SBI MF to launch sectoral-specific funds

Looking at the potential of the Indian economy, one should remain invested in
equities, SBI MF’s chief investment officer Navneet Munot said

SBI Mutual Funds, the joint venture between State Bank of India and Societe General AMC (France), plans to launch sectoral-specific funds in the near future, a company official said.“We will launch sectoral specific funds which we don’t have in our portfolio,” SBI Mutual Fund chief marketing officer R S Srinivas Jain said on the sidelines of a press meet here.“We have filed several products with the market regulator for its approval. We will launch the same, once we get approval,” Jain said.The uncertainty in the global market looks likely to continue, he said.However, looking at the potential of the Indian economy, one should remain invested in equities, SBI MF’s chief investment officer Navneet Munot said, adding that SBI MF’s gold ETF, will provide more liquidity and transparency.During the quarter ending March 2009, being the financial closing period, there may be some selling pressure from corporates, Munot said, adding, “However, overall, the growth is in line with expectations.”SBI Mutual Fund is one of the country’s premier fund-houses, managing assets over Rs27,627 crore as on 28 February 2009. The fund house serves over 5.5 million investors through a network of over 200 points of contact.

Source: http://www.livemint.com/2009/03/31123419/SBI-MF-to-launch-sectoralspec.html

SBI MF aims to collect Rs1.5-2 bn from gold ETF

SBI MF will join the five other gold ETFs traded on the NSE. India’s gold collection under exchange-traded funds rose 32.8% to 5.172 tonnes in the year to February-end State Bank of India Mutual Fund aims to collect Rs1.5-2 billion from its new gold Exchange Traded Fund (ETF), a senior official said on Monday.

“Based on the current market situation, our current expection is that in the initial stage we should probably do about Rs150-200 crores,” R.S. Srinivas Jain, chief marketing officer with SBI Mutual Fund, told reporters at the launch.“And over the period of time we should be a substantially large fund,” Jain added.

The new fund offering will close on 28 April.SBI MF will join the five other gold ETFs traded on the National Stock Exchange. India’s gold collection under exchange-traded funds rose 32.8% to 5.172 tonnes in the year to February-end, data from the funds showed.Though gold collections under ETFs are growing, they remain miniscule against India’s imports of about 700 tonnes annually.Gold ETFs — instruments that can be traded like shares and are backed by physical gold holdings — are more than a year old and the segment may get crowded with some other funds planning to enter.
http://www.livemint.com/2009/03/30153900/SBI-MF-aims-to-collect-Rs152.html

Should one invest on mid caps now?

Mr. Sandip Sabharwal view on Should one invest on mid caps now?

The current market scenario where the economic outlook is bottoming out not only in India but also globally, the interest rate scenario is much more benign and more importantly huge amounts of money is being pumped in by monetary authorities and governments globally, a stage is being set for a huge deluge of liquidity into risky assets which include emerging market assets, commodities etc over the next two to three years. Under this scenario the next two to three months will be an ideal time to pick up high quality mid caps with a two to three year outlook. There are 100's of mid caps today in the markets which can give 100% return over this time period.Mid caps today trade at a sharp discount to large caps, despite some of them having a much greater visibility on future growth. There are a large number of mid caps whose market value is not much greater than the cash they have ( although the vast majority now doubts cash holdings after the Satyam episode). Companies that used to trade at 25x price to earning ratio today trade at 2-4x price earning ratio.The ideal time to buy mid caps is when most investors are negative on them, there is low visibility for the near term, they are extremely illiquid and when they can be bought with very low impact cost ( for example in today's scenario lot of FII's are willing to sell their mid caps at discounts rather than a premium which is required during bullish market conditions). I believe all the conditions are satisfied at this point of time. This is also a time period where return from mid cap stocks over the next two years might be high as lot of these companies might not dilute their equity in the near term and as such all the benefits of a cycle improvement will come to exisiting shareholders.Typically two to three years after the start of a new up move a majority of smaller companies start diversifying and raising equity which in most cases is counterproductive to existing shareholders. As such the time to buy mid caps is not at the end of a new up move where there is huge euphoria and most companies believe that they have got strong visibility of future growth. The ideal time is when most managements also become sceptical and pessimistic on future growth and that scenario exists today.However, on the other hand mid cap investing requires much more due diligence and the ability to evaluate the managements and business models properly whereas when one is investing into large caps it is more a top down market and sectoral call. To that extent a large number of retail investors might not be able to evaluate smaller companies properly.On a broad basis i believe that mid caps will outperform large caps by nearly 100% over a three year holding period from where we are placed today. Most investors will continue to focus on large caps for a large part of time when the new bull market would have already started and that will provide opportunity for discerning investors to pick out high quality mid caps.I do not mean to say here that investors should not invest in large caps, there are a huge number of large caps that are likely to perform extraordinarily well as the economy revives and have got very strong cash flow which will help them grow faster than others in the first 12-18 months of a new bull market where raising fresh equity is not very easy. But discounting mid caps as junk is not the right strategy as ultimately it is high quality mid cap companies which will become the large caps in the next upcycle.In a nutshell i would say that that the key to making money in mid cap stocks is to buy them when they are very cheap, illiquid and when no one is looking at them. Eventually as the companies start delivering results consistently quarter on quarter more and more people start looking at these stocks and the liquidity builds up. But since these are mid caps with a limited floating market cap the returns can be substantial.

Sandip Sabharwal View on Market

Short to medium term market outlook

A large number of readers have been asking my opinion on whether the kind of up move that we have seen over the last three weeks is sustainable and what is the likely direction of the markets going forward. There have also been questions like whether this is the beginning of a new bull market or this is just a sharp correction in the bear market.
The large cap side of the markets has seen a sharp up move of nearly 25% since the beginning of March. The contributory factors have been the strong stimulus packages and liquidity measures in the USA, better economic data, and small inflows into equity funds globally and more relevantly in the short run large scale short covering by both wholesale domestic investors as well as hedge funds. However like I covered in my last article the up move has largely been restricted to the large cap side and the broader markets have not moved up so much.
I believe over the next couple of weeks the markets are likely to be in a corrective mode where they will give up between 25-50% of their gains in the current up move. However there is likely to be more action on the mid cap side of the markets which are likely to be more buoyant and we are likely to see lot of stock specific action. However clearly the current up move seems to be different from most of the up moves we have seen over the last 15 months which had been on the backdrop of deteriorating fundamentals and continuous negative bad news. I believe that economic performance globally seems to have bottomed out now and given the fact that the current up move comes in that backdrop it is likely to be much more sustainable. I believe that whether this is a bear market correction or the beginning of a new up move will be known much later. However I clearly believe that the current up move will take the markets at least to the 200 days moving average of the markets which stand at around 12000-12500 levels for the BSE Sensex.The current up move in most markets globally has been backed by a sharp drop in the value of the US Dollar and also a fall in volatility globally. The drop in the value of the USD has also led to a sharp rally in most commodities like crude, gold, aluminum and a number of Agri commodities. The US Dollar after a short term up move is likely to fall very sharply in the second half of the current year which will lead to a deluge of money into emerging markets. We are now in the base building phase of the next big up move. The only short term damper specifically for India can be the election results which are an event difficult to predict.The results season is also around the corner which should be inline or better than expectations on the whole. Also to repeat what I said in an earlier blog – No new lows for the markets.Sectorally on the large cap side sectors like steel, automobiles, capital goods and Private Sector Banks look good for the medium term although they might correct over the next few days.

Source: http://sandipsabharwal.blogspot.com/

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