Reliance MF buys 5.23% stake in FT from Fidelity

Reliance-Anil Dhirubhai Ambani Group (ADAG) company Reliance Mutual Fund today bought 5.23 per cent stake in Financial Technologies, the promoter of India’s largest commodity exchange, Multi-Commodity Exchange of India (MCX). The shares were bought from the Fidelity group at Rs 502.50 per share. The deal values FT at Rs 2,304 crore.
The FT share price today went up 8.69 per cent to Rs 567 on the Bombay Stock Exchange, resulting in a market capitalisation of Rs 2,602 crore.
Fidelity, which holds 10.65 per cent in FT, sold 8.20 per cent of it in a block deal for Rs 188.80 crore. Apart from Reliance Mutual Fund, several high net-worth individual investors bought the balance 2.97 per cent.
Five years back, ADAG company Reliance Capital had purchased FT’s shares. The stakes were later sold at higher price levels.
Reliance ADAG has strategic interests in the exchanges business. Besides holding stake in the Hong Kong Mercantile Exchange, in India, the group holds 10 per cent stake in the commodity exchange — National Multi-Commodity Exchange — through Reliance Money.
It is also going to start a spot commodity exchange under its subsidiary, Reliance Spot Exchange Infrastructure, soon.
Sundeep Sikka, chief executive officer, Reliance Mutual Fund, said, “The investment will be allocated across various mutual fund schemes that are currently managed by the asset management company.”
He, however, declined to comment whether Reliance Mutual Fund had any strategic intention behind the deal or was it just another investment.
For Fidelity, this is part of a broader selling plan for some of the investments of its Indian venture. After the recent exit of Fidelity’s high-profile Indian fund manager, Arun Mehra, new managers are understood to have started selling some existing investments.
FT’s deal is one of the most high-profile deals done by Fidelity. Fidelity has been with the FT group for more than four years. It also holds stake in the FT-promoted commodity exchange, MCX.

Source: http://www.business-standard.com/india/news/reliance-mf-buys-523-stake-in-ftfidelity/353169/

MFs slowly emerging from FII dominance

If FII selling is blamed for the carnage in the last one year, increased buying by domestic mutual fund houses has seen the Indian equity market bounce back recently.
Between March 12 and 23, mutual fund houses net bought equities worth Rs 1319 crore against Rs 1093 crore by foreign institutional investors. In the same period, the Sensex has risen to 9424 from 8343.
However, the MFs may be trying to shore up their balance sheet for year end consideration, and so the increased buying. This is also because they had been sitting on cash for too long.
But does this suggest that MFs are gaining prominence in driving the indices? Domestic institutional investors have already started showing their dominance. In 2007, domestic insurance houses invested Rs 55,000-Rs 66,000 crore against Rs 50,000 crore invested by FIIs in the Indian markets.
Given the expansion of mutual fund industry, domestic fund houses can play a vital role in driving the market in the next five years, experts feel. For the month of February, the AUM for mutual fund industry stood at Rs 5,00,973 crore.
“Huge MFs buying is one the reasons for the current market rally. Huge volume buying in equities by MFs and other domestic institutions will reduce dependence on FIIs. However, it will take some time,” said Bupen Shah, a Mumbai based broker.
“No doubt domestic fund houses along with insurance companies and pension fund will emerge stronger players in the market 4-5 years down the line. Whether they will replace the dominance by FIIs remains to be seen. MFs need to increase their corpus by tapping the huge retail base across the nation,” said Sandeep Dasgupta, chief executive officer, Bharti Investment Mangers.

Source: http://economictimes.indiatimes.com/MFs-slowly-emerging-from-FII-dominance/articleshow/4319687.cms

