MFs post highest profit in 2009-10

HDFC MF the most profitable, followed by Reliance, UTI & ICICI Prudential.

The domestic mutual fund industry recorded its highest profit after tax (PAT) in 2009-10. The industry’s total profit rose four-fold from the previous financial year.

Importantly, the industry made such profits in a challenging year marked by several regulatory changes, like the infamous ban on entry load on equity schemes.

According to a report by the fund industry tracker, Morningstar, fund houses’ consolidated profit after tax in 2009-10 stood at Rs 911 crore as against Rs 224 crore in 2008-09. Prior to the global financial crisis, the consolidated PAT had peaked in 2007-08 at Rs 427 crore, less than half of last year.

The industry profitability, measured by dividing the consolidated profit by total average assets for the financial year, rose sharply to 13 basis points in 2009-10 as against four basis points in the previous year.

HDFC Mutual Fund emerged as the most profitable fund house, with a PAT of Rs 208 crore, followed by Reliance MF (Rs 195 crore).

“The gross income of fund houses has risen substantially, resulting in higher profitability for the industry this year,” said Dhruva Chatterji, a senior research analyst at Morningstar India.

Other fund houses that recorded strong profit growth in FY10 were ICICI Prudential, Birla Sunlife, Kotak and LIC, among others. The 10 largest asset management companies (in terms of assets) accounted for 80 per cent of the industry’s gross income. In 2009-10, their consolidated profit rose 83 per cent, while the consolidated gross income climbed 41 per cent.

Smaller players, such as Quantum, Edelweiss, AIG and Mirae, managed a decent performance on the back of improved profitability.

The industry’s chief executive officers were quite concerned over profitability last year.

The players whose profits dropped include Benchmark, Shinsei, Morgan Stanley, IDFC, Sahara and Baroda Pioneer.

Of the 38 AMCs, 15 were in the red during 2009-10, though their losses fell.

Source: http://www.business-standard.com/india/news/mfs-post-highest-profit-in-2009-10/416801/

Arbitrage funds outdo benchmarks in Nov

Volatile market helps boost performance.

Owing to the volatility in the market, November saw arbitrage funds doing much better than the benchmark indices.

While both the indices saw negative returns, these funds provided returns in the range of 0.5-1.2 per cent.

“Arbitrage opportunities were very good last month as the market was very volatile. These funds give risk-free returns even though they invest in equity, as the positions are already held,” said Mr Raju Singh, mutual fund analyst with SBI Cap Securities. “Around five months ago, there were few such opportunities for these funds to do well. At one point their returns were even lower than that of liquid funds.”

Arbitrage funds perform best in a volatile market. The objective of an arbitrage fund is to provide risk-free returns. Fund managers can hedge their risks by going long in the cash market and short in the futures market.

High returns

November saw a lot of volatility in the market with the Sensex falling by 834 points (-4.05 per cent) and the S&P CNX NIifty by 255 points (-4.17 per cent). The arbitrage funds saw higher returns.

Birla Sun Life Enhanced Arbitrage Fund gave the highest returns at 1.22 per cent, SBI Arbitrage Opportunities Fund was second at 0.98 per cent, followed by Kotak Euity Arbitrage Fund at 0.96 per cent.

Also, these funds do not have very high AUMs. The assets are usually around Rs 100 crore.

“This gives them an advantage as they can then consolidate their portfolios. Having lower AUMs means they can consolidate and diversify their investments,” said Mr Hiren Dhakan, Associate Fund Manager, Bonanza Portfolio.

However, analysts said these funds can put up a better performance. “An arbitrage fund can generally provide 7-8 per cent in annualised returns. Therefore, these funds can actually give higher returns than what they are showing right now since the market is moving in a range,” said Mr Dhakan.

“Arbitrage funds are the safest options as they always hold hedge positions and toggle between cash and the futures options. In that sense, their risk profile is lower. At no point will these funds perform badly because of their hedge positions, except when the markets are either steadily moving up or moving down,” he added.

Source: http://www.thehindubusinessline.com/2010/12/02/stories/2010120251191000.htm

Motilal Oswal seeks nod for Nasdaq ETF

Motilal Oswal Asset Management Company Ltd and the Nasdaq OMX Group, Inc. have filed for an open-ended index ETF, Motilal Oswal MOSt Shares Nasdaq-00 ETF, which seeks to track the Nasdaq-100 Index.

