Templeton India fund house recent investment strategy

Franklin Templeton expects the Indian economy to be among the first to recover from the global slump and sees top names such as Reliance Industries and Bharti Airtel emerging as winners, spurred by a growing local market.
On Tuesday, the U.S. fund manager's $335 million Franklin India Fund was ranked the top performing India fund by Lipper over the past three years among mutual funds available in Singapore.
The fund has been raising its holdings of India's best-known firms even in out-of-favour sectors, chief investment officer for Indian equities Sukumar Rajah told Reuters in an interview.
"From a fundamental perspective, India with its relatively lower dependence on exports is likely to weather the current global uncertainty better. This is further supported by the robust banking system and strong domestic consumption."
Infosys Technologies, the country's second largest software exporter, HDFC Bank, the second largest private sector lender, and consumer goods firm Nestle India are the fund's other top holdings.
India's economy is expected to grow by 5.1 percent this year compared with 7.3 percent in 2008, according to forecasts by the International Monetary Fund. .
The world's second most populous nation ranks after China and Hong Kong in terms of investment appeal, according to a Thomson Reuters survey of portfolio managers and securities analysts who together help manage more than $1 trillion in assets.
The Franklin India fund lost 1.2 percent in dollar terms in the 36 months to January 2009 compared with a 5.6 percent fall in the MSCI India index, according to the fund's factsheet.
LOCAL GROWTH
Rajah said countries that rely on domestic demand and are growing at a relatively fast pace had a better chance of attracting new capital over the longer term, giving a boost to the economy and stocks.
The BSE Sensex tumbled by more than half in 2008, its worst annual performance ever, and has shed a further 8 percent so far this year.
Rajah said Templeton had increased its investment in Reliance to 7.8 percent of the India fund's portfolio at end-January from 5.5 percent in September because the firm's diverse oil and gas exploration, production, and petrochemical businesses helped it overcome the volatile product cycles in energy markets.
"The large oil and gas exploration acreage coupled with the company's scale and capabilities to execute projects provides opportunities for further growth," he added.
As for Bharti, Rajah said the Indian mobile market could see 2-3 more years of aggressive growth before maturing and market leader Bharti had "consistently expanded market-share by leveraging its branding, better execution and infrastructure capabilities."
"We believe well-managed Indian companies will emerge stronger in the current environment, and the sharp declines have resulted in attractive valuations across sectors."

Source: http://in.reuters.com/article/businessNews/idINIndia-38176320090224?sp=true

Equity funds sitting on Rs 20,000-cr cash chest

Equity mutual funds are choosing to hold sizeable cash positions in view of current market uncertainties.
Data from Indsec Securities, based on January-end portfolios, show that average cash positions across equity funds were as high as 20 per cent, amounting to over Rs 20,000 crore across fund houses.
Mutual fund managers say that unprecedented volatility has prompted them to wait on the sidelines for buying opportunities. The proportion of cash to total equity assets has gone up from 10.1 to 20.5 per cent between January 2008 and now. Though the actual cash holdings have only increased from Rs 18,000 crore to Rs 20,000 crore, the contraction in equity fund assets (due to NAV declines and some outflows) has resulted in a larger proportion of cash. Cash includes cash and cash equivalents such as money market instruments and short-term debt instruments.
Among the larger asset management companies (AMCs) Reliance Mutual Fund and UTI Mutual Fund hold cash positions amounting to about 30 per cent of the equity assets while those such as SBI and HSBC Mutual hold about 20-22 per cent.
These cash holdings are not evenly spread across schemes.
Thematic funds, which typically focus on one sector (say, infrastructure) or theme (mid/small-cap stocks), account for a big portion of the cash holdings, while diversified equity funds have lower cash on their portfolios.
Reliance Diversified Power, Reliance Natural Resources, UTI Infrastructure and DSP BlackRock TIGER fund are some thematic funds which are high on cash and cash equivalents.
In some cases, cash positions (for funds such as Reliance or Birla Sun Life) are held against their exposure to derivatives in select schemes.

Are equity fund managers holding high levels of cash anticipating pullouts from the funds? Fund houses deny that that is the case.
Equity funds saw relatively small net outflows (redemptions) of Rs 1,378 crore in the choppy October-December 2008 quarter. In January, there was Rs 338 crore of new outflows.
Fund managers who are high on cash appear to be taking the view that the worst isn’t over yet for the stock markets. Mutual funds have made net sales in stocks amounting to Rs 2,521 crore so far in 2009.
Mr Sanjay Dongre, Senior Equity Fund Manager, UTI Mutual Fund, says that redemption pressures faced by the equity funds were at “negligible” levels, as the investor base was mainly retail.
“We are holding higher cash positions on our funds given the uncertainty prevailing in the marketplace, where the risk appetite of investors is extremely low. Our diversified funds hold a 15-18 per cent allocation to cash and the thematic funds hold larger cash positions.”

