Global crisis will not hit India in a big way: Prashant Jain, HDFC Mutual Fund

This is not the first time that the world is facing a financial crisis. Crises have come and gone and so will the sovereign one. With valuations near a trough, it may be time for investors with a two-to-three year horizon to buy stocks, says HDFC Mutual Fund's chief investment officer Prashant Jain, who manages more than Rs 90,000 crore, in an interview with ET. Edited excerpts:

What is the difference between the 2008 crisis and now?
In 2008, no one was expecting the markets to fall or the crisis to happen. It just happened overnight. So there was an element of shock. This time, we've known for several years that Iceland, Ireland, Spain, Portugal, Italy etc are under stress. So, this time the shock value is missing.

What could be done to avert a crisis?
I have limited understanding of Europe, but in my experience typically a solution is found for problems that are anticipated for some time. As far as India is concerned, the impact on the economy should be very limited. This is because we do not have any material investments in these geographies. Even the exports to the troubled countries are very small.

What happens when French and German banks are hit by these sovereign losses?
The impact of it should be very local. Indian companies and citizens do not have any worthwhile investments in these countries, or banks. The impact on exports should also be minimal as our exports to the troubled economies are not significant.

What should investors do when there's so much happening in the financial world?
Panic does not last in perpetuity. It lasts for short periods of time. One way or the other, the Greece issue should be largely over in the next few weeks or months, and markets will price it in. There'll be minimal impact on the Indian economy.

Investors should adopt a staggered approach while investing in the current markets. This is so because while there is good value from a medium-to-long term perspective, there is uncertainty in the short term and unlike the economy, the equity markets can get impacted due to sentiment in the short run.

What to do with Indian equities during these times?
The long-term range of P/E multiple of Indian market has been between 10 and 22 times. Even during crisis, the P/E s did not go below 10-11 times. This is so because at 10-11 P/Es, earnings yields become higher than G-sec yields. At present, P/E is 13 times one year-forward earnings... Over a one year period, there's very limited downside from current levels in my opinion.

Though it is a difficult time and sentiment is negative, P/E multiples are quite reasonable. I expect one year down the line interest rates to be lower. And lower interest rates are supportive of higher P/E multiples. I am reasonably optimistic, over onetwo years, markets should trend higher.

But the turbulence in currency markets due to these factors is hurting the Indian rupee. What could be the impact of depreciating rupee?
Indian exports should do well in the years to come. China has been our major competitor in manufactured exports and rupee has depreciated 15-20% against the yuan and it should continue to appreciate as a result of balance of payments surplus. India's competitiveness is improving in manufactured exports.

Our quality and technology are also improving. Sectors like textiles, where China has been the main competitor, are doing better now. What has happened in IT in past 10 years should happen to the manufacturing sector over the next 10 years.

But the capital flows?
Capital flows can get disrupted, but it'll not have a large impact on our economy as our savings rate is pretty high and we're able to fund almost 90% of our needs internally. It is possible for one year, till the time capital flows remain disrupted, GDP may grow slower by 1-1.5 percentage points, but it'll continue to grow.

RBI is well-placed and has a lot of room to maneouvre - interest rates are at high levels. The moment you start lowering rates, it'll be an effective counter balance.

India's macro fundamentals also seem to be weakening, especially fiscal deficit.

The key problem is fiscal deficit - we'd have done much better otherwise. When the global crisis took place last time, if we had had smaller stimulus, I don't think it would have hurt us badly.

Yes, we'd have grown at 6%... but the fiscal position would have been much better. The impact of borrowings lasts for several years . Lower growth for some time is better than higher fiscal deficits.

What about inflation?
A global slowdown is actually supportive of a lower fiscal deficit by way of lower oil prices and commodity prices. Subsidies have been the main reason for fiscal stress. If we had increased diesel price two years ago, we'd have significantly lower fiscal deficit and lower inflation today.

Economy would also have slowed down a bit because people would have slightly lesser amount of money as a result of higher expenditure on fuel. Higher interest rates are leading to a slowdown in interest-sensitive sectors and global commodity prices are also moderating, so inflation should be lower next year.

But the RBI governor seems to be seeing little chance of commodity prices easing due to easy monetary policy in the West.

If the demand for commodities comes off, prices should soften. Low interest rates globally are driving money into commodities. Commodities prices are much harder to forecast. Slowdown in China should also adversely impact commodity prices... Another positive factor is that there is an increase in supply of iron ore, coal, oil and natural gas in 2012 and beyond.

