After displaying a corrective phase in the last three months (i.e. from March 2012 until May 2012), the Indian equity markets (BSE Sensex) paved an upward move, gaining +7.5% (or 1,211 points) in June 2012. This ascending move was depicted, despite downbeat domestic as well as global economic headwinds being in the backdrop.
At the beginning of the month, since the Q4FY12 GDP data revealed a slump in economic growth rate, edgy sentiments gripped the markets. Likewise dismaying Index of Industrial Production (IIP) data for April 2012 (data released in June 2012) and dip in core sector growth (to 2.2% in April 2012 - data released in June 2012), also made the mood subdued. Also with WPI inflation still over the comfort zone of the RBI; there was no room for the central bank to cut rates and provide impetus to economic growth in the backdrop of the global economic worries, steered by the Euro zone debt crisis. With Standard & Poor’s (S&P) issuing warnings that India may be the first BRIC nation to lose ‘investment grade’ also got the markets jittery. The rating agency described Prime Minister, Dr. Manmohan Singh as ‘unelected’ (a reference to Singh's membership of the Rajya Sabha), who is battling more with party colleagues over policies. "The crux of the current political problem for economic liberalisation is the nature of leadership within the Central Government, not obstreperous allies or an unhelpful opposition," S&P said. Thus for most part of the month the buying momentum remained submissive, as investors were wary about global as well as domestic economic headwinds.
However later during in the month, the Greece poll results helped to ease fears in Euro zone and thus Indian equity markets witnessed an uptick. The narrow victory of the New Democracy party in Greece indicated that the country is more likely to stick to harsh austerity measures and not face a chaotic exit from the Euro zone in the near future. But, heavy debts of Spain and Italy along with increasing borrowing cost continued to put pressure on the Government finances and kept fears alive. But European political leaders decision on use of bailout funds to recapitalise region’s bank (directly once an effective single supervisory mechanism is established), towards the end of the month gone by, assuaged investors concerns over strain in the banking system in Spain and Italy. Thus on the last trading day of the month gone by - i.e. on June 29, 2012, the BSE Sensex rose by 439 points (or 2.6%). The market also appreciated clarification over GAAR, as the Government spared the popular Participatory Notes (P-Notes) from the ambit of controversial tax avoidance rules and thus signalled a positive for the Foreign Institutional Investors (FIIs) since the draft rules (which are put for discussion) excluded them.
As far as the precious yellow metal - gold is concerned, after undergoing a cool-off (-0.5%) in May 2012, gold prices in India continued their ascending move (rose by +1.9%). Weak Indian rupee against the U.S. dollar aided gold to maintain its sheen. Also, the refuge taken by smart investors in the backdrop of inflationary situation and Euro zone debt crisis also supported the uptick in gold.
Speaking about Brent crude oil, it too continued its corrective phase (as witnessed in May 2012) as prices corrected by good -13.4%, since U.S. and China reported weak economic data where both the economies witnessed slowdown in economic growth rate and manufacturing activity. Also going forward, with Euro zone debt crisis still looming around, Brent crude oil prices are expected to remain below U.S. $100 per barrel mark.
For the bond markets, with liquidity remaining tight in the system for the first half of the month and RBI left with not enough room to reduce policy rates (due to inflationary pressures evident), yields of short-term papers moved in a very narrow range. 1-month CD yield rose by 35 basis points (bps) due to immediate impact of liquidity felt, while 3-month CD mellowed by 45 bps; thus placing them each at 9.1% as on June 28, 2012. As far as G-Sec yields are concerned, the old 10-Yr G-Sec (i.e. 8.79% 2021) witnessed drop in yields by 6 bps, while the new 10-Yr G-Sec yield (i.e. 8.15% 2022) rose by 2 bps (placing it at 8.17%) since the present interest rates are likely to hover at high levels at least for the next six months.
Going forward too, although RBI may not be encouraged to take any hawkish step in it 1st quarter review of monetary policy (scheduled on July 31, 2012) to due delayed monsoon and chance of an ‘El-Nino’ phenomenon occurring in August 2012, yields of short-term are expected to drop due to auction of T-bills in July to September quarter, if the Government offers a lower rate. Likewise, the 10-Yr G-Sec yields are also expected to mellow due to downbeat global economic data and steps taken by central banks in the developed economies.