Asked if the fund house is looking for a specific market level (say, a Sensex of 8,000 or 8,500) to deploy this cash, Mr Dongre replied that it is uncertainty rather than the prevailing market valuation, that is prompting the cautious stance. “If we see risk capital returning to the markets and the uncertainty receding, we will go ahead and deploy that cash, even if market levels are higher than they are currently,” he said.
At the other end of the spectrum, fund houses such as HDFC Mutual Fund and Franklin Templeton Mutual hold only about 7 per cent of their equity fund portfolios in cash.
These AMCs have consistently followed a practice of remaining more or less fully invested, irrespective of market swings.

Source: http://www.thehindubusinessline.com/2009/02/23/stories/2009022351410100.htm

Sebi mulls norms to let investors decide MF fee

New regulations on entry load likely to be announced within a month; details of the plan yet to be finalized

The Securities and Exchange Board of India, or Sebi, is drafting new norms that would offer mutual fund investors a band or range of entry loads to pick from while purchasing units of a mutual fund, said a senior official at the market regulator. An entry load is the commission that an investor has to pay a distributor while purchasing units. Currently, investors pay an average 2.25% of the sum invested as entry load if they buy the units from a distributor, who is a third party, but they pay nothing if they buy directly from the fund house. The new norms are likely to be announced in a month, the official said requesting anonymity as details of the plan have not yet been finalized. Empowering Investors: Sebi chairman C.B. Bhave. The new Sebi norms are expected to make distributors more competent to justify their role. Abhijit Bhatlekar / MintAccording to the Association of Mutual Funds in India a 13-year old industry lobby, there were about 47 million mutual fund account holders in India at the end of 2008. There were some 35 mutual fund houses with net assets under management of about Rs4.6 trillion, at the end of January. The bulk of mutual fund unit sales in the country, however, are conducted through a large, unorganized network of distributors, which also include a few large players that have their own fund offerings. The largest third party distributors of mutual fund products in India are banks such as ICICI Bank Ltd and HDFC Bank Ltd. Several brokerages and non-banking finance companies also have large mutual fund products distribution businesses. “This (move) will hugely empower mutual fund investors,” said the Sebi official, adding that it would force “distributors to stay competent to justify their role”.

The move could also help increase the current investor base, this official said. “Penetration of mutual funds can be much more (but) .. without distributors, it would have been even less,” said Uttam Aggarwal, who heads the mutual fund distribution business of Bajaj Capital Ltd, which is present in 90 towns and manages about one million investors. “Look at Quantum (Quantum Asset Management Co. Pvt. Ltd), its asset under management is in double digit crore,” said Aggarwal. Quantum does not have a distribution model and does not charge entry load from investors. At the same time, financial services firms with established distribution capabilities have now expanded to included funds management business to leverage their strength.“We are in this business to leverage our strong distribution capabilities,” says Nitin Rakesh, chief executive of asset management with domestic retail brokerage Motilal Oswal Financial Services Ltd, one of the latest players in the funds business. In fact, fund houses recognize the grip that distributors have over access in both directions. The penetration of mutual funds in India, have been “severely limited” by distributors, Ashu Sayash, managing director and country head (India) of Fidelity Advisors International, had said in June last year. He was speaking at the launch of FundsNetwork, an online fund distribution portal that Fidelity International, the world’s largest mutual fund manager, had launched. “The existing mutual fund business model is also not as profitable as insurance,” said Aggarwal. “Insurance allows you to reach the smallest towns but mutual funds have regulatory issues (such as daily net asset value, or NAV, disclosures and cap on marketing expenses).” Unlike the third party distributors of, say, insurance products, who can only sell policies of one firm, mutual fund distributors are free to sell schemes from any fund house. Not surprisingly, fund houses often fall over each other to woo distributors so they will push their products. Sebi currently allows mutual funds to spend up to 6% of a scheme as marketing expense, and fund houses typically spend part of this allocation on distributors.

Source: http://www.livemint.com/2009/02/17222436/Sebi-mulls-norms-to-let-invest.html