Source: http://economictimes.indiatimes.com/opinion/interviews/global-crisis-will-not-hit-india-in-a-big-way-prashant-jain-hdfc-mutual-fund/articleshow/10164594.cms

Be cautious in this fairly-volatile market: Satish Ramanathan, Sundaram Mutual Fund

In an interview with ET Now, Satish Ramanathan, Director & Head-Equities, Sundaram Mutual Fund, talks about the current global volatility and shares his outlook for different sectors. Excerpts:

How were you approaching this market and do you think in the near term Indian markets have bottomed out?
I don't think so. There are still a lot of global fears moving through and we also have to recognise that the trading volumes in these markets have come down significantly.

There could be pressures due to redemptions coming in for the FIIs and any of these pressures could push the markets down further than we think.

So I do not think we are still clearly out of the woods, but having said that valuations are definitely much more attractive than before, I think that it would be a wait and watch rather than a plunge in deep.

You have a fair degree of exposure to defensives, you own stocks like IGL, HUL, couple of pharma names, so what is your strategy there and at these levels are you reducing your exposure to defensives and increasing your exposure to other sectors?
We have to be cautious in this market which is fairly volatile. It would be a good idea to keep booking profits as we move on, and as and when stocks reach fair value, one should not be scared of giving them up because we are not in the middle of a bull market.

Consequently, booking profits as and when stocks reach their target prices is a good idea, whether be defensive or infrastructure or any other sector for that matter.

What are you making of the kind of volatility that the commodity universe is witnessing, given the kind of choppiness that you have seen across the metals basket in particular? What would be your view on some of these names the likes Sesa Goa, Sterlite and the rest?
Some of them are attractively valued, if you take a medium-term perspective. But there could be still short-term pain in these stocks. So the way we are approaching these stocks is that we keep a small exposure and we trade in and trade out as and when we make a little bit of money.

But we should be very fairly cautious that just as much as inflation is a worry for us, deflation is also emerging to be a bigger worry for the rest of the world. So we need to understand that commodity prices can surprise us on the downside very quickly, as we are seeing in the case of copper which has fallen very sharply over the past two to three months.

You have a very large degree of exposure to Reliance and Cairn which means you are bullish on energy or local energy companies. At these levels are you looking at increasing your exposure to Reliance and Cairn?
Reliance and Cairn have reached fairly attractive levels. Having said that if the global oil prices were to fall for some reason, there could be a bit of stress on these stocks, but there are fairly attractive cash flows coming in for both these companies. Consequently we have kept these companies as a defensive exposure rather than an exposure on growth for commodities.

Just want to have your view in terms of the movement that we have seen across the real estate universe, be it a DLF, Unitech, HDIL and couple of these local names as well. Is there a whole lot to read into it or do you think these are just technical bounces?
These are technical bounces because we still have not come to structural problems that many of these companies will go through. The fact that they have to restructure their balance sheets, the fact that they have to sell off their access assets. All of these take time and we haven't come anywhere close to that. Hence I would be wary of these moves.

In the midcap space, what has been your portfolio strategy and where have you allocated disproportionate amount of money? Just for the benefit of our viewers Satish had identified IGL a year ago and that stock has doubled from those levels. So which is your next midcap bet now?
Amongst the midcap space we think that we have to be fairly diversified. It is not about a single sector or a stock. We are in the process of going through and reeling down and understanding companies such as Cummins and other global infrastructure companies who have a decent cash flow and who have the capacity to buy back stock as well as bring in contemporary technology. So we like Bosch, we like Cummins, we like FAG Bearings in that space.

Accenture came out with its numbers yesterday or rather last night and the management commentary clearly indicates that IT spends have not been impacted by the kind of slowdown in the west and they are pretty much stable. So that should augur well for the Indian IT space accompanies with the rupee decline too?

In case of Accenture and Cognizant, they have been coming out with good results. In the case of Indian IT space, it is becoming very company specific, companies that win deals versus companies that do not win deals and there is a little bit of pricing pressure as well.

So Indian companies will need to invest significantly in marketing and other spend which could contract their margins and we need to bear in mind that the leading Indian companies have a much higher margin levels than the international companies.

So the issue in IT is not about growth, it is more about margins and margin pressure that would come through. The growth will cool off probably six months from now which is what the market is worried rather than the shorter-term growth.

