Immediate Impact of the Policy Has Been an 11 Bps Rise in Yields in the 10 Year G-Sec From 8.29% To 8.40%

Commenting on Reserve Bank of India's First Quarter Review of Monetary Policy, Mr. Ramesh Rachuri, Senior Fund Manager - Fixed Income, Bharti AXA Investment Managers said - The Reserve Bank of India raised the Repo Rate by 50bps to 8.00%, and the Reverse Repo Rate by 50bps to 7.00%. It kept the CRR rate unchanged. It also revised upward the baseline inflation projection for March 2012 to 7.00%. Further, RBI has also stated - “the monetary policy stance will depend on the evolving inflation trajectory, which in turn, will be determined by trends in domestic growth and global commodity prices. A change in stance will be motivated by signs of a sustainable downturn in inflation.”

Stubbornly high and persistent inflation, strong demand pressures, absence of policy initiatives on the supply side and infrastructure, high fiscal deficit due to subsidies and lower tax collections (lowered customs duties on petroleum products due to price rejig) are some of the factors cited for this monetary policy action.

The immediate impact of the policy has been an 11 bps rise in yields in the 10 year G-Sec from 8.29% to 8.40%; rise in 4-5 month CD rates by 20 - 25 bps; and rise in 2 month CD rates by 15-20 bps. In keeping with the anti-inflationary stance, the RBI is expected to keep liquidity in deficit mode below 1% of NDTL (Net Demand and Time Liabilities) of banks, or roughly around Rs.1 Lakh Crores. The current weekly average is a deficit of Rs.63,000 crores.

Monetary authorities also try to target a 'neutral' policy rate at which there is no slack in the economy in terms of potential output. RBI has also implied that after the present hike, the monetary situation is close to normal or neutral and further action would depend on evolving circumstances. Reflecting this, the current implied forward rates of the market shows that the market does not expect another rate hike till the end of the calendar year. So, unless inflation goes out of hand, or there is a 'shock' to the system, RBI would prefer to wait and watch in the mid-quarter review on the 16th of September. What would then be a market mover in the bond and money markets would be liquidity. As we step into the busy season of credit lending with the next policy, corporate borrowing would start and we would see a slight tightening of liquidity, especially at the end of September, coinciding with advance tax payments, in money market securities.

However, what will be in focus would be external developments in Europe and the U.S. How events unfold in the peripheral economies in Europe with a partial debt default and rolling over of borrowing by Greece will be closely watched. The increase in the debt limit in the U.S., which is currently being acrimoniously debated, will also shape liquidity, and interest rates, as also lowering of aggregate demand and impact on employment. The moot point is that all the external indicators suggest possible lowering of aggregate demand, and hence impact on commodity prices like crude oil, food (soft) commodities, etc., which the RBI is watching like a hawk.

In light of the above, and given the possibility of a pause in rate hikes till atleast September (and possibly till the end of the current calendar year), being coupled with a falling off of CD issuances from banks due to contraction between credit and deposits, we would judiciously extend duration, wherever feasible, especially in our Bharti AXA Short Term Income Fund, and Bharti AXA Regular Return Fund.

Source: http://www.adityabirlamoney.com/news/493398/10/22,24/Mutual-Funds-Reports/Immediate-Impact-of-the-Policy-Has-Been-an-11-Bps-Rise-in-Yields-in-the-10-Year-G-Sec-From-8-29-To-8-40-

RBI surprises with 50 bps rate hike

Welcoming the Reserve Bank's decision to hike key rates by a hefty 50 basis points, Finance Minister Pranab Mukherjee today said it will help bring down inflation to a comfortable level of 6-7% by year-end.

"The Reserve Bank of India has sought to give a strong signal to further moderate inflation and check inflationary expectations," Mukherjee said.

Inflation has remained stubbornly close to double-digit levels during the first quarter of the current fiscal. Mukherjee said the RBI rate hike was necessary to bring down inflation to an acceptable level at the earliest.

Overall wholesale price-based inflation stood at 9.44% in June. To tame the inflation monster, the RBI today hiked key policy rates by 50 basis points. "With this policy adjustment, we will be able to get back to a more comfortable inflation situation that takes us to the year-end inflation level of 6 to 7%," Mukherjee added.