The Nasdaq-100 consists of the top 100 non-financial companies listed on the Nasdaq stock market. “The MOSt Shares N100 will provide investors an opportunity for exposure to the US capital market,” said Mr Rajnish Rastogi, Senior VP & Co-Head of Equities, Motilal Oswal Asset Management Company.

“It aims to provide Indian investors with a global, diversified, rupee denominated, Indian-market-hours access to high growth Nasdaq -100 Index companies such as Google, Microsoft, Apple and other leading global companies,” said Mr Nitin Rakesh, MD & CEO of Motilal Oswal AMC.

Source: http://www.thehindubusinessline.com/2010/12/02/stories/2010120251321100.htm

Reliance Indonesia Opportunities Fund files offer document with Sebi

Reliance Mutual Fund files offer document with Sebi to launch Reliance Indonesia Opportunities Fund, an open ended diversified equity scheme. The New Fund Offer price is Rs. 10 per unit.

Investment objective: The primary investment objective of the scheme is to generate long term capital appreciation by investing predominantly in equity and equity related instruments of Indonesian and Indian markets and the secondary objective is to generate consistent returns by investing in debt and money market securities.

Plans/Options offered: The scheme shall have Growth Plan & Dividend Plan. Each Plan will have:

a) Growth Plan

a. Growth Option

b. Bonus Option

b) Dividend Plan

a. Dividend Payout Option

b. Dividend Reinvestment Option

Benchmark: A custom benchmark created using the MSCI Indonesia Index to the extent of 65% of portfolio and BSE 200 Index for balance 35% of the portfolio.

Loads: Entry load: Nil

Exit load: 1% if redeemed/switched on or before completion of 1 year from the date of allotment of units. Nil if redeemed/switched after completion of 1 year from the date of allotment of units.

Minimum Application Amount: Rs. 5000 and in multiples of Re. 1 thereafter

Minimum Target Amount: Rs. 1 crore.

Asset Allocation:

The scheme will invest 65%-100% in equities and equity related securities:

• 65%-100% in Equities and equity related securities of Indonesian Companies (Includes ADRs/GDRs issued by Indian companies or foreign companies, equity of overseas companies listed on recognized stock exchanges of Indonesia, units/securities issued by overseas mutual funds or unit trusts which are registered with Indonesian regulators and overseas exchange traded funds (ETFs) which are listed on recognized stock exchanges of Indonesia and are permitted by SEBI/RBI from time to time. The fund will also invest in initial and follow on public offerings to be listed on recognized stock exchanges of Indonesia.) (as permitted by SEBI/RBI from time to time)

• Upto 35% in equities and equity related securities of Indian Companies (Includes investments in ADRr/GDRs issued by Indian and Foreign Companies. The fund will also invest in Pre IPO Placement, lock-in non transferable securities and upto 5% or max permissible limit in Unlisted Securities)

The scheme shall also invest upto 35% in debt and money market securities.

Fund Managers: Shiv Chanani (Fund Manager -Overseas Investments) and Ashwani Kumar

Source: http://www.indiainfoline.com/Markets/News/Reliance-Indonesia-Opportunities-Fund-files-offer-document-with-Sebi/3427355008

GDP grows by 8.9%, FY11 outlook rosy

Agriculture and services sectors prove buoyant.

The economy grew at its fastest pace in ten months, clocking a growth of 8.9 per cent in the second quarter ended September. The numbers bettered industry and government expectations that GDP growth would run out of steam in the period. Growth was buoyed by a healthy increase in service sector and farm output.

The Central Statistical Organisation (CSO), in data released today, also revised the first-quarter growth figures from 8.8 per cent to 8.9 per cent on account of the new base year adopted in the calculation of inflation and industrial output. The growth numbers in the first half have revived hopes of a 9-per-cent-or-thereabouts growth for the whole financial year — higher than the government’s estimate of 8.5 per cent.

“We may be confident that at the end of this year, GDP growth will not be less than 8.7-8.75 per cent. It may be more,” said Finance Minister Pranab Mukherjee. He added that projections of over 9 per cent growth by the International Monetary Fund could be correct this time.

A growth of 9 per cent in 2010-11 will be significantly higher than the 7.4 per cent growth recorded in 2009-10 and 6.7 per cent in 2008-09. The government had projected 9 per cent growth in 2011-12. The last time GDP grew faster than 9 per cent was in October-December 2007-08 (9.3 per cent).

Asked whether the economy could achieve 9 per cent growth in the current fiscal, Finance Ministry Chief Economic Advisor Kaushik Basu said, “It is not impossible any more. We are very close to that.”

