Sensex to Hit Record on Profits for DSP BlackRock

S. Naganath, who has beaten 99 percent of his mutual fund peers in India, says the fastest profit growth in three years and unprecedented spending on roads and ports will drive the country’s benchmark stock index to a record high in the first half of 2011.

“At every dip, we’re a buyer,” Naganath, chief executive officer at DSP BlackRock Investment Managers Pvt, which manages $7 billion in assets, said in an interview in Mumbai today. “If the market falls, then we’ll seek to deploy our cash.”

India’s benchmark stock gauge on May 25 fell more than 10 percent from its recent peak as investors withdrew funds as the European crisis eroded confidence. Still, the gauge today completed its best week in 12 after Tata Motors Ltd., the owner of Jaguar Land Rover, posted profit that exceeded analysts’ estimates.

Trading will be “choppy” in the next six months amid concern Europe’s debt crisis may worsen, said Naganath, 45. Foreign funds sold $2.3 billion of Indian stocks in May, on course for the worst month since October 2008, following the collapse of Lehman Brothers Holdings Inc.

Return to Highs

“As the earnings upgrades come through as currently estimated, this market has the potential to get to the highs that we last saw in early 2008,” Naganath said. The DSP BlackRock Micro Cap Fund has returned 92 percent, compared with a 51 percent gain in the BSE Small-Cap Index, in the past year.

The benchmark Bombay Stock Exchange Sensitive Index, or Sensex, would have to gain about 25 percent to reach its record set on Jan. 8, 2008. The nation doubled its target for infrastructure spending to $1 trillion in the five years starting 2012 to narrow the gap with China. India’s economy is also accelerating as rising incomes boost demand for cars, mobile phones and air travel.

India’s biggest companies are expected to post an average 25 percent gain in profits in the year ending March 2011, and a further 20 percent in the following year, Naganath said.

Birla Sun Life Asset Management Co., India’s fifth-largest money manager with almost $17 billion in assets, plans to boost stock holdings to as much as 30 percent from 20 percent now, Chief Executive Officer A. Balasubramanian said on May 26.

‘Sweet Spot’

“India is in a sweet spot now,” Balasubramanian said.

“The economy remains insulated from Greece and corporate earnings will maintain a high growth rate. So the correction in stocks is an opportunity for long-term investors.”

India’s small and mid-cap companies will lead a rebound in stocks this year as investors seek out values to tap on the nation’s economic growth, Seth Freeman, chief executive officer at San Francisco-based EM Capital Management LLC said today in a Bloomberg Television interview. Freeman said he’s “overweight” on financial services companies because the banking industry is “a proxy for overall growth in the country.” He also likes technology companies as demand for their services is expected to increase, he said.

The Sensex index of the largest 30 companies is trading at 16.3 times estimated profit, the highest in Asia excluding Japan. It’s also the most expensive among the four BRIC markets, which also include China, Brazil and Russia.

Outpace China

CLSA Asia Pacific Markets’s Christopher Wood, the second- ranked Asia strategist in Institutional Investor magazine’s annual poll, said May 18 he expects India to outpace China’s growth in the next five years with the new developments. Indian equities also have the most attractive outlook in Asia this year, Wood said.

India’s economic growth may accelerate to about 8.5 percent in the year ending March 31, Finance Minister Pranab Mukherjee has forecast. That would be the fastest pace since fiscal 2008.

Source: http://www.businessweek.com/news/2010-05-28/sensex-to-hit-record-on-profits-for-dsp-blackrock-update2-.html

Sundaram Finance not to enter banking or exit MF business

City-based Sundaram Finance group Friday ruled out entering the banking sector and said it will continue with the mutual fund business with or without a partner.

'Converting Sundaram Finance Ltd into a bank provides no advantage. At this level Sundaram Finance can compete with many private banks,' Managing Director T.T. Srinivasaraghavan told reporters here.

'We will be in mutual fund business with or without a partner.'

Asked about market rumours that the group is exiting its non-life insurance joint venture, Royal Sundaram Alliance Company, he said: 'In respect of the insurance, the situation has not arisen for us to take a final call'.