Why are stocks like L&T, BHEL they are getting completely smashed out of shape and at these levels are you tempted to revisit large capital good/machinery space?
It is tempting without doubt. These valuations are something which we have not seen in a long time. The primary problem about infrastructure companies is not something about the global issues, but rather local issues.

If there is confidence that local execution rates are going up and order books are going up, then these stocks are definitely worth holding in one's portfolio considering the quality and pedigree of these stocks.

Source: http://economictimes.indiatimes.com/opinion/interviews/be-cautious-in-this-fairly-volatile-market-satish-ramanathan-sundaram-mutual-fund/articleshow/10155627.cms?curpg=3

BNP Paribas MF expands its equities fund management team

BNP Paribas Mutual Fund continues to expand its equities fund management team with the addition of two senior members to enhance its research capabilities.

Mr. Apurva Shah has joined the team as Head - Investment Research and will head a team of analysts across asset classes. Mr. Shah was the Head of Research - Institutional Equities at Prabhudas Lilladher leading an 18-member research team and has over a decade of experience in the Indian equity markets first as an analyst covering various sectors and then as a strategist covering market overall. Through his career, he has covered sectors as varied as Technology, Media and Financials. Mr. Shah is a CFA charter, a post graduate degree in management from Mumbai University and an engineer from Poona University.

Mr. Abhijeet Dey, with over 10 years of experience, has also joined the team as a Senior Research Analyst. In his previous assignment, Mr. Dey was a Senior Research Analyst at Kotak Mahindra AMC. Mr. Dey has a master’s degree in management and is an Engineer from Mumbai University.

Announcing these appointments, Mr. Nikhil Johri, Managing Director, BNP Paribas Asset Management said, “We are delighted to welcome Apurva and Abhijeet to our team and are sure that their expertise and experience will add a lot of value to the performance track record of our funds.”

“We have been investing in building our team and capabilities in India as part of our endeavour to achieve our long term business ambitions in the country. We continue to strive towards delivering better performance for the benefit of our investors”, he added.

Source: http://www.business-standard.com/india/news/bnp-paribas-mf-expands-its-equities-fund-management-team/450619/

Check out funds that have fared well in different time spans

One of the simplest ways of selecting mutual funds is by looking at their historical performances and picking the top performers. While it is easy to come across fund listings that represent best performers, these are based on a single time scale. So, a listing may show top performing funds on the basis of 3-year or 5-year returns. A fund can be a top performer on one time scale, but may be an underperformer in another.

Take the DSPBR India T.I.G.E.R Fund, which has outperformed its benchmark on a 5-year scale, but has fared worse than its benchmark on the 3-year scale. In three years, the fund returned 6.34% on an average, compared with its benchmark BSE-100, which delivered 7.89%. On the other hand, the fund delivered 8% annualised returns over a 5-year period, in comparison to its benchmark that delivered 7.73% returns. This implies that a person who had invested in 2006 would be better off than a person who had invested in 2008.

Now, consider the Taurus Infrastructure Fund, which has lost 25% in the past year in comparison to its benchmark BSE-200, which lost 15.08%, thereby underperforming its benchmark on the one-year scale significantly. However, the same fund is an outperformer on a 3-year scale, delivering 9.9% annualised return in comparison to its benchmark, which gave 8.32%.

Therefore, the listings for top performing funds that are based on single time scales may not represent true outperformers. Instead, an analysis based on multiple time scales may prove useful for the investors who strongly rely on historical performance. We tried to zero in on funds that have given better results than their benchmarks and category averages consistently across different time scales.

Outperformance would imply either gaining more than the benchmarks and category averages or losing less than the benchmarks and category averages. We have considered six time scales, ranging from three months to five years. The performances of these funds were compared with their benchmarks and category averages across these time scales. Though the time frames of three months and six months are too short for evaluating equity mutual funds, such scales are considered to check the funds' short-term consistency.

We analysed as many as 349 equity mutual funds schemes with growth options. All equity schemes are included in the analysis, and include diversified, tax plans, sector funds, dividend yield funds, contra funds, mid-cap and small-cap funds. We considered only mid- to large-sized funds and ignored the smaller ones. The equity funds whose latest available corpus was more than Rs 100 crore were included. We found 14 funds that were consistent in their performance.