The RBI has hiked its policy rates 11 times since March, 2010, to curb inflation. However, the problem persists. Mukherjee said although food inflation has moderated in recent months, pressure in manufactured items has hardened.

While coming out with its first quarterly policy review for the 2011-12 financial year, the RBI admitted that there has been a moderation in growth, but maintained its previous estimate of 8% GDP growth for the current fiscal.

Mukherjee said, "The overall GDP growth for 2011-12 so far is in line with the momentum attained in 2010-11." There have been concerns that the country's economic growth could see some moderation on the back of a deceleration in factory output growth in April-May.

Industrial output growth in April-May this year averaged 5.7%, compared to 10.8% in the same period last year.

Source: http://www.moneycontrol.com/news/economy/rbi-rate-hike-to-ease-inflationary-pressure-says-fm_569175.html

Franklin Templeton MF declares dividend for FT India Dynamic PE Ratio Fund of Funds

Franklin Templeton Mutual Fund has approved the declaration of dividend on the face value of Rs 10 per unit of FT India Dynamic PE Ratio Fund of Funds. The record date for dividend has been fixed as July 29, 2011.

The quantum of dividend will be Rs 0.440 per unit for individuals and HUF and Rs 0.377 per unit for others. The scheme record NAV of Rs 33.8048 per unit as on July 22, 2011.

The investment objective of the scheme is to provide long-term capital appreciation with relatively lower volatility thorough a dynamically balanced portfolio of equity and income funds.

Source: http://money.livemint.com/News/MF/MUTUAL-FUNDS/NEWS/144970.aspx

Sebi retracts on unique mutual fund folios

The domestic mutual fund industry will not have to provide unique folios of investors, as suggested by the Securities and Exchange Board of India (Sebi), following the capital markets regulator’s decision to retract from its earlier view.

Fund managers said the number of investors’ folios are already dwindling and such an exercise would have resulted in at least 30-40 per cent reduction in retail folios. According to latest statistics, the folios in the equity segment continued to slide in the June quarter. The industry lost more than half a million folios during the period, compared to the March quarter, while overall folios declined by 231,850.

H N Sinor, chief executive officer of industry body Association of Mutual Funds in India (Amfi), said: “Sebi has realised the difficulty in getting the number of unique folios and has asked the industry to continue with the old formula.”

Since the beginning of the current financial year, fund houses had been providing their unique investors count. “Earlier, if an investor had invested, say, in two schemes in a fund house, it was counted as two folios. However, as asked we counted it as one folio and provided the details to the regulator,” explained a top industry official. However, another top official said that it did not mean that an investor had investment only in one fund house. “An investor who has investments in more than one fund house, Sebi wanted that to be counted as only one folio (unique customer). And that was not an easy task and we conveyed our feedback to Amfi.”

Fund managers, Business Standard spoke to, said data sharing among fund houses was not common and counting unique customers was not possible and that resulted in the regulator’s opinion meeting its natural death.

“Even if fund houses provide their unique customers, it will still have multiple duplication and the system is not yet ready to get it out. Rather, the registrar and transfer agents like Karvy and CAMS are better placed to show the unique customers instead of fund houses,” said the chief marketing officer of a medium-sized fund house.

Things were confusing and the industry could not ascertain the unique customers in mutual funds. The confusion over this was evident from the fact that Sebi did not publish May’s folios after making statistics available till April. Industry officials said the penetration may not be even what it seems like from the retail folio number, which is close to 40 million. Roughly, they say, the number of investors may not be higher than 25 million. This could be a setback for the regulator which has been pressing hard for deeper penetration of mutual funds in the top 10 cities in India.

Source: http://www.business-standard.com/india/news/sebi-retractsunique-mutual-fund-folios/443847/

Value buys present across market spectrum: PVK Mohan, Principal PNB Asset Management

PVK Mohan, equities head, Principal PNB Asset Management, which manages about Rs 5,500 crore, has increased exposure to agro-based firms, pharmaceuticals, consumer-centric stocks and auto ancillaries as these sectors are better insulated from high interest rates and its impact on demand and profit margin.