Sundaram Finance has two joint ventures - mutual fund and home finance - with BNP Paribas.

The mutual fund joint venture is under spotlight as BNP Paribas acquired Fortis business outside the Netherlands.

As per Indian regulations, no one can have two mutual fund companies and as such BNP Paribas has to decide between Fortis Mutual Fund and Sundaram BNP Paribas Asset Management Company.

'There are three options for us - buy out BNP Paribas' stakes in the mutual fund business; merge Fortis Mutual Fund with us or selling out our stakes in the mutual fund business. The last one does not arise,' Srinivasaraghavan told IANS.

Asked whether Sundaram Finance will be open to buying out BNP Paribas' stakes in both the joint ventures and run the business independently, he said: 'There is no issue with the home finance venture. The partnership with BNP Paribas has been good till now. But we are committed to mutual fund business.'

He said discussions are on and in a month's time a final decision will be taken.

About the rumours that Royal Sundaram Alliance is on the block, he said: 'We have not spoken to anybody about selling our stakes. I can't say that about our partner - RSA, UK. A stage has not been reached where we have to take a call to be present or exit the insurance business.'

Meanwhile, Sundaram Finance, a player in the commercial vehicle and car finance segments, closed fiscal 2009-10 with a revenue of Rs.1,181 crore and net profit of Rs.226 crore.

The company board has recommended a final dividend of 40 percent.

Source: http://sify.com/finance/sundaram-finance-not-to-enter-banking-or-exit-mf-business-news-default-kf2tEehegfc.html

Sebi wants more checks on MF expenses

The Securities and Exchange Board of India (Sebi) is preparing ground for a fresh set of mutual fund (MF) reforms to make the instrument more transparent and attractive for investors.

The MF advisory committee, comprising industry and Sebi representatives, is due to meet on Monday to discuss the proposals.

For a start, the regulator wants fund houses to keep promotional expenses, such as those on foreign trips and gifts to distributors, outside the ambit of the expense ratio. This ratio — it includes fees paid to fund managers, advertising, legal, record-keeping and accounting costs, custodial charges and taxes — is capped at six per cent for a scheme. In most cases, fund houses keep the expense ratio around 2.5 per cent, but include promotional costs in the calculation.

Sources familiar with the development said the regulator suspected that many costs passed off as advertising or promotional expenses were in reality paid to distributors for pushing sales.

The move comes when Sebi has been embroiled in a battle with the insurance regulator, Irda, for control over unit-linked insurance plans, seen as a rival to MF schemes. By reforming the commission structure for these schemes, the market regulator has put pressure on the insurance sector to opt for reforms.

Clearer performance measures

In addition, at the Monday meeting, the regulator would want to put in place a more investor-friendly performance review mechanism. At present, apart from the daily net asset value, fund houses put out monthly fact-sheets which provide mathematical calculations comparing and evaluating the schemes on offer. The regulator feels retail investors find this form of review complicated. Instead, it wants MFs to provide specific quantitative parameters for one to be able to judge the performance of a scheme.

The advisory committee is also to discuss issues like guidelines for MF investments in equity derivatives. This has become a contentious issue. Some members feel fund houses should not be allowed to invest in risky instruments like stock derivatives.

However, if a complete ban was not possible, there should be some specific guidelines, said an industry source.

The committee, whose earlier meeting was in November, was also likely to look at the issue of conflict of interest among trustees, asset management companys (AMCs) and managements of fund houses, sources said. The issue was discussed earlier and it was noted that there was an overlap in membership of these entities.

Sebi had addressed the issue by ordering that AMCs, trustees and managements should have different sets of individuals. The sources said the regulator wanted to ensure that no gaps remained in the regulations.

In the recent past, Sebi has used the MF advisory panel to usher in a lot of changes, such as in the entry and exit load structure, put in place last August.

Source: http://www.business-standard.com/india/storypage.php?autono=396301

Principal to launch pension fund in October

Principal Financial Group (PFG), the largest pension player in the United States, is looking to launch its pension business in India.

“We already have fairly advanced plans and will launch this programme in October,” said Norman Sorensen, president and chief executive officer of Principal International Group, a division of the Principal Financial Group.