Market volatility may continue on rising US woes

Indian equities are seen extending last week’s losses, as fear of more bad news from the US financial sector is likely to keep the mood in world markets subdued. Leading US equity benchmark Dow Jones Industrial Average fell to a six-year low on Friday on concerns that many US banks would be nationalised.
Such a move, while saving those banks from any collapse, would erode the shareholder value, according to analysts. Such concerns were eased partly after the White House spoke in favour of US banks remaining in private hands.
Back home, the market is likely to be volatile in the first two trading sessions of the week, in the run-up to the expiry of the February derivative series on Thursday, as traders square off existing positions and take up fresh ones in the March series.
Fund managers believe possible interest rate cuts by the Reserve Bank of India, this week, could revive sentiment, albeit temporarily. "This time, unlike previously, the market is yet to factor in expectations of a rate cut, which is a consoling factor,” said a fund manager with a private mutual fund.
"Some aggressive short-covering may happen if RBI cuts rates aggressively, and its short-term impact will be huge, given the quantum of shorts present now,” he added.
Expectations of aggressive rate cuts by the central bank have strengthened, as government’s inability to dole out liberal fiscal relief measures due to deteriorating financial position, has put the onus on RBI to anchor the economy through the current economic crisis.
“Given the upcoming elections, the entire onus on stimulating growth now rests on the monetary policy, and we expect additional easing to the tune of 100-150 basis points (bps),” said Citigroup economists in a report.
“While rising Consumer Price Index (CPI) is a worry, we expect a minimum 100-150-bps cut in repo/reverse repo rates and cash reserve ratio (CRR) in the near term,” they added.
Last week, benchmark indices lost 7-8%, with the Nifty ending at 2,736.45 on Friday amid sustained selling by foreign institutional investors (FIIs) after the government said its fiscal deficit would widen to 5.5% in 2009-10.
An independent technical analyst said the Nifty has a crucial support at 2,600, breaking which the index could head below 2,500 levels. He advises even short-term traders to keep their directional bets to the minimum at the moment, given the uncertain market outlook.

Source: http://economictimes.indiatimes.com/Analysis/Market-volatility-may-continue-on-rising-US-woes/articleshow/4172103.cms

Mid, small-caps hurt India funds amid slowdown

Large exposure to mid and small- caps accelerated damages to fund portfolios in 2008 and pose significant risk now as a falling share market cripples trading volumes, making it tough for managers to exit holdings.
For 55 open-ended stock funds, managing more than 400 billion rupees or two-thirds of the assets of diversified equity funds, will take an average 10 days or more to liquidate their holdings of mid and small-cap shares, data from fund tracker ICRA shows.
It may get worse, analysts warn, as investors favour bigger firms considered relatively better placed to survive a downturn, making exits tougher for fund managers who have parked a third of their portfolios in mid and small-cap stocks since at least 2007.
While funds are not facing sharp redemptions yet, industry watchers say investors should be mindful of risks associated with mutual funds that invest mainly in shares of medium and small-sized firms in a slowing economy.
"Liquidity is a risk point that people should consider," said Krishnan Sitaraman, head of fund services at CRISIL. "This could be an issue when redemptions are large-scale."
Less than a fourth of India's open-end diversified stock funds can liquidate portfolios in a day as compared to nearly a third in same period last year, the data showed.
"Risk has gone up... stocks which were relatively liquid have become illiquid because of the volumes declining because of the drastic fall in the market," said Aditya Agarwal, managing director and head of India for fund research firm Morningstar.
Sameer Narayan, head of equity, Fortis Investment Management, said the daily market volume had crashed to almost a tenth to $2.5 billion in the last one year.
However, large cash holdings of the funds may help them meet redemptions in the near-term, all three said.
Equity funds have held an average 16 percent of their assets as cash at the end of January.
"We don't expect any significant crisis in days to come," Sitaraman said.
MID-CAP BETS
Indian funds have historically relied heavily on mid- and small-caps to produce outperformance.
The strategy paid rich dividends in five years ending 2007 when the BSE 500 index rose seven times, far higher than about sixfold gain in the benchmark index.
In 2008, as tide turned against stocks given large-scale sell-offs by foreign portfolio investors, the benchmark index dropped 52 percent, while the BSE 500 index fell 58 percent.
The mid-cap and small-cap indices plunged 67 percent and 72 percent respectively.
Asset values of stock funds fell an average 54.7 percent, losing the entire gain made in the previous two calendar years and recording their worst annual fall, data from global fund tracker Lipper showed.
Analysts say there could still be opportunities to pick multi-baggers among the battered small and mid-caps but as the economy slows further from an expected 7.1 percent growth in 2008/09, many smaller firms are likely to face pressure as debt levels rise and lenders shy away from funding them.
In a research note last week, CLSA said profits of small and mid-caps fell 83 percent in December quarter as compared to a modest 7 percent decline for bluechip firms part of the benchmark index and advised clients to avoid shares of smaller firms.

Source: http://in.reuters.com/article/businessNews/idINIndia-38115920090220?sp=true

Are debt funds still hot?

