Retail investors enter SIPs at high levels, stop at lows

Retail investors in mutual funds are known to chase returns, making large investments at market highs and staying away during its lows.

Systematic Investment Plans or SIPs were devised mainly to prevent this. However, data on SIP investments for 17 leading fund houses now show that investors follow the same practice for their SIP investments as well. They decide to start paying the monthly instalments on SIPs only after markets have rallied and stop them if the stock market is falling.

SIPs jump as Sensex rises

The number of new SIP accounts these funds added in the April-June 2010 quarter was over 50 per cent higher than the number added in the same quarter of 2009.

The number of SIPs added every month averaged 1.79 lakh accounts in the latest quarter, against 1.2 lakh accounts in the same period of 2009.

The Sensex ranged between 17,000 and 18,000 in April-June 2010, compared with 11,000-15,500 levels in April-June 2009.

Failed SIPs

The other disturbing trend is that of a good number of investors are discontinuing their SIPs mid-way. Even as funds added between one lakh and 1.9 lakh accounts each month over the last one year, the number of ‘failed' SIPs was quite large at 1.2-1.7 lakh accounts a month.

The instances of SIPs ‘failing' peaked during March, April and May 2009. In hindsight, that was the best time to invest in equity funds.

Stopping SIPs when market is down would defeat the purpose of cost averaging (buying more shares when prices are low and fewer shares when prices are high) that monthly investing is supposed to serve.

SIP collections rising

Overall, however, fund houses have seen a steady improvement in the new SIP accounts as the markets have climbed over the past year. Between 1.7 and 1.9 lakh SIPs have been added in recent months.

In all, the 17 mutual funds had about 25.6 lakh SIP accounts by end of June 2010.

Together, they managed SIP assets of Rs 20,600 crore.

In spite of improved market conditions compared to 2008-09, the average ticket size of new SIP accounts has not increased substantially. The national average has moved to Rs 2,190 from Rs 2,100 reported in 2008-09.

Source: http://www.thehindubusinessline.com/2010/08/09/stories/2010080952250100.htm

Sundaram BNP Paribas MF Appoints New Fund Manager

Sundaram BNP Paribas Mutual Fund has appointed Mr. Dwijendra Srivastava as Head-Fixed Income in the position of Senior Vice President. He is a Chartered Financial Analyst from CFA Institute, USA. He is also a Textile Engineer with Post Graduate Diploma in Finance.

He was associated with Deutsche Asset Management (India) Ltd. as Vice President and Fund Manager since 2007, spearheading debt schemes. He was also involved in new product development.

He will manage schemes such as Sundaram BNP Paribas Money Fund, Sundaram BNP Paribas Ultra Short-Term Fund, Sundaram BNP Paribas Flexible Fund Short-Term Plan, Sundaram BNP Paribas Flexible Fund Flexible Income Plan, Sundaram BNP Paribas Gilt Fund, Sundaram BNP Paribas Select Debt Short-Term Asset Plan, Sundaram BNP Paribas Income Plus, Sundaram BNP Paribas Capital Protection Series 1-3 Years, Sundaram BNP Paribas Capital Protection Series 1-5 Years, Sundaram BNP Paribas Fixed Term Plan P - 367 days, Sundaram BNP Paribas Fixed Term Plan R - 367 days, Sundaram BNP Paribas Fixed Term Plan S - 367 days, Sundaram BNP Paribas Fixed Term Plan U - 367 days, Sundaram BNP Paribas Fixed Term Plan AA - 14 Months, Sundaram BNP Paribas Fixed Term Plan Z - 15 Months, Sundaram BNP Paribas Fixed Term Plan Y - 18 months, Sundaram BNP Paribas Fixed Income Interval Fund - Quarterly Series - Plan A, Sundaram BNP Paribas Fixed Income Interval Fund - Quarterly Series - Plan B, Sundaram BNP Paribas Fixed Income Interval Fund - Quarterly Series - Plan C, Sundaram BNP Paribas Fixed Income Interval Fund - Quarterly Series - Plan D and Sundaram BNP Paribas Fixed Income Interval Fund - Quarterly Series - Plan E.

Source: http://www.apollosindhoori.cmlinks.com/MutualFund/MFSnapShot.aspx?opt=9&SecId=10&SubSecId=22,24

Birla Sun Life MF makes addendum to Long term Advantage Fund – Series I

Birla Sun Life Mutual Fund has announced change in the name of the scheme “Birla Sun Life Long Term Advantage Fund – Series I to Birla Sun Life Small and Midcap Fund. Accordingly, the benchmark index for evaluating the performance of the scheme has been changed from BSE 500 to S&P CNX Midcap Index. The changes will be effective from 12 August 2010.