Chances are that PFG will set up a separate company to launch pension plans. “We don’t know yet as the structure is yet to be defined. However, we believe the expertise that we have on a global basis in this area is so significant that we can bring to bear an independent company,” Sorensen said.

If PFC does set up a separate company to manage its pension fund business, it will be the first instance of a private pension fund company in India, soliciting as well managing money for building a retirement corpus.

Currently six pension fund managers manage money for the money raised under the New Pension Scheme. These are SBI Pension Funds, UTI Retirement Solutions, IDFC Pension Funds, ICICI Prudential Pension Funds, Kotak Mahindra Pension Fund and Reliance Capital Pension Fund.

These pension funds just manage the money raised under NPS, and have nothing to do with raising or soliciting that money from investors.

The other option is to launch the business through Principal Mutual Fund, a joint venture that Principal has with Punjab National Bank and Vijaya Bank.

On whether this business will be regulated by Securities and Exchange Board of India (Sebi), Sorensen said, “Sure. There is no reason to regulate it otherwise”.

Currently pension plans are offered by insurance companies, which are regulated by the Insurance and Regulatory Development Authority of India (Irda). However, Franklin Templeton Mutual Fund does offer a pension plan regulated by Sebi.

PFG manages $300 billion worldwide (The entire Indian mutual fund industry manages around $169 billion). “In Brazil we are the number two pension player and we manage $18 billion in pensions. In China, we manage only $6 billion. In Mexico and Malaysia we manage $5 billion and $6 billion, respectively,” said Sorensen.

So what exactly is PFG’s plan?

“We have something in the United States called target funds. We intend to introduce those funds in India,” said Sorensen. “Target funds basically target your age. A 25-year-old who has a target date of retirement of 2050, is likely to invest in target retirement fund 2050. And that’s why the name. The fund will probably begin with 80% investment into equity and with age the allocation to equity will come down. It basically increases the conservatism of the investment portfolio as your age grows,” he added.

Also, the investment for these pension plans is so carried out thatit is better than average performance. “It does not intend to at any point be number one in the market. Why? Because then you take more risk,” said Swanson.

And what will happen to the accumulated money on retirement? Well it all depends on the individual who invests in the pension plan. “This is absolutely retirement money but it is up to you what you do with that money afterwards,” said Sorensen.

“The idea behind the retirement plan is to provide income until you pass away. The money can be put into an immediate annuity, so that it provides fixed income or it can be invested in some very conservative fund. And we would not recommend equity of course,” he explained.

How is this product different from pension plans offered by insurance companies?

“There is no restriction on withdrawal unlike some of these pension plans,” said Sorensen. “Some people decide to take out some money before retirement, (which is) not necessarily a wise thing because the money seizes to accumulate,” he added.

Pension plans of insurance companies come with a lock in of 5 years. Over and above this, at maturity, an individual who is holding a pension plan from an insurance company has to necessarily buy immediate annuities using two third of the corpus. The remaining one-third can be withdrawn.

Source: http://www.dnaindia.com/money/report_principal-to-launch-pension-fund-in-october_1388270

Mutual funds play it safe, increase cash holdings

Sensex tanks on worries over euro, Korea.

Amid renewed global uncertainty, cash levels in the mutual fund industry are on the rise. While data will be available only next month, fund managers Business Standard spoke to said cash holdings were expected to go up.

This month, the benchmark CNX Nifty has fallen 8.94 per cent, or 472.65 points, to 4,806.75. The Bombay Stock Exchange Sensex has plunged 1,514 points, or 8.64 per cent. The lessons learnt at the height of the financial crisis in October 2008 are still fresh in the mind, say market experts. Then, fund houses had witnessed massive redemptions amid crashing global markets, prompting the Reserve Bank of India to come to the rescue.

In January 2009, the MF industry was holding 11.46 per cent of its average assets under management (AAUM), estimated at Rs 9,729 crore, in cash. This was the highest in over a year.

In April, according to Edelweiss Capital, total cash balance of asset management companies (AMCs) in equity schemes was 5.2 per cent of the total corpus — Rs 10,100 crore as against Rs 9,100 crore in March. At the end of March, AAUM of the MF industry were estimated at Rs 7,47,525 crore, which rose 2.89 per cent to Rs 7,69,165 crore at the end of April.

