RBI keeps repo rate unchanged, cuts CRR by 25 bps

The Reserve Bank of India on Tuesday left its key policy rate unchanged in its second quarter (July-September) monetary policy. However, it cut cash reserve ratio by 25 basis points to 4.25%. CRR is the portion of deposits banks are mandated to keep with the RBI.

With the CRR cut, the central bank will infuse Rs 17,500 crore liquidity into the system. Repo, the policy rate at which banks borrow money from the regulator remains at 8% while reverse repo, used to lend money to RBI is at 7%.

"The reduction in the CRR is intended to pre-empt a prospective tightening of liquidity conditions, thereby keeping liquidity comfortable to support growth," D. Subbarao, the governor of RBI said in a statement.

"It anticipates the projected inflation trajectory which indicates a rise in inflation before easing in the last quarter. While risks to this trajectory remain, the baseline scenario suggests a reasonable likelihood of further policy easing in the fourth quarter of 2012-13. The above policy guidance will, however, be conditioned by the evolving growth-inflation dynamic."

Source: http://www.moneycontrol.com/news/economy/rbi-keeps-repo-rate-unchanged-cuts-crr-by-25-bps_774839.html

Investors using rally as a profit-booking opportunity: Sanjay Sachdev

Q&A: President & CEO, Tata Mutual Fund, says a cut in interest rates will further boost euity investments

While on one hand the markets have cheered the key economic developments and policy initiatives, there has been a steady rise in the closure of equity fund folios in 2012. A sustained rally in equities instils confidence in retail investors to come back to markets, says Sanjay Sachdev, President and CEO, Tata Mutual Fund in conversation with Puneet Wadhwa. A reduction in interest rates in the economy will further give a boost to investment in equities, he adds. Edited excerpts:

How do you see the markets panning out given the political uncertainty we are going through? What would be the worst case scenario for the markets if there are early elections? Political uncertainty exists. However, recent moves by the European Central Bank (ECB) and US Fed have substantially reduced the risk premium for equity investors across the globe. Thus, the liquidity generated by the central banks in developed markets is likely to find shelter in emerging market (EM) equity.

Within EMs, India currently has an advantage over China, as the Chinese economy is slowing down.  Also, in India the recent policy announcements have not been rolled back. This, coupled with strong pick up in monsoon in August and September 12, has considerably reduced the downside risk to India’s GDP growth rates. Thus political uncertainty alone would have a limited impact on equity markets, if global liquidity and economic growth scenarios remain at current levels.

Do you think that the focus will now shift to developments at the domestic level as compared to what is happening globally? It would be wrong to say that domestic developments did not impact Indian equity markets earlier. In fact, India’s relative underperformance in CY11 vis-à-vis other EMs was partly due to its domestic developments such as low investments and high fiscal and current account deficits.

Recent policy initiatives by Indian Government suggest that policy is moving in the right direction. If we continue to take rational economic decisions and improve the share of investment in our GDP, our markets will be less impacted by global events.

What are your earnings estimates for India Inc for FY13 and FY14? Have the overall estimates and any sectors in particular seen an upward/downward revision? We expect Sensex EPS to be Rs 1,210 for FY13 and Rs 1,385 for FY14, a growth of about 14 per cent in FY14 over FY13.  The important thing to note is that the pace of EPS downgrades, which was very high till March 12, has significantly come off now. Thus the downgrade cycle is bottoming out.

For FY14, we feel that secular growth sectors such as financials, consumer, pharma will continue to have decent growth. We can see a strong bounce back in growth in interest rate sensitive sectors such as autos, consumer discretionary etc. Also, if policy environment improves further, we can see upgrades in earnings.

The last time we spoke in May, you were underweight on public sector banks, global cyclicals, such as metals and refining and petchem. How has this strategy paid off and has this view changed now? We are still underweight on global cyclical such as metals and refining and petchem. We feel that global growth in CY13/FY14 will be more muted. Our key overweights are auto and auto ancillaries, media and pharma. In other sectors we are more neutral and prefer to take a more stock specific approach. 