The recent rally in debt funds came as a much-needed relief for investors as well fund houses, which saw their assets under management go up after some time. If you have missed the rally, you might be wondering whether there is still some steam left.
Before deciding on debt fund investment, let us first get a lowdown on the different types of debt funds available in the market. Debt funds are of four types: income or bond funds, liquid or money market funds, floating rate funds, and gilts funds. In terms of risk perspective, any debt fund carries liquidity and interest reinvestment risks, among others.
But income funds—which invest in long- and medium-term instruments like corporate bonds, debentures, fixed deposits, gilts— have an extra element of risk over gilt funds. The additional risk element is known as default risk because technically a government cannot default, though theoretically it can. Income funds that are overweight on corporate bonds carry the risk of default so they should pay that extra risk premium to the investors.

Why mutual fund route?
Lack of awareness about the fixed-income market and its complexities leads most of us to the route of mutual funds. The Indian financial market is predominantly equity driven, with very less information flow and awareness about the fixed-income or the bond market.
In the recent past, gilt funds which invest in central government and the state government papers have outperformed the income funds primarily because of easing inflation and the series of rate cuts. However, as I see, going forward the difference between the returns from these categories should come down. Recently, credit spreads of AAA-rated corporates had reached a level of about 415 bps before falling down to the current levels of 300 bps. Historically, AAA-rated corporate spreads have averaged around 120 bps since 2001. The spread is expected to come down over the next six months or so, as the RBI continues to pursue its monetary easing to tackle the slowdown.
As interest rates soften, the yield of the bonds decrease, but the price tends to increase. Once bond prices rise, this is reflected in a rise in the net asset value of debt funds.
Now, in a falling interest rate scenario, I expect the spreads of higher rated PSU bonds to decline. Further, going forward, lower inflationary expectations, coupled with further monetary easing, should lead to a further decline in gilt yields. This makes a classic case for investment in fixed income market for not-so-aggressive investors. A conservative investor should go for long-term debt funds with an investment horizon of two to three years. Gilt yields are likely to soften again once the RBI goes for more rate cuts. And spreads of the AAA-rated bonds are also likely to come down once economy starts picking up along with global economy.

Key things to watch out
This brings us to some key things to look out while investing in the fixed-income mutual fund. First, investors should look at the quality of the portfolio of the fund as times are extraordinary now. A portfolio with more than 20 per cent exposure in gilt and more than 35 per cent of weightage in PSU bonds would be preferable. With the collapse of big institutions globally and expectation of rough times ahead, quality of the portfolio can make huge difference for any scheme.
It is also important to check the track record of the fund manager. In any mutual fund, the record of the fund manager along with the discipline of the fund house is very important. Prudent fund management should help in reducing risks.
Choosing between a between gilt and an income fund would depend upon the risk appetite of any investor.
Finally, the tax angle: For individual investors, long-term capital gains from debt funds are taxed by 11.33 per cent without indexation and 22.66 per cent with indexation. And dividend distribution tax is 14.16 per cent for debt funds.

Source: http://profit.ndtv.com/2009/02/19171634/Are-debt-funds-still-hot.html

HDFC announces introduction of HDFC FLEXINDEX Plan

HDFC Mutual Fund has introduced HDFC FLEXINDEX Plan under its debt / liquid schemes.
The introduced plan will provide a facility to unit holders under the debt / liquid schemes of the HDFC Mutual Fund (Source Schemes) to automatically transfer a portion of their investment into equity schemes of HDFC Mutual Fund (Target Schemes) on the trigger dates occurring during the period of 1 year from the date of registration.
Unit holders of the Source Scheme(s) have to set triggers based on the index reaching or crossing of a closing level, as specified by the unit holder. The plan offers Flexible Investment option and Fixed Investment option. Under Flexible installment option minimum of 10% and in multiples of 1% thereafter is to be indicated against each index level trigger and under Fixed Installment option, a fixed installment of 25% against each Index level trigger is to be indicated.
The move will be effective from February 25, 2009.

Source: http://freepress.in/business/hdfc-announces-introduction-of-hdfc-flexindex-plan/

CRISIL upgrades ING Liquid Plus Fund to ‘AA+f’

CRISIL has upgraded its rating on ING Mutual Fund’s ING Liquid Plus Fund
to ‘AA+f’ from ‘A+f’, to reflect the improvement in credit quality of the scheme’s holdings. The ‘AA+f’ rating indicates that the scheme’s portfolio will provide ‘strong’ protection against losses arising from credit defaults.
Earlier on Nov 14, 2008, CRISIL had downgraded the scheme’s rating to ‘A+f’ from ‘AAAf’, following deterioration in the credit quality of the scheme’s holdings.
CRISIL’s rating is not an opinion on fund manager ING Investment Management (India)’s willingness or ability to make timely payments to investors, or on the stability of the fund’s net asset values (NAVs), as the NAVs could vary with market developments.

Source: http://economictimes.indiatimes.com/ViewsRecommendations/CRISIL-upgrades-ING-Liquid-Plus-Fund-to-AAf/articleshow/4153217.cms