Birla Sun Life Long Term Advantage Fund is an open ended small and midcap equity scheme that seeks to generate consistent long term capital appreciation by investing predominantly in equity and equity related securities of companies considering to be small and midcap. The scheme may also invest a certain portion of its corpus in fixed income securities including money market instruments, in order to meet liquidity requirements from time to time.

Source: http://www.apollosindhoori.cmlinks.com/MutualFund/MFSnapShot.aspx?opt=9&SecId=10&SubSecId=22,24

Q&A: Nitin Rakesh, CMD, Motilal Oswal AMC

'Look for leaders in sector'

A few industries have not been very promising. Nitin Rakesh, CEO & managing director, Motilal Oswal Asset Management Company, tells Neha Pandey & Masoom Gupte, that investors should follow a stock-specific strategy. Excerpts:

What should be a retail investor’s strategy in the current market?

I don’t think it’s a runaway market, but a stock-specific one. Investors should buy on dips. Some industries have not been promising, and hence, the market is subdued.

For instance, the rise in the input cost for automobiles was unexpected, and so, the companies have reported less-than-expected profits due to dropping margins. On the other hand, banks have done extremely well. Despite the rise in interest rates, their net interest margins have gone up.

Going by the first quarter results, which sectors (besides banking) look promising?

The telecom sector has been in-line so far. This sector can be a value player, if you invest in the right company. The global commodity cycle have hit metal companies and pulled down their earnings. In the fast moving consumer goods (FMCG) space, we were looking at an aggregate growth of slightly lower than 20 per cent.

Should an investor take cues from quarterly results?

You have to primarily watch out for what is the trigger for a company or a sector. For example, the drop in car sales for automobiles is more of a concern than rising input cost. In the cement space, the issue is over capacity. But it is a region-wise change.

Look for companies that have bigger market share in a sector. Among two-wheelers, you either look at Hero Honda or Bajaj. In commercial vehicle segment, it is either Mahindra & Mahindra or Tata Motors.

What is your take on public sector divestment? Is it a good way to enter the market?

It all depends on the pricing. So far, the initial public offerings and the follow-on public offers have not been priced attractively. During the British privatisation in late 1980s, the government gave 25-30 per cent discount. Also, the number of shares per application should be limited.

What are your targets in short-term, medium-term and long-term?

I won’t be surprised if the market is at the current level by this year-end. In the past nine months, the market has been in the same range, but earnings have been rising. This is called time correction. Although it has been dull and range-bound, a lot is changing. So, where the markets saw 20+ price-to-earnings multiple earlier, it is now between 16 and 17+. If it stays at the same level by December, markets will be at 13 to 14+ multiple.

Where do you see the markets next year, same time?

The earnings are going to grow at 15 to 20 per cent annually, so the markets should also be 15 per cent higher a year later.

What are the top three sectoral bets right now, and which ones to avoid?

Banking, especially infrastructure, capital goods, capital equipment and select auto, essentially consumer auto. Avoid some of the large-cap FMCG companies as they are expensive. Also, avoid some of the large-cap oil and gas and metals, especially the globally linked ones.

For someone looking at investment, would you recommend lump sum or via systematic investment plan (SIP), especially for a first-time investor?

In any market, SIP is the best way to invest and this holds true for all types of investors.

Source: http://www.business-standard.com/india/news/qa-nitin-rakesh-cmd-motilal-oswal-amc/403569/

New valuation norms to raise Liquid Plus schemes’ volatility

The new valuation norms, which mandate fund houses to mark-to-market securities with a maturity of over 91 days in the Liquid Plus category of mutual funds, may increase volatility in these schemes.

Asset management companies (AMCs) are now gearing up to revamp their investment strategies to ensure that volatility is curtailed without compromising on the tax arbitrage enjoyed by the Liquid Plus category of funds.

While there has not been any immediate adverse impact of the new ruling on the assets managed by fund houses under Liquid and Liquid Plus categories, there may be concerns in the future, if there is high volatility in the money market. It is, thus, important for fund managers to insulate these products so as to retain their large-ticket institutional investors.