In the second quarter, the farm sector recorded a growth rate of 4.4 per cent, a significant improvement over the 0.9 per cent in the same period last year. It was also higher than the 2.5 per cent recorded in April-June.

“The recovery in agriculture is likely to have a positive impact on rural demand in the coming quarters and maintain the positive momentum in the economy,” said Chandrajit Banerjee, director-general, Confederation of Indian Industries.

The trade, hotels, transport and communications sector grew by 12.1 per cent, up from 8.2 per cent in the corresponding period last year and 10.9 per cent in the last quarter.

Manufacturing sector growth, however, fell to 9.8 per cent from 13 per cent in the first quarter this year. However, it was higher than the 8.4 per cent in the second quarter last year. The quarter-on-quarter fall was mainly because of a drop in industrial output to 4.4 per cent in September.

Mining and quarrying (8 per cent) and construction (8.8 per cent), financing, insurance, real estate & business services (8.3 per cent), and community, social and personal services (7.3 per cent) also showed a healthy rise.

Growth in some core infrastructural activities such as electricity, gas and water supply, however, was lower at 3.4 per cent.

Experts believe GDP growth in the next two quarters may be little lower than that of the first two.

Planning Commission Principal Advisor Pronab Sen stuck to the original forecast of 8.5 per cent growth. He said the 8.9 per cent growth registered in the first half of 2010-11 came on the back of a low base in the previous year and sustaining it in the second half would be difficult. He also indicated that the numbers may not prompt any monetary policy action.

The Reserve Bank of India has increased the repo rate by 150 basis points since April to control inflation, which eased to 8.58 percent in October from 11 per cent in April.

“We would be a bit cautious on second half growth, as monetary tightness and slow progress on infrastructure creation have by now started pinching all sectors of the economy,” said Navneet Munot, CIO, SBI Mutual Fund.

He added, “The recent global developments have again shown the vulnerability of the global economy. In our opinion, further monetary tightness may be an impediment to sustain this high growth, a declining trend in inflation may just allow RBI to ease a bit on the policy front,” said Navneet Munot, CIO, SBI Mutual Fund.

Today’s data showed a revival in both consumption and investment in the first half of 2010-11, compared with the previous year when these indicators were subdued due to the global crisis. On the demand side, private consumption expenditure clocked a growth of 9.28 per cent on top of the upwardly revised 7.84 per cent in the first quarter.

“While we expected private consumption demand to improve, primarily backed by robust growth in the agriculture sector, such high growth has come as a positive surprise. However, this has also raised some concerns regarding the numbers and we expect to see some corrections in the demand side of GDP,” said Arun Singh, senior economist, Dun & Bradstreet India.

Source: http://www.business-standard.com/india/news/gdp-grows-by-89-fy11-outlook-rosy/416730/

Do dynamic funds work for you?

A good dynamic fund can absolve you of the headache of timing the markets, but invest at least for five years

Wouldn’t you love to buy equities when markets are at a low and sell them when markets are at a high? As basic as this stock market mantra is, it’s easier said than done. It is hard to resist temptation when markets are near their peak and it’s tough to find the courage to jump into equity markets when they’re falling.

There’s an alternative. If you do not mind taking the mutual fund (MF) route, dynamic (equity-oriented) funds switch your money between equity and debt markets. Apart from the existing six such schemes in the market, two new schemes were launched in November 2010. Pramerica Asset Managers Pvt. Ltd launched Pramerica Dynamic Fund (PDF) and Principal PnB Asset Management Co. (AMC) Ltd launched Principal Smart Equity Fund (PSE). Should you look at them?

Playing on both sides

Dynamic funds switch between different asset classes, depending on their attractiveness. Even hybrid funds do that, but they can’t switch rapidly between asset classes—they’re typically true to one asset class such as equity in case of balanced funds and dip their hands sparingly in other asset classes. Dynamic funds aim to switch aggressively between equity and debt and are more opportunistic.

In rising equity markets, they invest more in equity and less in debt and cash. But when markets start to fall, these funds sell equities and get into cash. “Investors do not take full benefits of rising markets because at higher levels, they do not book profits adequately. Also, at lower levels, people hesitate to invest in equities; they aren’t sure when they should invest; they miss the rally,” says Rajat Jain, chief investment officer, Principal PnB AMC. These funds switch dispassionately, he adds.