Infrastructure and select real estate stocks are Mohan's contrarian bets, while he prefers to stay away from cement and banking shares. "There are value-buys across market spectrum. Themes like agriculture and related rural economy-linked industries can be a part of long-term play. There are buying opportunities in mid-cap pharma, consumer-related and auto ancillary space," he told ET.

Mohan manages Principal Growth Fund, Dividend Yield Fund, Tax Savings Fund, Balanced Fund and Conservative Growth Fund. He prefers well-managed and low-debt companies with stable operating margins at all market cycles. Also, he likes firms with low capital needs, operating in non-competitive spheres, with easy cash flows and which are at lower valuations due to negative Sectoral or market overhang. "Infrastructure, capital goods and auto ancillaries are rate-sensitive sectors, but there are contrarian opportunities present in these counters," he said.

"We've increased exposure to consumer, pharma and healthcare, but then we're cautious adding stocks at these levels. You don't get too much on the table with respect to valuation," he added. "We've some exposure to real estate companies...These are companies with manageable debt levels and have their project outside stressed markets like Mumbai and Delhi. We've not invested in commercial real estate," said Mohan. He has increased investments in companies such as ITC, TCS, L&T, Lupine, Torrent Pharma, Areva T&D and Chambal Fertilisers. He has reduced exposure to ICICI Bank, RIL, REC,OBC and HDFC. "At about 16 time’s forward price-to-earnings, Indian markets are commanding a wee bit higher valuation," he said.

"We're slightly higher than our median long-term average. If the market corrects 5-7%, it will be a good entry point for long-term investors," he said.

He expects companies to register 12-13% growth in the first quarter vis-a-vis 15-18% estimated by the broker community. Investors can start taking long-term bets on equities, he said.

Source: http://economictimes.indiatimes.com/markets/analysis/value-buys-present-across-market-spectrum-pvk-mohan-principal-pnb-asset-management/articleshow/9353440.cms

When Fund manager changes, Monitor the fund carefully

One of the things that worry the slightly evolved mutual fund investors is change in fund managers. By the time you figure out that some of the equity funds you have chosen are actually making good money, and that this was because of the actions of someone called a fund manager, you could be hit with the news that the fund manager is changing.

This is a bit of a problem. You see, unlike some funds in the more mature markets, the fund manager is not really a brand in India. People generally invest in a particular fund because it has done well. Or, if they are beginners, they are likely to invest because the fund company is a big brand like ICICI or HDFC or Reliance. At some point, those investors interested in learning how mutual funds work come to know that investment decisions for each fund are taken by a fund manager.

And then they hear a fund manager has changed. This happens a lot. Over the last 24 months alone, there have been 187 fund manager changes for equity funds. The total equity assets managed by the Indian fund industry is Rs2 lakh crore. Over the last 24 months, there has been a change in fund managers handling about Rs98,000 crore - almost half of the total industry.

Is this a problem? Is this something that investors should worry about? Unfortunately, the only reasonable answer is that it depends. It's actually quite hard to figure out quantitatively how much of an impact a change in a fund manager has had on a fund. All equity funds are managed within a context of their investment mandate, their institutional parentage and, obviously, the market conditions. Pin-pointing the exact impact of these factors and that of a fund manager is impossible.

There have been a few cases when a fund manager's exit has led to a slump in funds' performance. However, there have been some cases when a new fund manager has proven to be better than the old one. At the end of the day, there is little in it except to say that when a fund manager changes, investors have to be extra vigilant in monitoring their fund for any changes in performance.

That still leaves investors with the question of why is there such a flux. Why are there so many changes in the management of funds? One reason is that there is generally a lot of flux in all sort of skill based jobs in India. Like any other white-collar job in a growing industry (and especially in financial services), changing jobs is a major way of moving up in one's profession. It's unfortunate that the managements of fund companies are unable to create conditions in which this is not the case, but that's the way it happens.

The other issue is of good fund managers themselves moving up the ladder into marketing and general management jobs to move up in their professions. I've seen this happen time and time again in the fund industry. Once a fund manager gets a good track record, he seems to spend more and more time talking to investors (at least the bigger ones) than on proper fund management.

This is basically a selling job. Or, he's expected to start managing and mentoring junior fund managers, regardless of whether the junior is actually any good at it.