“One likely change in the investment strategy can be to incorporate a higher percentage of securities with less than a 91-day maturity in Liquid Plus schemes,” says Mahendra Jajoo, ED & CIO (fixed income), Pramerica Asset Management. “This would reduce the volatility of the portfolio which will otherwise be marked-to-market for securities with maturities higher than 91 days,” he adds.

This new strategy, which fund managers may now look forward to, will, in fact, act as a double-edged sword. On one hand, Liquid Plus schemes will run like any other liquid scheme, on the other hand, investors will continue to enjoy the tax arbitrage applicable to Liquid Plus schemes.

Liquid Plus schemes currently attract a dividend distribution tax (DDT) of nearly 22.7% against 28.3% DDT applicable to the Liquid category of funds. It’s for this reason that many institutional investors prefer Liquid Plus to Liquid schemes. Moreover, as the Liquid Plus category invests in papers with a maturity higher than 91 days, their returns are relatively superior to Liquid schemes which invest in papers with less than a 91-day maturity.

Over the past one year, Liquid schemes have generated an average of around 4% returns while Liquid Plus schemes have generated about 6% returns during the same period. For large institutional investors, with investments running in crores of rupees in these schemes, this differential of 200 basis points is quite significant.

The popularity enjoyed by Liquid Plus schemes is also evident from the assets managed by these schemes vis-à-vis Liquid schemes. By the end of June ’10, Liquid Plus schemes managed assets worth around `1.9-lakh crore against `66,000 crore by Liquid schemes.

Thus, with new valuation guidelines directing the securities in Liquid Plus schemes to be marked-to-market have raised more concerns among investors of these schemes.

The new investment strategy, to run Liquid Plus schemes like any other Liquid scheme, will reduce the volatility of the portfolio, but will also mean that investors may have to compromise on returns that accrue to securities with higher maturities. However, this may not be an immediate concern since currently the yield curve being flat — both short and long duration securities are earning relatively similar yields.

“Going forward, however, the industry may see the category of Liquid Plus schemes being sub-categorised as those with maturity of less than 91 days, carrying a lower risk and volatility and those with securities more than 91 days and up to one year, which will be marked-to-market, will be construed to be more volatile,” says a fund manager from the industry who did not wish to be named.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/New-valuation-norms-to-raise-Liquid-Plus-schemes-volatility/articleshow/6258917.cms

Sensex at 2½-year high with 103-point gain

Indian equity indices on Wednesday shrugged off weak global markets to end the day at their highest levels since February 2008. Domestic markets remained weak throughout the day; however, buying from the foreign funds during the last hour of of trading helped the market close with gains. Technology stocks led the 103-point gain for Sensex on the back of higher-than expected earnings of US-based Cognizant Technology Services, which boosted outlook for Indian IT companies focussed on these markets.

The 30-share Sensex of the Bombay Stock Exchange (BSE) added 102.61 points to end the day at 18,217.44. The broader S&P CNX Nifty of National Stock Exchange (NSE) gained 28.30 points to close the day at 5,467.85.

According to the provisional figures provided by the Bombay Stock Exchange (BSE), foreign institutional investors (FII) bought stocks worth over Rs 688 crore on Wednesday. In just three days of August, FIIs were net buyers to the tune of approximately Rs 2,000 crore. For the year till date, FIIs have bought over $11 billion worth of equities and received close to 46% of net inflows into Asian market outside Japan and China. Foreign fund inflows into Indian markets have climbed 40% this year, making Sensex the most expensive in Asia excluding Japan and BRIC markets.

Said Navneet Munot, CIO at SBI Mutual Fund: “Overall, the economy is in good shape and markets are also fairly valued at these levels. While investors are taking long positions in the market, one has to remain cautious of the global events.”

“The exploration of large-caps in India is done,” said Richard C Kang, who helps manages $120 million in equities at Emerging Global in New York. According to him, India’s smallest companies may deliver investors the best returns as foreign inflows have pushed the benchmark index’s valuation to the highest among BRIC nations. “As the bull market extends, investors are more willing to take on additional risks and explore midcaps and small caps,” he said.

Most Asian markets were down on Wednesday following weaker- than-estimated US home sales and factory orders, which renewed concerns about the strength of the global economy.

Source: http://www.financialexpress.com/news/Sensex-at-2--year-high-with-103-point-gain/656130/

Front Running: Is it insider trading or not?

Is it insider trading when a trader acts on prior information on a stock?