Take the case of Franklin Templeton Dynamic PE Ratio Fund of Funds (FTDP). When the Sensex was around 10,000 levels in March 2009, FTDP had invested 91% of its corpus in equities. Now that the Sensex is around 20,000 levels, it has only 30% invested in equities; the rest is in debt.

Not all dynamic funds are alike. Some such as HSBC Dynamic Fund (HDF) switch between equity and cash depending on how their fund manager perceives the markets. Others such as FTDP look at indicators such aas the Nifty’s price-earnings (P-E) multiple to determine how heated the markets are. Apart from determining their asset allocation, they also differ in terms of how they invest. For instance, FTDP is a fund of funds scheme (that invests in other funds) and splits its corpus between Franklin India Bluechip Fund (a large-cap equity scheme) and Templeton India Income Fund (an income scheme); both schemes from its own fund house.

After determining its equity and debt split, UTI—Variable Investment Scheme—Index Linked Plan (UTIV) manages its equity component passively. It invests its entire corpus in shares of companies—and in exactly the same proportion— as they lie in the Sensex. Others such as HSBC Dynamic Fund allow their fund managers to determine the equity and debt split and also to pick and choose equity and debt scrips in which the scheme would invest in.

Freedom at a cost

Schemes such as HDF, which actively manage the equity-debt switch, usually restrict the fund manager’s freedom to exit equities—even in the face of excessive market volatility—and sit on cash. “To be able to exit equities and sit entirely on cash is a very bold move that can go horribly wrong, if the fund manager has the freedom to do so. If the markets jump back, the fund manager is caught off-guard and underperforms badly,” says Nilesh Shah, deputy chief executive officer, ICICI Prudential Asset Management Co. Ltd. Therefore, though ICICI Prudential Dynamic Fund (IDF) has not explicitly stated the parameters that will determine its equity-debt split in its scheme information document, internally the MF looks at the price-to-book value (PBV) ratio of the Nifty. Higher the PBV, lower will be its allocation to equity.

Tushar Pradhan, chief investment officer, HSBC Asset Management (India) Pvt. Ltd, is cautious, too, when it comes to the fund manager’s freedom in dynamic funds. Though he joined the MF only in June 2009, he is mindful of how badly the fund house was punished for sitting on excess cash between March and May 2009. During that time equity markets rebounded and shot up; fund houses such as HSBC MF with high cash levels lost out miserably. “Unless you have a view that the Indian equity markets are going to fare very badly in years to come, there’s isn’t merit in having too much cash in a portfolio,” says Pradhan.

At present, HDF goes a maximum of 20% in cash (10% only for all other HSBC equity-oriented schemes) as a “tactical call” if the fund manager has a negative view on the market. On the other hand, if fund managers have freedom to choose the equity-debt split, most prefer to be heavy in equities to be able to retain the equity tax advantage; schemes that invest at least 65% of their corpuses in equities qualify as equity schemes and do not impose long-term capital gains tax.

Do dynamic strategies work?

To check whether dynamic fund strategies work or not, you’ve got to first check the level of flexibility with which these funds can switch between equity and debt. For instance, of the six dynamic funds present in the Indian MF industry, only two schemes— FTDP and UTIV—can switch completely to cash. Both these have been around for more than five years. Of the two, FTDP has a better track record; it gave a return of 17.75% in the past five years. UTIV managed to give just 3.73% in the same period. Newly launched PDF and PSE, too, can completely exit from the equity markets and sit on cash.

“Typically, dynamic funds underperform pure equity funds in continuously rising equity markets because these funds sell equities and get into cash as equity markets go up,” says Arvind Bansal, vice-president and head (multi-manager investments), ING Investment Management (india) Pvt. Ltd, that manages ING OptiMix Asset Allocator Multi Manager FoF (IOMM). In 2007, on the back of rising equity markets, FTDP returned 27.42% against 40% returned by balanced funds on average. The fund got saved in 2008 when equity markets crashed; it lost 25% against an average loss of 37% by balanced funds. Overall, though, the fund seems to have got its act in place; it returned 18% in the past five years against 15% category average returns by balanced funds. IDF has done well across time periods, but that is mainly because it restricted its cash levels to up to 35% and actively managed its equity portfolio.