Eventually, he gets out of fund management altogether and becomes CXO, for some value of X. This is great for his career and the way most corporate careers work. However, perhaps fund management jobs should follow a different model, like that of surgeons may be. You don't hear of a good surgeon moving forward in his career by abandoning surgery and becoming a hospital administrator, do you?

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/when-fund-manager-changes-monitor-the-fund-carefully/articleshow/9351703.cms?curpg=2

Tata Mutual Fund parts ways with Credit Suisse as offshore fund management partner

Tata Mutual Fund has parted ways withCredit Suisse as its offshore fund management partner in May, an official spokesperson from the Indian asset manager told ET.

"The change is being effected on the basis of the fund manager's macro-economic and infrastructure outlook," the Tata MF official said. "We're in the process of reallocating funds... this change in fund manager has no bearing on our relationship with Credit Suisse or any other services provider," he said.

However, according to industry sources, the investment team of Tata MF was not happy with the contribution of Credit Suisse towards the overall performance of the funds.

Credit Suisse was managingTata MF's Growing Economies Infrastructure Fund and Indo Global Infrastructure Fund.

Credit Suisse officials declined to comment on the development.

This is not the first time that Tata MF has changed its offshore fund management partner. In 2009, it removed US-based asset manager Invesco Global citing poor fund performance. At that time, Invesco had invested a lion's share of the investible corpus in Chinese stocks that were undergoing a bearish trend.

The absence of an offshore fund manager has forced Tata MF to liquidate its foreign assets and hold large piles of cash in the two international funds.

As on June end, Tata Growing Economies Infrastructure Fund Plan A held 66% of its asset under management in cash. Plan B of the same fund, which has mandate to invest 35% of corpus in international securities, maintained about 35% cash levels. Tata Indo Global Infrastructure Fund, which has the mandate to invest 35% in overseas equities, held 27% cash on June end. Both the funds acted as feeder funds into Credit Suisse Emerging Markets Infrastructure Fund, which has generated 7.8% over the past one year.

Despite high cash-levels, Tata Growing Economies Infrastructure Fund (Plan A) has returned over 4% vis-a-vis infrastructure funds category returns of 16.4%. TataIndo Global Infrastructure Fund has generated minus 4.4% return against category returns of minus 8.4%. In terms of value, investors in Indo Global Fund are logging significant losses as net asset value (NAV) of the fund has been locked in a range of Rs 7 and Rs 8 for more than a year. Investors had invested in this fund at a notional NAV of Rs 10.

"From what we see, the domestic portion is weighing heavy on the performance of both funds. The Credit Suisse fund has generated decent returns over a year's time. The underperformance of domestic portion could be because of the bleak outlook on infrastructure sector," a fund researcher said.

According to fund distributors, several investors have redeemed their investments from both these funds. The assets under management of Indo Global Infrastructure Fund have fallen from Rs 2,359.40 crore as on December 2007 to Rs 858 crore last month. The asset base of Tata Growing Economies Infrastructure Fund has dipped from a high of 41 crore in October 2009 to Rs 28 crore in June 2011. Plan B of the same fund, at one point, had assets worth Rs 173 crore. The plan now has assets worth just about Rs 109 crore.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/tata-mutual-fund-parts-ways-with-credit-suisse-as-offshore-fund-management-partner/articleshow/9353252.cms

India to allow foreign investment in mutual funds from August 1.

India will allow qualified foreign investors to invest up to $10 billion in domestic mutual funds from August 1, a senior finance ministry official said on Friday.

The government expects good inflows from qualified financial institutions into mutual funds in this fiscal year to March 2012, Thomas Mathew, joint secretary, capital markets at the finance ministry, told reporters on Friday.

The move to allow qualified foreign investors was first proposed by Finance Minister Pranab Mukherjee in the budget for the fiscal year that started on April 1.

At present, only foreign institutional investors and sub-accounts registered with the market regulator Securities and Exchange Board of India, and non-resident Indians are allowed to invest in Indian mutual fund schemes.

Source: http://articles.economictimes.indiatimes.com/2011-07-22/news/29803534_1_mutual-funds-foreign-investment-capital-markets