HDFC Mutual Fund recently came under the Security and Exchange Board of India’s (Sebi) scanner for front running. The dealer was banned from trading. Front running involves a trader in a securities firm acting on prior information that is almost equivalent to insider trading. Can this activity be curbed?

It spooks the investors

The biggest pension funds who want to invest into Indian markets worry about front running. Their prime concern is processes and how Indian AMCs (asset management companies) are keeping themselves clean. This is getting to be a reputation problem and it looks like this problem cannot be stopped, at least for now.

Scale of the crime

If there is a pipeline with a capacity of 10,000 litres that comes to your housing society colony and one person steals a litre or two from this pipeline, will the harm be substantial enough for the society? If a mutual fund wants to buy 1 lakh shares of company A and the dealer puts in his personal order ahead of the fund and makes profits, will this harm the investors in the mutual fund? The damage will be miniscule. There’s no point in spending too much efforts trying to catch this trader. And if this trader starts making a lot of money in a short span of time, he will get noticed. There is no way he can escape. It is like stealing 500 litres of water from the same pipeline. Someone will notice that theft.

Control

That totally depends on the processes. Front running is like day trading. So if the processes are strong and the dealer is tracked at all levels from the time he gets the information to the time he executes the trade, it will be easy to catch him if he is front running. Eg: If he knows a fund is going to buy one lakh shares of stock A, he will put his order minutes before the fund’s order goes through. If the dealer were to be made “incommunicado” then there is no way he can relay this information. Sebi has put up an investigative report on how the front running exactly took place inside HDFC MF on its Web site.

Anticipate Human Behaviour

Most funds say that the systems and processes are proper but one individual can beat these systems by being unethical. The argument is unacceptable. If systems are proper that means front running should not be possible. There will always be some individuals who will try to beat the system. Process have to be continuously upgraded to catch these people.

What the Law Says

Front running is not insider trading but comes close to it. It comes under the charge of prohibition and protection of fraudulent and unfair trade, Sebi Regulation 2003 (prohibition and prevention of fraudulent and unfair trade relating to securities market). Penalty for the crime will mean a ban from dealing in the market and a monetary penalty of Rs. 25 crore or three times the trade committed by the investor.

Source:

FIIs turn attention to mid-, small-cap stocks

Foreign institutional investors are increasingly looking at mid-cap and small-cap ideas.

Mr Richard C. Kang, CIO of Emerging Global Shares, a company that constructs exchange traded funds on the Dow Jones, said: “Mid-cap and small-cap stocks that cater to India's domestic consumption are among the best bets going forward.”

Mid-cap stocks have seen an increase in foreign institutional investors' stakes in the first quarter of FY-11; 145 out of the 267 mid-cap stocks that are part of BSE Midcap index saw an increase in their holding, while 113 saw foreign investors exiting.

Favourites

Some of the counters that witnessed increase in FIIs holding include Dewan Housing, Kalpataru Power, Hindustan National Glass, Infotech Enterprises and Shree Renuka Sugars. Among others, GTL, Indiabulls Real Estate, India Infoline, Aban Offshore and Indiabulls Financial saw biggest drop.

In the BSE small-cap index, 184 stocks saw anincrease in FII holding and a similar number witnessed exit by FIIs.

The FII stakes in 142 small-cap companies remained unchanged.

Foreign fund inflows have reached Rs 50,276 crore or about $11 billion so far this year.

The BSE Sensex climbed 4.6 per cent this year while the BSE Midcap jumped 12 per cent and the BSE Small-cap soared 13.86 per cent. The BSE-500 index moved up by 7 per cent.

“We have invested in Amtek India, UCO Bank, Indian Bank, Patni Computers and Dish TV in our portfolio that caters to the India Small Cap ETF that was launched a fortnight ago on NYSE,” said Mr Richard C. Kang.

Amtek is a case of increasing capacity utilisation and has one of the best debt equity ratios of 0.48 in the auto components business, said an auto analyst with a leading mutual fund.

The auto components business is expected to see a capex of Rs 13,000 crore in FY-11and a growth of 15-16 per cent in FY-11 and 17-18 per cent in FY-12, according to a Crisil estimate.

UCO Bank

UCO Bank is expected to grow due to higher net interest margins, overall business growth and an attractive valuation at a price-to-adjusted-book value of 1.6, said Mr Alok B. Agarwal, Head of Research at Mata Securities.

Source: http://www.thehindubusinessline.com/2010/08/05/stories/2010080553081000.htm