like, are structured like and to all investor eyes are a mutual fund, complete with a trustee company and a sponsor.

The Securities and Exchange Board of India must also examine how registered intermediaries could sell unregulated products such as art funds. The Reserve Bank of India (RBI) must examine the role of banks in selling these unregulated products to investors. Pankaj Butalia, an investor who has got part of his principal back, has alleged that his bank sold him the fund without adequate caveats. Surely, RBI will have to ask hard questions of that bank, and of the others who are selling financial products without due diligence.

Till the regulators get this piece right, the best way to invest in art is to hang a painting in your living room, enjoy it and then pass it on to your kids.

Source: http://www.livemint.com/2009/12/15220146/The-art-of-saying-no-to-an-inv.html

Indian bond yields end lower as new supplies slow

Indian federal bond yields ended lower on Monday as a slowing supply pipeline supported demand, although higher-than-expected inflation data heightened expectations of an interest rate rise in coming months.
The yield on the 10-year benchmark bond IN069019G=CC ended at 7.56 percent, below Friday's closing of 7.58 percent, recovering from a rise to 7.59 percent after the inflation data.
Volumes were a heavy 103.35 billion rupees ($2.2 billion) on the central bank's trading platform.
"Today the rally has been actually short-circuited by the inflation data," said K. Ramkumar, head of fixed income at Sundaram BNP Paribas Mutual Fund, adding he expected the rally based on reducing supplies to continue for some more time.
Ramkumar said the market was already aware that rates would rise, the only question was when, and so the market would be driven more by demand and supply on a day-to-day basis.
India's wholesale prices rose faster than expected in November, and analysts said inflation worries could see the central bank withdraw more liquidity support in coming weeks and increase rates early next year. [ID:nSGE5BD0CC]
The government will sell 60 billion rupees of treasury bills on Wednesday and 90 billion rupees of bonds on Friday, including 20 billion rupees of 11-year floating rate bonds. [ID:nMBI006020]
"The floating rate instruments suits a lot of investors ideally, either for their ALM (Asset Liability Management) (or) reflecting their interest rate views," Ramkumar said.
After Friday's auction there will be a two-week gap before the next auction.
Excluding Friday's auction, the government is due to sell only 350 billion of bonds in the remaining fiscal year after selling 3.83 trillion rupees of bonds since the start of April.
In interest rate futures on the National Stock Exchange (NSE), the December contract N10Z9 was at 7.9581 percent, above its previous close of 7.8653.
The yield implied in the March contract N10H0 was 8.2239 percent, marginally down from 8.2570 percent.
The benchmark five-year interest rate swap ended at 6.81/84 percent, from previous close of 6.78/81 percent.

Source: http://in.reuters.com/article/companyNews/idINSGE5BD0NY20091214?sp=true

Don’t let numbers misguide you

As the Indian cricket team reached the pinnacle of the ICC Test Rankings, a certain statistic in a newspaper caught my eye. It said that Dhoni has a 100% win record as Indian Test captain. That sounds highly impressive, doesn’t it? But probe a bit deeper and you come to know that Dhoni has captained the team in only 10 Test matches as yet. While nothing can be taken away from his leadership qualities, it can be said that numbers can often be misleading. When we look at numbers from just the top, we often miss out on the real picture.
The same happens with retail equity fund investors. Newspapers of late have been running headlines about the inflating size of the fund industry’s assets under management. From Rs 6 lakh crore in May, to Rs 7 lakh crore in August to Rs 8 lakh crore in November, these numbers seem so impressive that any lay investor can be forgiven for thinking that people are putting in huge amounts into funds once again. However, that is not really the case. Let me explain why.
Basically, the Indian mutual fund industry is made up of two very distinct industries within itself. First is the wholesale debt fund industry (where the money comes largely from corporate companies) and then there is the retail equity fund industry (where the money comes largely from individual investors). Of course, there is an overlap of the two parts, but in context of the total AUM, this overlap is of a minor quantity.
Over the past few years, the wholesale debt fund industry has come along quite well. In 2004, the size of this industry was about Rs 1.15 crore. It has reached Rs 5.9 lakh crore now, a growth rate of almost 40% a year.
During this same time, the retail equity fund industry grew at a rate of about 50 % a year, from Rs 25,000 crore in 2004 to Rs 1.9 lakh crore now. This statistic, by itself, is fairly impressive. But when we probe further, we find that picture to be not so rosy because during this time the markets grew by 3.5 times, taking the Sensex at the floor level. Compare this to the equity fund industry’s growth of 2.4 times, and it becomes clear that the holla created over reaching Rs 8 lakh crore doesn’t paint the right picture.
The reason behind this is the investor behavior towards market gyrations. When the markets rise, everyone starts investing money, when the markets fall, everyone sort of hangs around, waiting and watching, and when a slight recovery is seen, everyone redeems their investments to avoid further losses. I have written about the futility of this investment approach a number of times. And the fact that the equity fund industry has grown so sluggishly can also be attributed to this approach.
For example, in February 2009, equity fund assets were at Rs 1.09 lakh crore. They rose to Rs 1.44 lakh crore in May 2009. Had the equity fund industry’s growth been in line with that of the markets, then the assets should have been at Rs 1.8 lakh. The missing Rs 36,000 crore is the amount that was redeemed by investors in a hurry. No wonder the funds underperformed the markets.
We are partly to be blamed for the equity fund industry’s sluggish growth, but we are completely at blame for the underperformance of our own portfolios. Had you stayed invested and not redeemed when the markets rose, then today your investments would have certainly been worth more than what you got. And therein lies the lesson that all investors need to learn.