Monthly Market Roundup
*The 8.15% 2022 is the new 10-Yr benchmark which was introduced on June 9, 2012
| || As on June 30, 2012 || As on May 31, 2012 ||Change ||% Change |
|BSE Sensex || 17,429.98 ||16,218.53 || 1,211.45 ||0.07 |
|S&P CNX Nifty ||5,278.90 ||4,924.25 || 354.65 ||0.07 |
|CNX Midcap || 7,351.80 || 6,898.40 || 453.40 ||0.07 |
|Gold (Rs/10 gram) ||29,610.00 ||29,065.00 ||545.00 ||0.02 |
|Re/US $ ||55.64 ||56.11 || 0.47 ||0.01 |
|Crude Oil ($/BBL) ||91.40 || 103.58 ||(12.18) || (0.12) |
| 8.79% 2021 (10-Yr) G-Sec Yield (%) ||8.39 ||8.45 ||(0.06) ||6 bps |
| 8.15% 2022 (10-Yr) G-Sec Yield (%)* || 8.17 || 8.15 ||0.02 || 2 bps |
|1-Yr FDs ||7.25% - 9.25% |
(Monthly change as on June 30, 2012)
(Source: ACE MF, PersonalFN Research)
Tracking all the aforementioned economic factors - both global as well as domestic, Foreign Institutional Investors (FIIs) too were on cautious footing as they net sold to the tune of Rs 501 crore, thereby following their last month’s trend, where they were net sellers in the Indian equity markets to the tune of Rs 679 crore. BSE Sensex vs FII inflows
(Source: ACE MF , PersonalFN Research)
Thus they (FIIs) seemed to be worried about policy paralysis occurring in India, and how and what the new Finance Minister would do in order to propel investment activity in the country, after Mr Pranab Mukherjee steps down from the post to contest the presidential election (to be held on July 19, 2012).
Mutual Fund Overview
However, domestic mutual funds on the other hand being encouraged by the present valuations of the Indian equity markets net bought cautiously to the tune of Rs 484 crore in the month gone by, thereby following their May month’s activity where they net buyers to the tune of Rs 350 crore. However, fund managers were cautious in their buying activity, and weren’t ruling out detrimental impact of Euro zone debt crisis. BSE Sensex vs MF inflows
(Source: ACE MF, PersonalFN Research)
As far as the performance of various categories of mutual funds is concerned, in the diversified equity fund category, across market capitalisation and style of fund management, gains were reflected due to the up-move witnessed by the Indian equity markets. Monthly top gainers: Open-ended equity funds
Among the sector funds, banking & financial services took the lead followed by power and infrastructure theme. Even defensive sectors such as pharma and FMCG, generated luring returns and so did tech funds.
In the Fund of Fund (FoF) schemes, the offshore ones and domestic equity ones both delivered luring returns, in reflection to the intermediate positive newsflashes in the global markets.
Speaking about the hybrid funds, balanced funds too felt the positive impact of the ascending move of the Indian equity markets, and thus all of them reported gains in the month gone by. Likewise Monthly Income Plans (MIPs), too generated gains with drop in yields of longer maturity papers and support from the equity market movement (for the equity composition of their portfolio).
(1-Mth returns as on June 30, 2012)
|Diversified Equity Funds ||1-Mth ||Sector Funds ||1-Mth ||ELSS ||1-Mth |
|Reliance Quant Plus-Ret (G) ||9.98% ||UTI Banking Sector (G) ||12.51% ||HSBC Tax Saver Equity (G) ||9.88% |
|IDFC Equity-A (G) ||9.80% ||Sahara Banking & Fin Serv (G) ||11.54% ||UTI LT Adv-I (G) ||9.80% |
|IDFC Equity-B (G) ||9.80% ||Escorts Power & Energy (G) ||11.34% ||DWS Tax Saving (G) ||9.12% |
(Source: ACE MF, PersonalFN Research) Monthly top gainers: Open-ended Fund of Funds
(1-Mth returns as on June 30, 2012)
|Fund of Funds ||1-Mth |
|DWS Global Agribusiness Offshore (G) ||8.62% |
|DSPBR World Agriculture Fund (G) ||8.50% |
|Kotak Equity FOF (G) ||7.43% |
(Source: ACE MF, PersonalFN Research) Monthly top gainers: Open-ended Hybrid Funds
(1-Mth returns as on June 30, 2012)
|Balanced Funds ||1-Mth ||Monthly Income Plans ||1-Mth |
|LIC Nomura MF Systematic Asset Alloc (G) ||8.94% ||HSBC MIP-Savings (G) ||2.73% |
|Baroda Pioneer Balance (G) ||7.14% ||LIC Nomura MF Floater MIP (G) ||2.64% |
|Principal Retail Equity Savings (G) ||6.89% ||ICICI Pru Multiple Yield-C (G) ||2.61% |
(Source: ACE MF, PersonalFN Research ) Monthly top gainers: Open-ended debt funds
|Floating Rate Funds ||1-Mth ||Income Funds ||1-Mth ||Gilt funds ||1-Mth |
|Short Term || ||Short Term || ||Short Term || |
|Reliance FRF ST (G) ||0.92% ||Axis Income Saver (G) ||2.71% ||Templeton India G-Sec-Treas (G) ||0.96% |
|Sundaram Flexible-ST (G) ||0.85% ||UTI ST Income (G) ||0.93% ||HSBC Gilt-ST-Reg (G) ||0.86% |
|DSPBR Income Opportunities-Reg (G) ||0.80% ||Birla SL ST (G) ||0.92% ||UTI G-Sec-STP (G) ||0.76% |
|Long Term || ||Long Term || ||Long Term || |