PDF aims to be different. It doesn’t just limit itself to one parameter such as the equity market’s P-E multiple. It takes into account several parameters such as fundamental (earnings growth, inflation, interest rates), liquidity (money supply, currency valuations) and volatility (details from the derivatives market) parameters to arrive at its stated equity-debt split. “To ascertain whether the markets are overheated or not, it is necessary to look at a whole host of factors and not just P-E,” said Vijai Mantri, chief executive officer, Pramerica Asset Managers. However, K.N. Sivasubramanian, chief investment officer, Franklin Equity India, Franklin Templeton Asset Management India Pvt. Ltd, says: “The need of the hour is to have simple products. Nifty’s P-E (FTDP refers to it) is derived by the P-E of individual companies from within Nifty, which makes it a good indicator. FTDPEF’s model has been tested through markets cycles and is reflected in the fund’s performance.” While PDF’s formula ascertains its present equity exposure at about 70%, FTDP’s equity exposure at present is 30%. Time will tell who is right and who’s not.

What should you do?

A well-managed dynamic fund can absolve you of the headache of timing the markets, if at all you get affected by market volatility. If that’s your concern, it bodes well if your dynamic fund depends on a formula that ascertains its equity-debt split. In future, expect more exotic funds—such as PDF and IOMM—to be launched. “We at HSBC too are reviewing our products and contemplating to introduce an algorithm or some parameter that the fund manager can follow blindly. In this case, the fund manager can fully focus on picking and choosing scrips. The headache of asset allocation will then be left on a formula that will also be sufficiently back-tested,” says Pradhan. He says that dynamic funds are tricky to manage and fund managers have to be very careful. “If we go by short-term volatility and shift to cash, but the market rises for the next two years or so, we burn ourselves badly.”

Opt for dynamic funds only if you have the appetite to invest for at least five years. “It is a fill-it, shut-it, forget-it product,” says Shah.

Source: http://www.livemint.com/2010/11/29213434/Do-dynamic-funds-work-for-you.html

Liquid fund NAV lock possible only after MFs get money

Capital market regulator Sebi said that investors in liquid funds would no longer get the net asset value NAV of the day before the application date, if the mutual fund doesn’t get the application and money before 2:00 pm. Sebi, in a circular on Friday, said liquid-fund investors would only get the NAV of the day, just before the day on which the mutual fund has received the money irrespective of the time of submitting the application.

“It is observed that mutual funds are deploying funds without receiving clear funds in the scheme account. As a matter of good practice and to avoid systemic risk, it has been decided to modify certain provisions ,” said Sebi.

The regulator said that investors would be allotted units in liquid schemes only if an application is submitted before 2:00 pm, entire investment fund is credited to the bank account before the cut-off time and the money is available without any credit facility. The same conditions would be applicable for allotment of units during switching to other schemes such as liquid plus or other debt schemes.

Investors in liquid schemes, mainly companies, have widely followed a practice , where they submitted the application before the cutoff time and simultaneously directed the fund house to switch to liquid plus scheme. This helps investors get the previous day’s NAV of the liquid scheme and get returns of the liquid plus scheme of the same day.

Mutual fund officials said that the Sebi move is likely to affect flows into liquid schemes, where companies park their idle money. A top official of a bank-promoted mutual fund, on condition of anonymity, said, “Let’s assume that the investor has made the RTGS payment order at 10:00 am in the morning, but the mutual fund gets it only after the cutoff time of 2:00 pm, the investor will not get the previous day’s NAV. All the more, his money will lie idle with us for a day.” Real-Time Gross Settlement (RTGS) is the fastest way to transfer money between banks.

A fixed income fund manager of another bank-promoted mutual fund said, “Now, there will be bigger fights between fund houses and companies (investors) over the timing. Companies and high net worth investors are never known to transfer money on time and often blame us for the delay.”

According to Dhirendra Kumar of Value Research , the Sebi move could create a logistical problem. “Banks do not have the necessary infrastructure to deliver the funds by 2.00 pm. The Sebi move will basically impair the flexibility to move their money across schemes during the day,” said Mr Kumar. Mutual funds are already reeling under the impact of a Sebi’s move in August 2009 to ban them from charging investors, in their equity schemes, an initial fee to pay distributors. The step has resulted in distributors selling fewer equity schemes. Sebi, in the circular on Friday, also said that interval plans would mandatorily be listed and investors could redeem only during the specified transaction period — the period during which both subscription and redemption may be made to and from the scheme.

“It has been noticed that certain scheme information documents provide that the subscription to the scheme can be made during a specific period (known as specified transaction period) and the repurchase of units is permitted on all business days subject to applicable loads (except for redemption during specified transaction period when no load is charged),” the circular said.