These 14 mid- to large-sized funds have outperformed their benchmarks and category averages in 3 months, 6 months, 1 year, 2 years, 3 years and 5 years. One would have fared well irrespective of the time scale in which the investment was made and, hence, these funds are true outperformers. In this list, UTI AMC tops with its five funds. Franklin AMC shares the second spot with three funds, while BNP Paribas, Canara Robeco, IDFC, SBI, Tata and Sundaram AMCs have one fund each.

Tata Dividend Yield Fund's AUM grew by almost 56% in the past year from Rs 150.74 crore in July 2010 to Rs 235.02 crore in July 2011. On the other hand, IDFC Premier Equity Fund's AUM shot up by almost 44% in the same period from Rs 1,674 crore in July 2010 to Rs 2,411 crore in July 2011.

Most of the shortlisted funds also scored on the portfolio turnover ratio, which reflects how frequently assets within the fund are bought and sold by the fund manager. Generally, the lower the ratio, the better it is because lower ratio signifies lesser transaction costs. A majority of the shortlisted funds have reduced their portfolio turnover ratios in the past year. The UTI Opportunities managed to slash it by more than 51%, followed by UTI Equity and Tata Dividend Yield Fund, which reduced their ratios by 46% and 45%, respectively.

Source: http://articles.economictimes.indiatimes.com/2011-09-26/news/30204446_1_mutual-funds-benchmark-scale/2

Axis Gold Fund floats on

Axis Mutual Fund has launched a new fund named as Axis Gold Fund, an open ended fund of funds scheme. The New Fund Offer price is Rs. 10 per unit. The new issue is open for subscription from 30 September and close subscription on 14 October 2011. 

Investment objective: To generate returns that closely corresponds to returns generated by Axis Gold ETF.

Plans/Options offered: Growth and Dividend option. Dividend option further offers Payout Facility and Reinvestment Facility. Benchmark: Domestic price of gold.

Loads: Entry load is not applicable and the scheme charge an exit load of 1% if units are redeemed /switched out within 1 year from the date of allotment.

Minimum Application Amount: Rs. 5,000 and in multiples of Re. 1/- thereafter

Minimum Target Amount: Rs. 20 lakh

Asset Allocation: The scheme shall invest 95-100% in the units of gold ETFs (primary axis gold ETF) with medium risk profile and invest upto 5% in the money market instruments with low to medium risk profile.

Fund Managers: Mr. Anurag Mittal.

Source: http://www.indiainfoline.com/Markets/News/Axis-Gold-Fund-floats-on/3948507332

Motilal Oswal to sell stake in AMC, I-banking arms.

Motilal Oswal Financial Services was looking to sell a little less than 26 per cent stake in its asset management and investment banking businesses, said Chairman and Managing Director Motilal Oswal.

“We are in talks with global players to offload a minority stake in these two businesses. Nothing has been finalised,” he said, declining to give any names.

Motilal Oswal Asset Management Company (AMC) launched its first fund in June 2010. It had average assets under management (AUM) worth Rs 345 crore for the quarter ended June 30 this year, shows data from the Association of Mutual Funds in India. It runs three exchange-traded funds (ETFs) – MOSt Shares M100, MOSt Shares M50 and MOSt Shares Nasdaq 100.

The fund house has applied to launch an ETF based on gold and plans to launch another based on government bonds. “We will remain an ETF specialist,” said Oswal. TFs are one of the fastest growing categories. As of March 31, the AUM of ETFs rose from Rs 6,916 crore from Rs 1,403 crore as of March 31, 2009.

Like most brokerage stocks, those of Motilal Oswal have declined 52 per cent in this year till now, as a fall in the cash market volume due to subdued retail participation and a rise in the low-yielding options segment has dented profitability. In comparison, the Bombay Stock Exchange benchmark, the Sensex, lost 21.7 per cent during the same period.

Oswal said his firm was planning to add people in the wealth management, asset management and investment banking businesses.

PE BUSINESS 

Motilal Oswal Private Equity Advisors has launched its second PE fund, to raise $200 million (Rs 980 crore), Oswal said. “Road shows are on at present. We expect the first closure to happen by next month and hope to raise $100 million by then.”

The fund aims to raise about 30-40 per cent of the targeted amount from domestic investors and the rest from abroad, mostly from Gulf countries, Oswal said. “This fund will invest in companies across sectors with a proven profitability record. The average ticket size for the investment would be $15-25 million.”

Motilal Oswal PE has already invested about $130 mn from its first fund, Oswal said.

Source: http://www.business-standard.com/india/news/motilal-oswal-to-sell-stake-in-amc-i-banking-arms/450537/