Subbarao Says RBI Will Act Appropriately on Growth

The Reserve Bank of India will adopt appropriate measures on boosting economic growth, Governor Duvvuri Subbarao said on the day the nation’s inflation rate fell to the lowest on record, giving room for more rate cuts.
“We will take whatever action is necessary,” he said at the Confederation of Indian Industry’s annual meeting in New Delhi today. The central bank is constantly monitoring the situation, Subbarao said, without elaborating.
India’s inflation slowed to 0.27 percent, the government said today, allowing space for interest-rate cuts to bolster an economy growing at the weakest pace in six years. Inflation is the slowest on record, according to data available since 1990 on the Bloomberg. Economists expected an increase of 0.12 percent.
India’s economic recovery will be “swift and sharp,” aided by savings and productivity, Subbarao said, without giving a timeline. Growth fundamentals are intact, while local banks are sound and well-capitalized, he said. A decline in crude oil prices provides space for the government to spend, he said.
The government’s borrowings have risen because of the need to pay for economic stimulus plans, he said. Next year’s borrowing program will be conducted by the central bank in a manner that causes the least disruption, he said.
The business environment in the fiscal year starting April 1 may be challenging unless a revival in business confidence takes place, Subbarao said.
Economic Growth
India’s economy may revive in the next three to six months, said Suresh Tendulkar, head of the prime minister’s economic advisory panel, Press Trust of India reported, citing comments made in Kolkata today.
Subbarao dismissed concerns that India is slipping into a period of deflation.
The finance ministry’s top economist Arvind Virmani earlier this month ruled out the possibility that India will suffer from deflation. While the wholesale-price index is the Asian nation’s benchmark measure for prices, India has four consumer-price indexes that are running at more than 7 percent.
“Talk of deflation in India is misplaced when consumer prices are still very high,” said Rajeev Malik, a regional economist at Macquarie Group Ltd. in Singapore. “Negative prints on wholesale prices and weak economic activity may prompt the central bank to ease policy rates further.”
Price Indexes
India’s inflation based on consumer prices paid by industrial workers stood at 10.4 percent in January. The consumer-price index for farm workers gained 11.62 percent in the same month, according to government data.
The Reserve Bank of India uses the wholesale price index as the benchmark because the consumer price indexes don’t capture the aggregate price picture, unlike in other countries, said Malik. India’s statistics department said last year it is working on a plan to build a comprehensive consumer price index to use as the benchmark.
“We expect the wholesale-price index readings to be negative for around two quarters,” said Sonal Varma, a Mumbai- based economist at Nomura International Ltd. “But do not confuse this with deflation. Consumer prices are still firm though we expect it to moderate with a lag to about 4 percent by the fourth quarter of this year.”
Varma expects the central bank to cut its repurchase and reverse-repurchase rates by 100 basis points to 4 percent and 2.5 percent respectively by the middle of 2009. A basis point is 0.01 percentage point.
Interest Rates
Subbarao has cut the repurchase rate by 400 basis points since October. India has more room to lower rates than other economies, with the Bank of England’s benchmark at 0.5 percent and the U.S. Fed’s target interest-rate range at 0 percent to 0.25 percent.
Deflation is a sustained decline in prices that may encourage consumers to delay spending, hurting economic growth.
Inflation in India is slowing not because of a contraction in consumer demand, Ashok Chawla, economic affairs secretary in the finance ministry, told reporters in New Delhi today.
China last month suffered its first deflation since 2002, joining Ireland, Taiwan and Thailand in posting record falling prices in their most recent figures, according to Bloomberg News data covering 78 countries.
India’s $1.2 trillion economy may grow around 6.5 percent in the year ending March 31, the nation’s Planning Commission Deputy Chairman Montek Singh Ahluwalia said this week.
Prime Minister Manmohan Singh said March 24 that growth will rebound strongly in about six months on the back of rural demand. Agriculture has expanded at an unprecedented 4.4 percent average annual pace since 2004, providing village dwellers with more money to spend.

Source: http://www.bloomberg.com/apps/news?pid=20601091&sid=aOCJytUDmSz0&refer=india#

EPF panel rejects plan to invest funds in stocks

An Employees Provident Fund Organisation committee has rejected the finance ministry's proposal to invest 15% of the EPF corpus in stocks.
At a meeting held here on Thursday, EPFO's finance and investment committee rejected the proposal for parking up to 15% of the corpus of Rs 1,82,000 crore in shares of listed companies as also equity-linked schemes of mutual funds.
Sources said the committee was opposed to the finance ministry's proposal in view of the volatility witnessed in the stock markets in the recent past.
The finance ministry had in August last year suggested a new investment pattern to EPFO under which the organisation could park up to 15% of its funds in companies listed on the Bombay Stock Exchange and the National Stock Exchange and also equity-linked schemes of Sebi-regulated mutual funds.
The trade unions were vehemently opposed to this proposal. The trade union representatives on EPFO's central board of trustees had at its meetings argued that PF money should instead be parked in public sector financial institutions which were much safer than the volatile stock markets.
The finance ministry had come out with the proposal after EPFO allowed private players HSBC, Reliance Capital and ICICI Prudential to manage the incremental funds of EPFO in July last year. EPFO had also selected the country's largest public sector bank, State Bank of India, for the purpose.
The ministry wanted EPFO to invest in stocks to increase its yield on the funds. In April last year, the banks were offering an interest rate of 9% or more. But EPFO found it difficult to announce even 8.5% returns for 2008-09.