“As per the current regulation, there is no restriction on tenure of securities in which interval scheme can invest. This read with daily redemption option may result in asset liability mismatch,” it said.

Source: http://economictimes.indiatimes.com/markets/regulation/Liquid-fund-NAV-lock-possible-only-after-MFs-get-money/articleshow/6998829.cms

Infra spend, capex will drive growth : Principal MF

With the thrust on infrastructure and pick-up in capex, we will see leadership returning to that sector.

With the markets correcting, identifying sectors and stocks that are likely to lead from here will be rewarding for investors. Business Line spoke to Mr P.V.K. Mohan, Head-Equities, Principal Mutual Fund, to hear his views on the sectors that drove the market and the ones that could be the outperformers from here on.

Excerpts from the interview:

In the Indian market different sectors tend to drive each leg of a stock market rally. What in your view are the promising sectors for the next few years?

I think the traditional sectors will do well. Clearly, this rally was led by financials, and sectors related to the consumer space, such as automobiles. These sectors will probably continue to do well. In terms of leadership, one sector that performed well between 2004 and 2008 was infrastructure, though it completely underperformed in this rally.

Now, if the country has to get back to the growth trajectory of 8-9 per cent, there is an urgent need for infrastructure spending. The capex from the private sector needs to pick up. So we will see leadership coming back to that sector. Consumption is one pillar of the economy and it is on a strong track. We are seeing this in durables and in some of the FMCG space.

Our view over the medium term is more of a bottom-up view and not about sectors as a whole. If you look at the long term, I would bet on agri-based stocks. We have seen fertilisers doing well. Going forward, we will see tractor and seed companies join in too.

Do you anticipate expansion in capital expenditure and how is that going to help capital goods sector?

We had one leg of growth from the revival of the economy and some priming of economy by government expenditure. Given the deficit concerns, I think clearly it's the time for the private sector to take on the capex mantle. Even in infrastructure, the role of the private sector is critical. Currently it not involved in a big way, but we are seeing the green shoots. When the auto industry is running at 100 per cent capacity, and the durables industry is at full capacity, it tells us that clearly there is a need for expansion. We see Tata Steel is going ahead with expansion. We see better times ahead for capital goods and infrastructure.

The developed countries are yet to come out of the recession and the rupee appears to be strong. How will this impact the IT sector?

The currency part is a definite headwind for the IT sector. Having said that, the largest part of business at this point is coming from the US. Demand conditions are pretty good there. Corporates are sitting on huge cash reserves. There is the political expediency of anti-offshoring talk on and off. But this model works well for both the Indian companies and for the country looking to cut costs. Very recently the UK government revalidated a contract with TCS after talking out against offshoring jobs. They have to place the order if they want to cut the deficit and costs.

So, I think the demand side is good but on the costs side, salary, attrition and rupee appreciation are the challenges the industry has to live with. The bigger guys will be able to deal with the challenges, but the smaller players will have volatile performance. The industry has shown the ability to meet challenges on earlier occasions, but the margins are likely to take little bit of hit. This sector will be a market performer.

In a highly inflationary and rising interest rate scenario, what is your call on banking and finance?

I think with rising interest rates, typically in a high growth or in strong economy, the banks were always in a position to pass on the costs to the customer. I think today they are in spot where the cost of CASA is higher; and the lending rate may rise. Financials at this point of time may see some compression in the spreads.

Nevertheless, they will remain healthy, if the economy grows at 8-9 per cent, they will be able to manage the margin. In the NBFCs space, those that are well-capitalised can tide over the problem. So in financials, size is going to play a role.

Auto sales continue to be robust, with a normal monsoon. How is this sector likely to pan out?

We are positive on the sector. Two factors are driving the sector, one is rural demand, helped by NREGA. Two the MSP prices are raising. So farmers with a not-so-great monsoon last year have seen their farm incomes go up because of the realisations. Given that India has structural deficits in agriculture, prices will remain buoyant. So, that is a very important contributor for the demand and it is visible in two- wheelers. Even for companies like Maruti, 15-20 per cent of the sales are now being derived from the rural segment; this was in single digits a few years back. In the urban market, due to the faster replacement cycle, bank funding coming back, better job security, due to wage inflation, the EMI culture is coming back. So, autos will continue to do well. On the commercial side, light trucks will see strong growth because of the last-mile connectivity. Overall, we feel that the growth momentum is positive and will remain so.

Source: http://www.thehindubusinessline.com/iw/2010/11/28/stories/2010112850970800.htm