Cement, Pharmaceutical and the FMCG sector stocks seem to be defying gravity. What’s your call on these three spaces? Cement has seen strong earnings growth with both volume and margins improving. If investment cycle picks up, cement will be a beneficiary. Pharma and FMCG sectors are secular growth sectors with high ROEs and healthy cash generation. Their valuations are unlikely to come down in a hurry. For pharma sector however, the pricing policy in domestic markets can be a near term headwind.

The market has rallied since September and the overall investor sentiment seems to be improving. Do you think that this can arrest the fall seen in equity fund folios and ease out the redemption pressure? Investors are looking at the current market rally as a profit booking opportunity, which is evident from the industry’s loss of folios figures in last couple of months. However, as observed historically, a sustained rally in equities instils confidence in retail investors to come back to markets. A reduction in interest rates in the economy will further give a boost to investment in equities.

What is your view about the growth prospects for the mutual fund industry considering the recent policy measures that have been announced? The recent policy measures will prove to be a watershed moment for the mutual fund industry. The size of the industry – in terms of investor folios – is abysmal as compared to its potential. The policy announcements are in the direction of addressing these issues by way of geographical market penetration beyond the top 15 cities and the thrust on investor education.

There is no reason to believe why the mutual fund industry in India cannot growth manifold hereon with a large savings rate and perhaps the best demographic configuration in the world at this point in time.

Source: http://business-standard.com/india/news/investors-using-rally-asprofit-booking-opportunity-sanjay-sachdev/192801/on

US co Principal sets up arm ahead of pension reforms

Principal Financial, a US pension group, has set up a wholly-owned subsidiary ahead of the opening of the pension sector in India. The subsidiary company will train independent advisers to provide retirement savings advice.

"The Indian middle class is expected to treble to 500 million by 2025, and people will realize that government pension programmes will not be enough for retirement and they will have to take personal responsibility for saving for retirement age. We see huge opportunity in retirement savings," said Ned Burmeister, senior vice-president & COO, Principal International Inc.

The new company - Principal Retirement Advisors - is headquartered in Mumbai and has offices in Delhi, Bangalore, Pune and Hyderabad with immediate plans to expand to six more cities. It will be led by Sudipto Roy, former business head of Principal Mutual Fund. The advisers would work for a fee and would not accept any commission from any financial service provider.

Principal has evinced interest in the pension segment ever since the IRDA Act was passed more than a decade ago.

The $367.1-billion company has steadfastly focused on the pension segment and has a mutual fund company Principal PNB Asset Management.

He added that mandatory programmes do not provide more than one third income replacement after retirement. "Principal Retirement Advisors will have a network of advisers heavily trained and certified who will meet customers and help them find their goals and then with an emphasis on retirement and other lifestage goals, come up with an investment plan to achieve the goals," said Burmeister. He added that the advisers would use Principal's proprietary software to come up with the right asset allocation over the years.

Source: http://timesofindia.indiatimes.com/business/india-business/US-co-Principal-sets-up-arm-ahead-of-pension-reforms/articleshow/16844813.cms

Fidelity Mutual Fund Announces Changes

Pursuant to the acquisition of Fidelity's Indian mutual fund business by L&T Finance Limited (LTF), a subsidiary of L&T Finance Holdings Limited (LTFH). The names of schemes are changed as follows:

*Fidelity Ultra Short Term Debt Fund, an open ended debt scheme will be renamed as Fidelity Low Duration Fund with effect from 16 November 2012.

**Fidelity India Children's Plan - Savings Fund, an open ended income fund under the umbrella - Fidelity India Children's Plan (an open ended hybrid plan comprising three funds - Education Fund, Marriage Fund and Savings Fund) will be merged with Fidelity Short Term Income Fund, an open ended income scheme.

***Fidelity India Children's Plan - Education Fund, an open ended equity growth fund under Fidelity India Children's Plan will be unbundled from the umbrella - Fidelity India Children's Plan, undergo fundamental attribute changes and renamed as Fidelity India Prudence Fund with effect from 16 November 2012.

****Fidelity India Children's Plan - Marriage Fund, an open ended equity growth fund under Fidelity India Children's Plan will be unbundled from umbrella - Fidelity India Children's Plan, undergo fundamental attribute changes and renamed as Fidelity India Equity and Gold Fund with effect from 16 November 2012.  