|HDFC FRIF-LT (G) ||1.02% ||Peerless Income Plus Fund-Reg (G) ||1.57% ||L&T Gilt - Investment (G) ||1.41% |
|Sundaram Flexible-FIP (G) ||0.85% ||L&T Triple Ace (G) ||1.05% ||Birla SL G-Sec-LT (G) ||1.27% |
|SBI Magnum Income FRP-LTP-Reg (G) ||0.83% ||Canara Robeco InDiGo (G) ||1.02% ||Sundaram Gilt Fund-Reg (G) ||1.18% |
(1-Mth returns as on June 30, 2012)
|Liquid Funds ||1-Mth ||Liquid Plus funds ||1-Mth |
|IDFC Ultra ST (G) ||1.08% ||DWS Treasury-Invest-Reg (G) ||0.95% |
|Escorts Liquid Plan (G) ||0.77% ||IDFC Money Mgr-IP-A (G) ||0.90% |
|Pramerica Liquid Fund (G) ||0.76% ||Reliance Medium Term (G) ||0.89% |
(Source: ACE MF, PersonalFN Research )
Debt mutual funds, across categories and tenure also showed a decent performance in the month gone by, as yields for short-term papers remained stiff and longer maturity papers fell. In the maturity profile of upto 2 years, short-term income funds delivered appealing returns. With interest rates at the peak, and likely to mellow down gradually over the next six months also led to long-term gilt funds perform well. Performance across various categories of mutual funds
It is noteworthy that FIIs too continued to exude confidence in the Indian debt markets as seen in the month of May (where they net bought to the tune of Rs 1,893 crore) as they bought net to the tune of Rs 1,682 crore. Domestic mutual funds on the other hand, aggressively bought in the Indian debt market - net to the tune of Rs 74,371 crore, as against Rs 19,109 crore in the month of May.
Thus well supported by inflows into debt mutual funds, the industry’s Assets Under Management (AUM) also reported a rise of 4%. The industry added Rs 27,913 crore in the quarter April 2012 to June 2012, thereby placing the total AUM at Rs 6,92,705 crore as on June 30, 2012 (according the data released by the Association of Mutual Funds in India).
(1-Mth average returns of funds in various categories as on March 31, 2012)
(Source: ACE MF, PersonalFN Research)
The graph above depicts how various categories of mutual funds performed in the previous month. Amongst the sector and thematic funds, all of them delivered positive returns, but banking and infra funds were the ones who took the lead. In the diversified equity funds category too, across market capitalisation and styles wealth creation was seen.
Tracing with upward movement of prices of precious yellow metal - gold, Gold ETFs too exhibited positive returns for investors (gaining by an average of +1.8%). Likewise debt mutual funds across categories gained from the yield movements of short-term and long-term debt papers.
Other News and New Fund Offers
- Fixed Maturity Plans, commonly known as FMPs have started losing their allure amongst the mutual fund investors as interest rates in the country have peaked out and are consolidating at present. It is noteworthy that in order to provide an impetus to economic growth (which has depicted a descending trend in the last financial year), the Reserve Bank of India (RBI) may want to reduce policy rates, although the WPI inflation is not providing enough room to do so.
In the past few months about a dozen large-to-mid-sized fund houses have recalled their FMPs during the subscription phase. Inability on the part of fund houses to mobilise the SEBI-mandated ‘minimum target amount’ of Rs 20 crore is one of the reasons for fund houses withdrawing their fixed maturity plans. Also, since many of them (fund houses) have not been able to meet the mandatory ‘20 investors’ norm, the mutual fund houses have recalled the rolled out FMPs.
To know whether is it wise for you to stay away from FMPs, please click here
- In the past, many have been afflicted if the mutual fund scheme they invested in, hasn’t been able to clock the returns at least in tandem to the benchmark, if not the category peers. While investors entrusted the job of selecting the right mutual schemes for their portfolio on mutual distributor / relationship manager / agent, all they were left was disdain and distress. The occurrences of wealth erosion also led to them lose faith in the investment avenue, which in turn led get rid of their investment in mutual funds by logging in redemption request.
But now, addressing to this issue and being concerned about the continuous underperformance of some mutual fund schemes, the capital market regulator - Securities and Exchange Board of India (SEBI) at a mutual fund summit organised by the Confederation of Indian Industry (CII) displayed its determination to pull-up fund managers and CEOs of fund houses, and have a dialogue with them about what measures they are undertaking to turnaround the mutual fund scheme and reduce its underperformance.