Uneasiness at stock movements

But, for some fund houses, cash levels are higher than in January 2009. For instance, a smaller-sized domestic fund house has a cash holding of around 13 per cent, against 10 per cent in the middle of April. “Once stocks moved beyond our comfortable zone, we decided to sell,” said the equity head of a fund house which holds 75 per cent of its assets in equity.

“It makes sense to increase cash levels, as it will provide a cushion in an event of a drastic fall in the markets. We have increased our cash holding by three-four per cent and it currently stands at nine per cent,” said the equity head of a mid-sized MF.

According to the Securities and Exchange Board of India (Sebi) data, available till May 21, fund houses were net sellers in the equity segment.

Redemption worries

Tarun Bhatia, director (capital markets) at Crisil Research, said, “Due to a significant correction and volatility in the markets, fund houses want to keep cash. AMCs would like to have cash in hand, as volatility and corrections put redemption pressure. So, a mix of global uncertainty and redemption pressure is likely to lead to higher cash levels in May.”

“During May, cash levels may have increased in the industry. In certain segments which have seen more volatility, such as mid-cap funds, there may be higher cash holdings. In our case, mid-cap funds’ cash levels are around 10 per cent from seven-eight per cent earlier,” added the chief investment officer of one of the largest fund houses.

N K Garg, chief executive officer of Sahara MF, said it was always a good strategy to increase cash levels in anticipation of volatility in the markets. “Cash levels will definitely go up in such a situation. In our case, the cash holding is in higher single-digits, higher in comparison to last month. However, we have also used the volatility as an opportunity to get into the market,” he added.

Equity heads maintained the crisis in the European and US markets was not over. “They are simply being postponed with packages. We need to be ready with substantial cash in our pockets,” they said.

Sweta Sinha, senior research analyst at Icra Online, said there was a possibility of rising cash holdings in May. “If the market turns stable, then only will investment come in,” she added.

“Relatively smaller and new fund houses may not have large cash but top players are likely to sit on high cash levels,” said Crisil’s Bhatia.

Source: http://www.business-standard.com/india/news/mutual-funds-play-it-safe-increase-cash-holdings/396057/

MFs oppose Sebi plan to tighten derivative investment norms

Sebi’s proposal to tighten the norms for investment in derivatives has run into opposition from mutual funds with the industry lobby arguing that fund managers need access to some of the products the regulator wants to ban.

The Association of Mutual Funds in India (Amfi), the industry lobby, has sent its detailed response to the mutual funds advisory committee of the Sebi, which will take up the proposal at its next meeting on May 31.

Amfi said funds should be allowed to sell index futures, and write option subject to some safeguards.

When contacted Amfi chairman A P Kurian said: “We are compiling views of all our members and will soon send them to Sebi”.

The investment management department of the stock market watchdog has proposed that mutual funds not be allowed to write options or purchase instruments with embedded written options while recommending limits on the gross exposure on equity, debt and derivative positions.

It said that any derivative instrument used to hedge a risk must have the same underlying security as the investment being hedged. Effectively, the proposal rules out index derivatives, used by fund managers to hedge their portfolio.

Amfi has said since covered options are returns-enhancement strategy with risk reduction, they should be permitted with some limits. For instance, option exposure in a particular stock could be limited to 10% of net asset value.

It also wants market regulator to allow mutual funds to sell index futures against a stock portfolio, as it is the most efficient and cost effective way of managing market risk of the underlying stock portfolio.

It has suggested that a limit could be defined for such a hedge position as a percentage to the total stock portfolio.

The association has also opposed disclosure by way of trade summary and instead suggested that fund houses be mandated to disclose the outstanding derivative positions on a given date in a defined format.

Source:http://economictimes.indiatimes.com/Market-News/articleshow/5974880.cms

Mirae Asset launches Emerging Bluechip Fund

Mirae Asset announced the launch of the Mirae Asset Emerging Bluechip Fund, an open-ended equity fund, today.