Source: http://timesofindia.indiatimes.com/Business/EPF-panel-rejects-plan-to-invest-funds-in-stocks/articleshow/4321210.cms

UK hedge fund sells 8 Indian bank holdings

The Children’s Investment Fund, the $9.5 bn London activist hedge fund, has
liquidated its holdings in Indian state-owned banks, a newspaper said

Hong Kong: The Children’s Investment Fund, the $9.5 billion London activist hedge fund, has liquidated its holdings in Indian state-owned banks, according to the ‘Financial Times’.In the past three months, the fund has sold holdings in eight banks, from state-owned Bank of Baroda to Union Bank of India, the paper reported.

Source: http://www.livemint.com/2009/03/22224549/UK-hedge-fund-sells-8-Indian-b.html

MFs fail to find pot of gold in Indian depository receipts

Lack of arbitrage opportunities, higher trading costs and volatile currency have resulted in mutual funds reducing their exposure to depository receipts (DRs) of Indian companies. Mutual fund analysts say fund managers may have even lost out on substantial gains they could have easily pocketed had they anticipated the currency movement and invested in DRs, when the dollar was gaining against the rupee since August 2008.
Fund exposure to DRs is minuscule compared with overall assets managed by the industry, mainly due to the unwillingness on the part of fund managers to have a big exposure to stocks that trade when they are fast asleep in India due to different time zones.
“We could have made money had we spotted the trend (dollar strengthening against the rupee) earlier enough. We should have bought DRs, when the rupee was at 45-46 levels and sold them at current rates,” said the fund manager of a private fund house.
“Though we would not have made much money selling the underlying, there sure was good money to be made on the currency side. Now, we are at the fag end of the currency rally. At the most, the rupee may scale up to 54 a dollar. It’s very risky to look out for currency play now,” the fund manager said.
If one goes by numbers, in December 2007, mutual funds had over Rs 71 crore as investments in Indian DRs. A year later (in December 2008), the MF exposure in DRs has plunged to just over Rs 28 crore — though not all of it is due to redemptions, as DR values have fallen drastically over the past one year.
“From what we understand, MFs have more or less remained steady with their investments (in DRs). They have not invested any new money, but there has not been much redemptions either. In my opinion, the fall in exposure levels could be more because of depreciation in DR prices,” said Instanex Capital CEO Gautam Chand.
Minus the currency risk, DR/share swapping is said to be one of most riskless forms of arbitraging. Due to time differences, news flow into the market and local sentiment, DRs trade at discount or premium to the underlying stock.
This presents fund managers an arbitrage opportunity, wherein the fund buys the DR abroad and sells the same stock in India at a higher price — the difference being the profit. This is an expensive strategy, as fund houses will have to bear a two-way brokerage and custodian charges.
“Local MF houses generally have very limited exposure to DRs due to variety of reasons — convenience, cost and the relatively higher liquidity available in domestic markets,” said Franklin Templeton senior portfolio manager KN Sivasubramanian.
“Moreover, ADRs tend to trade at high premiums (to local market) in volatile times, such as now. This reduces the attractiveness of holding ADRs in the portfolio. Exposure to GDRs, in any case, tends to be lower as a result of lower liquidity levels on exchanges,” Mr Sivasubramanian added.

Source: http://economictimes.indiatimes.com/Analysis/MFs-fail-to-find-pot-of-gold-in-Indian-depository-receipts/articleshow/4311881.cms

SORRY BEARS - No new low for Indian markets

Over the last few months most market commentators have been focused on the fact that there is going to be a new low made in the Indian markets and that the markets have not bottomed out yet.
I remember going to the investors conference of a very large foreign brokerage with an Indian partner in the month of January 2009 and I found the mood to be extremely bearish. There were companies presenting in that conference that would be among the top ten corporates of India in whose presentations a year back more than 100 investors would have participated, however this time the number of investors attending the presentations were in the region of not more than ten. The consensus 100 upon 100 was that the markets will make a new low and there is unlikely to be a recovery soon. In my discussions with the participants in that conference i found that the mood was extremely bearish. That was the time i got convinced that there is going to be no new low at least for the Indian markets as history has shown us that consensus never turns out to be true.
The search for lower levels to invest in the markets is an ever going process. However there are both technical and fundamental factors that one has to evaluate before coming to a conclusion on any such event occurring. Like i commented in one of my earlier articles on the blog the technical factor that could have taken the markets to a new low was sheer momentum of the downside where rampant shorting and continuous redemption from offshore funds and hedge funds investing into Indian and other emerging markets could have taken the markets to a new low. However that momentum seems to have broken down now and is unlikely to restart in my view. The downward momentum has clearly been broken.