Source: http://www.financialexpress.com/news/dont-let-numbers-misguide-you/553625/0

Equity portfolios in November — What's in, what's out

The month of November delivered a divided verdict on the direction of equities. While it may never be easy to call the market direction with perfection, what retail investors can do is take cues from the way the various mutual fund managers, known for their investment acumen, fare.
Last month, though a few retail investors opted out of market, what with high redemptions reported in equity schemes over the month, fund-houses did undertake their usual realignment in weights to sectors and stocks.
Though only an indicator, tracking what mutual fund houses buy and sell every month can go a long way in helping retail investors build their equity portfolio. Here's a look at what the many fund managers bought and sold last month.

Sector Choices
Driven by the need to fortify their portfolios as also diversify sector exposures, fund houses appear to have added exposure to sectors such as hotels, oil and gas and minerals. They, however, pared exposure to telecom equipment, auto ancillary and paper products.
Another interesting sidelight was that funds reduced their exposure to the consumer non-durables sector. Even as the telecom sector was being de-rated by analysts — with players aggressively slashing rates — fund-houses stepped in as buyers. Most funds seem to have used the price correction in telecom stocks to accumulate them.
Yet another trend was the increased debt allocation in fund portfolios compared with the levels seen the previous month. The move to debt may have been driven by the funds' dividend declarations and higher redemption obligations.

What's in?
Hindalco appeared to have attracted the most attention last month, with fund holdings in the stock increasing by more than 63 per cent over October to 8.24 crore. Among the other stocks that saw accumulation were Indian Hotels, Spice Jet, ITC, Mercator Lines and Pantaloon Retail.
Even the newly-listed stock NHPC managed to attract buying interest. Metal stocks such as Adhunik Metaliks and SAIL also drew significant interest; while the former stock saw an addition of 88 lakh shares; holdings in the latter went up by 22 per cent.

What's out?
The quarterly earnings numbers weren't reason enough for MFs to hold on to the auto ancillary stock Apollo Tyres, which topped the list of stocks sold. Over 91 lakh shares of the company moved out of the funds' portfolio.
However, in terms of market value, it was Jaiprakash Associates, Hindustan Lever, Unitech and Suzlon Energy (in that order) that topped the ‘sell' list. Another interesting trend — while funds added stocks from oil refineries, they diluted their holdings in oil market companies such as HPCL.

What mid-cap funds bought
Mid-cap funds too had their share of action. Software stock Hexaware rose to be the most sought after stock in the mid-cap space, followed by Everonn Education, Dena Bank, Brigade Enterprises, and Vijaya Bank. A few large-cap names also figured in the ‘buy' radar, with Adani Power, NTPC and JSW Steel making their way into mid-cap funds' portfolios.

What they sold
Fund houses focussed on mid-caps, however, diluted more than 67 per cent of their holdings in Indiabulls Financial Services.
They also selectively pruned their holdings in the cement space, with stocks such as India Cements, Kesoram Industries and Mangalam Cement losing preference.
Among other notable stocks that moved out were Tata Steel, Jet Airways, and Everest Kanto Cylinder. While funds preferred mid-cap education service provider Everonn Education, they seem to have diluted their exposure in sector leader Educomp Solutions.

Source: http://www.thehindubusinessline.com/iw/2009/12/13/stories/2009121351151000.htm