The fund is primarily a mid-cap fund that invests in Indian equities and equity-related securities of companies that are not a part of the top 100 stocks by market capitalisation, but have a market cap of at least Rs 100 crore at the time of investment, a release said.

Though the fund does not have any theme bias, it will invest in securities with the objective of generating income and long-term capital appreciation.

Mirae Asset Emerging Bluechip Fund's NFO will run from May 24 to June 22, the release said, adding that the units will be available at Rs 10 each during the period.

Mirae Asset Global Investments (India) CEO Arindam Ghosh said, "With the launch of Mirae Asset Emerging Bluechip Fund, we're expanding our portfolio by offering a mid-cap equity fund. We believe that today's mid-cap stocks have the potential to be tomorrow's large-caps and a right amount of mid-caps in the portfolio can help investors optimise their risk-adjusted returns."

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Mirae-Asset-launches-emerging-bluechip-fund/articleshow/5969234.cms

Combination of gold and liquid fund will let you have your cake and eat it too

Gold has been in the news lately.

Prices are close to all-time highs in both dollar and rupee terms: international prices are above $1,200 an ounce, and domestic prices are approaching Rs 18,000 per 10 grams.

The high prices have not deterred investors — the holdings of New York-listed SPDR Gold Trust, the world’s largest gold exchange-traded fund, touched a record high of over 1,192 tonnes on May 10.

For perspective, that’s close to double the gold holdings of the Reserve Bank of India (which itself bought 200 tonnes of gold from the IMF in November 2009 at the cost of Rs 30,000 crore). John Paulson, the famous investor who made billions by correctly predicting the US subprime crisis, recently started a hedge fund focused exclusively on gold.

So why is the smart money betting that gold prices could go even higher? The answer lies in the many different aspects of gold as an investment.

- Gold is a scarce commodity and a luxury good. Strong economic growth in India and other important consuming nations has buoyed demand for jewellery. Simultaneously, supply has been stagnating, constrained by falling production from new mines

- Gold is an inflation hedge, a store of value whose purchasing power will not diminish even if governments are forced to debase their currencies by printing money to bail out banks or indebted borrowers. The purchasing power of a kilo of gold has stayed fairly constant over decades despite steady inflation

- When markets are seized by panic and equity markets crash, investors flock to gold as the ultimate safe-haven asset because it carries no risk of credit default.

These advantages have long been known to Indian investors. India consistently ranks as one of the world’s largest importers and consumers of gold, and international prices are strongly influenced by the Indian festival and wedding seasons, when retail demand for gold and gold jewellery rises.

However, despite the many excellent reasons for buying gold, some sceptical investors stay away from it because it does not generate a steady income stream.

In this respect, gold differs from stocks (which bear dividends), bonds or fixed deposits (which generate interest income) and real estate (which can be rented out). All traditional forms of gold investing — via coins or jewellery, ETFs and gold futures — suffer from this drawback.

If a strategy could be specifically designed to overcome this drawback while simultaneously reaping the rewards of investing in gold, we would have the proverbial option to ‘Have your cake and eat it too’.

So the way out is to form a portfolio and invest in a combination of gold exchange-traded funds (ETFs) and the dividend option of a liquid fund which invests in short-term debt.

The debt portion of the portfolio would have to be administered to generate a steady stream of interest income with a low level of risk. And that can be accomplished by investing in the dividend option of a liquid fund.

Such an accrual strategy is particularly attractive in an environment where interest rates are low but expected to rise — precisely the environment prevalent in India today.

The RBI has acted twice this year already to tighten monetary policy, and is expected to adhere to a tightening course going forward. In such an environment, holding longer-term bonds exposes the investor to duration risk, the risk that interest rates will go up causing existing bond holdings to decline in price. By holding short-term instruments, the accrual strategy would explicitly avoid duration risk. Also, by investing only in safe, highly rated instruments, it would minimise the credit risk of its portfolio.

To sum up, a risk-averse investor looking for a steady stream of income with an added bonus of capital appreciation would be well served by this strategy.

The writer is head - fixed income, Canara Robeco Mutual Fund

Source: http://www.dnaindia.com/money/report_combination-of-gold-and-liquid-fund-will-let-you-have-your-cake-and-eat-it-too_1387289