Upon completion of the proposed transaction certain schemes of Fidelity Mutual Fund will be merged with certain schemes of L&T Mutual Fund. Consequently, the transferee schemes will be the surviving schemes as listed below:

Upon completion of the proposed transaction certain schemes of L&T Mutual Fund will be merged with certain schemes of Fidelity Mutual Fund. The name of the surviving schemes (i.e. the transferee schemes) is proposed to be changed as follows:

 

 

* Fidelity India Growth Fund will undergo a change of name and fundamental attribute changes effective on 16 November 2012, pursuant to which this scheme will be named as 'Fidelity India Large Cap Fund'.  

Fidelity India Prudence Fund, an open ended equity growth scheme:  The scheme would invest 65% to 75% of assets in equity and equity related securities with medium to high risk profile.  On the other side it would allocate 25% to 35% of assets in debt and money market instruments including units of debt / fixed income schemes launched by mutual funds registered with SEBI with low to medium risk profile.

The exit load charge will be 1% if redeemed within 1 year from the date of allotment or purchase applying first in first out basis.

Fidelity India Equity and Gold Fund, an open ended equity growth scheme: The scheme would invest 65% to 90% of assets in equity and equity related securities with medium to high risk profile. 10% to 25% of assets in Gold ETFs with medium to high risk profile. Upto 10% of assets in debt and money market instruments including units of debt / fixed income schemes launched by mutual funds registered with SEBI with low to medium risk profile.

The exit load charge will be 1% if redeemed within 1 year from the date of allotment or purchase applying first in first out basis.

Fidelity Cash Fund, an open ended liquid scheme: The scheme would invest 65% to 100% of assets in certificate of deposit issued by banks, bank fixed deposits, treasury bills, CBLO, Repo / reverse repo with medium to high risk profile.  On the other side it would allocate upto 35% of assets in commercial papers and other debt instruments including securitized debt with low to medium risk profile.

The change in fundamental attributes of the schemes of Fidelity Mutual Fund will take effect on 16 November 2012 notwithstanding the outcome of the proposed transaction.

Source: http://www.indiainfoline.com/Markets/News/Fidelity-Mutual-Fund-Announces-Changes/4535981912

Equity MFs' net outflow at 2-year high

Amid a strong rally in the stock markets, retail investors cashed out from equity mutual fund (MF) schemes, as net outflow in September rose to a two-year high.

In September 2010, equity MFs had seen outflows of a whopping Rs 7,281 crore.

During the market rally last month, fund houses recorded heavy selling, as equity schemes, including equity-linked saving schemes, saw a net outflow of Rs 3,559 crore, the most in the last 24 months. This essentially means the inflow of funds into equity assets was much lower than what was redeemed. In absolute terms, the segment saw redemption requests for equities worth Rs 6,741 crore, against fresh investments of a mere Rs 3,182 crore.

Industry executives said investors were booking profits in every rally. Primarily, these investors were the ones stuck in the market for about a year, they added. This is evident from the fact that in September, equity fund managers remained net sellers — selling about Rs 3,200 crore due to continuous redemption requests.

In September, benchmark indices rose about eight per cent. The BSE Sensex gained about 1,300 points, inching towards the 19,000 mark.

“The major part of the redemption pressure came in the latter half of the month, and this contributed to preventing active participation of fund managers in the rising markets,” said an industry chief executive.

As about 90 per cent of equity assets are accounted for by retail and high net worth individuals, what is worrying is the fact that retail money is going out. Folios are being closed rapidly, and systematic investment plans are being terminated.

“The cost of acquisition of retail clients is high. When such customers move out before their investment tenure, it obviously impacts the fund industry. But at the end of the day, we cannot cry foul over it, as ultimately, it is the investor’s money and he booked profits, which is good for him,” said the chief executive of one the top five fund houses.

So far this year, more than two million retail equity folios have been closed. In August, 4,60,000 equity folios were closed. Mutual fund executives say folio closures could be higher in September. The Securities and Exchange Board of India is scheduled to release its folio statistics later this month.

The liquid and money market segment recorded Rs 48,445 crore of net outflow, while income funds saw lower outflow at Rs 256 crore. Overall, the net outflow from the mutual fund industry in September stood at Rs 51,908 crore.

Source: http://www.business-standard.com/india/news/equity-mfs-net-outflow-at-2-year-high/488942/