"It is right that investors are free to move out and get into other schemes, but if it is happening on a continuous basis over a long term for a significant percentage of the schemes, then it becomes a SEBI issue as well. We are going to engage those fund managers and also the CEOs about what measures they are proposing to take", the Chairman of SEBI, Mr U.K. Sinha said.
- In its bid to give boost to the mutual fund houses, the industry body - Association of Mutual Funds in India (AMFI) is lobbying with the capital market regulator - SEBI to weed service tax out of the expense ratio - the total annual fee that asset management companies (AMCs) charges its unit-holders.
AMFI is pushing for SEBI's permission to charge the 10.03% service tax in addition to the 2.5% expense ratio. This move will increase the overall charges borne by unit-holders to 2.65%-2.70%.
We believe that though AMFI is the industry body of mutual funds, it should not propose changes which are only industry centric and do not safeguard the interests’ of the investors. Increasing the expense ratio will further eat into the returns of the investors’ on their respective mutual fund scheme. This will not only result in redemption requests by the investors but will also dampen the mood for further investment in mutual funds.
AMFI should recognise that the survival of the mutual fund industry depends more on the investors and should undertake steps to empower the novice investors through education rather than increasing the cost for them and at the same time reducing them for the AMCs.
- ICICI Mutual Fund introduced an open-ended equity scheme, named "ICICI Prudential US Bluechip Equity Fund" (IPUBEF), positioned as a U.S. centric fund investing in bluechip stocks listed on New York Stock Exchange (NYSE) and / or Nasdaq. Thus the fund offers Indian investors access to some industries which are, otherwise not accessible India. As per the fund’s offer document, the investment objective is "to provide long term capital appreciation to investors by primarily investing in equity and equity related securities (including ADRs/GDRs issued by Indian and foreign companies) of companies listed on New York Stock Exchange (NYSE) and/or NASDAQ. However, there can be no assurance that the investment objective of the Scheme will be realized." As far as allocation of its assets is concerned, IPUBEF will invest 65% - 100% of its total assets in equity and equity related securities of bluechip companies listed on NYSE and/or NASDAQ, and the rest (i.e. upto 35%) in fixed income securities of India as well as U.S including money market instruments, cash and equivalent, Treasury bills and fixed deposits.
- Baroda Pioneer Mutual Fund added to its stable an open-ended debt fund - "Baroda Pioneer Dynamic Bond Fund" (BPDBF) focusing on investing in short-term as well as long-term debt instruments, with an aim to benefit from changing interest rate scenario. BPDBF will follow CRISIL Composite Bond Fund Index as its benchmark. As per its offer document, the fund’s investment objective is "to generate returns with liquidity by managing the portfolio dynamically through interest rate cycles. There is no assurance or guarantee that the investment objective of the Scheme would be realized." The fund follows an unique investment strategy taking a view of the interest rate scenario.
- Axis Mutual Fund added to its stable an open-ended diversified equity scheme, named "Axis Focused 25 Fund" (AF25), showing its conviction towards holding a concentrated or "focused" portfolio of upto 25 stocks. The fund follows S&P CNX Nifty as its primary benchmark, and BSE 200 as the additional benchmark. As per the offer document, the investment objective of the fund is "to generate long term capital appreciation by investing in a concentrated portfolio of equity & equity related instruments of up to 25 companies" As far as allocation of its assets is concerned, AF25 will invest 65% - 100% of its total assets in equity and equity related instruments of not exceeding 25 companies and the rest (i.e. upto 35%) in debt and money market instruments.
- Union KBC Mutual Fund introduced an asset allocation fund called Union KBC Asset Allocation Fund - Moderate Plan (UKAAF-MP), which is an open-ended hybrid scheme aiming to take advantage by investing in equity, debt and gold. As per the offer document, the fund’s investment objective is "to generate capital appreciation by actively investing in a diversified portfolio of Equity and Equity Related Instruments, Debt and Money Market Instruments and Gold Exchange Traded Funds. However, there can be no assurance that the investment objective of the scheme will be achieved." While allocating its assets, UKAAF-MP follows a range of 20%-40% for equity and equity related instruments, 40%-60% for debt and money market instruments, and the rest - i.e. upto 20% for gold ETFs.
- Canara Robeco Mutual Fund introduced a gold savings fund - "Canara Robeco Gold Savings Fund" (CRGSF), an open-ended fund of fund scheme, which will invest its corpus in Canara Robeco Gold ETF. The Fund is launched especially considering the requirements of those who want to buy gold in a paper form but do not have a Demat account. As per the offer document, the investment objective of the fund is "to provide returns that closely correspond to returns provided by the Underlying scheme." For allocating its assets, CRGSF will invest in 95%-100% in units of Canara Robeco Gold ETF (i.e. the underlying fund) and upto 5% in money market instruments.