The movement in a number of emerging markets vis a vis markets in the West is very similar to what happened in the year 2002 after the markets made a panic bottom after the September 11 attacks in the USA. Most Western markets made a new low in 2002, however most emerging markets did not, and i believe the same is likely to repeat this time also. This time even the fundamental reasons are much more stronger as economies like India, China, Brazil etc are likely to take the hit from the the global economic slowdown much better that the developed world. As such we have seen a large number of developed country markets make a new low in February 2009, however most emerging markets have held on much better.
All key economic parameters like inflation, interest rates, input cost pressures for corporates are turning for the better. Demand pickup has started on the consumer side and is likely to pickup significantly post elections ( if there is no third front with a strong left, which is an unlikely scenario in my view ). Another important thing is that analysts have turned excessively pessimistic on the markets and are projecting either no growth or a very slow growth in earnings next year. However i believe that clearly economic growth is in the process of bottoming out in India and markets will bottom out much before growth bottoms out. There is excessive bearishness on economic growth which does not take into account the start of a large new refinery, gas production by Reliance Industries, increase in electricity production due to greater availability of both gas and coal, higher consumption due to lower interest rates and higher public sector employee salaries, increase in economic growth prospects due to greater government spending etc.
I have been amazed seeing the kind of views most global fund houses and analysts have been giving on various business channels over the last two months where everyone is so focused on the USA and the fact that unless USA recovers other economies will also not recover. I believe this reflects a superiority complex and is a vestige of the colonial past where these people still believe that the Western world is the centre of the universe. Most of these people forget that in the 1990's the USA and most of the other European markets had a secular bull market which lasted for more than a decade and in this period the Indian markets went nowhere. The Dow Jones index went from around 2500 in 1990 to 11750 in the year 2000 ( before the Internet bubble burst ). In the same time period the Sensex went up from around 2000 to 6000. China in this decade embarked on the process of rapid economic growth ( again with low inflation ) and the Chinese markets went up by 10x in the same time period i.e. a 1000% return. The reason was that that was the decade in which most Western economies grew rapidly with low inflation. The same decade is likely to occur in India from 2010 onwards.
I will discuss more on the long term prospects separately as i wanted to focus this time on the fact that i clearly believe that a NEW LOW in the markets is unlikely to occur due to a combination of fundamental and technical reasons. Also the one unique event for India which could have created the NEW LOW, the elections are also likely to get over by the middle of May.
The markets are likely to become stock specific from April onwards when the full year results for the current year come out and will provide an excellent opportunity to build up a long term portfolio.

Source: http://sandipsabharwal.blogspot.com/2009/03/sorry-bears-no-new-low-for-indian.html

No monthly income from the monthly income plans

For eyes eagerly waiting for the monthly incomes from their mutual fund investments, the wait does not seem to end. Baring a handful of MIPs, most have kept a low key profile, as far as dividend payouts are concerned, for the financial year 2008-09. The monthly income plans (MIP) are fairly popular amongst investors, especially pensioners and are believed to be a source of regular income through periodic dividend payouts.

According to the mutual funds portal ICRA online, out of the 34 odd MIPs with a monthly dividend payout option, only five schemes have been consistent in paying dividends uniformly every month so far in the current financial year.

These include Birla Sun Life MIP – Savings 5, DBS Chola MIP, ICICI Prudential MIP, Principal MIP and Principal MIP Plus. Nilesh Shah, Deputy Managing Director, ICICI Prudential AMC, stated that, “While the accumulated profits of earlier years have partially helped us in paying out the dividends consistently, it is our dynamic management of the scheme that is reaping the dividends even in the current market scenario.” This MIP is also the first MIP to declare the 100th consecutive dividend in the month of Feb ’09 since its launch in Nov ’00, according to the fund house.

The other schemes, however, are still struggling to keep away the market blues. While most schemes have been pretty irregular in paying dividends, there are some who have not made a single dividend payout in 2008-09. These include, DSP Blackrock Savings Manager – Aggressive & Moderate, Fortis MIP, HDFC MIP Short Term Plan, LIC MIP and Sundaram BNP Paribas MIP.

“Lack of distributable surplus has constrained us from paying dividends”, says Ramkumar K, Head – Fixed Income, Sundaram BNP Paribas AMC. “Though this scheme has 85% in debt, the losses in equities far exceed our profits from debt papers. Also after a brief rally, now even the returns from debt instruments have entered the negative terrain”, he added.

The desperation of most MIPs in paying dividends is evident from the fact their NAVs are currently trailing even below Rs 10/- per unit which is the price at which an investor purchases a unit at the new fund offer (NFO) stage. As Mr. Ramkumar stated that, “We cannot think of paying dividends unless our NAVs are restored to at least Rs 10. Regulations demand that dividend can be paid only from surpluses and not from the capital investment”.

As such the fund houses are not obligated to pay the monthly income which is paid subject to the availability of distributable surplus. A disclaimer to this effect is always stated in the offer documents and never read by the investors.

Source: http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/MF_News/No_monthly_income_from_the_monthly_income_plans_/articleshow/4304887.cms