Mutual Fund Roundup: April 2011

Market Overview

The upward streak displayed by the Indian equity markets (BSE Sensex) in March 2011, (of the fiscal year) witnessed a breather in the month of April 2011 (BSE Sensex fell by 1.6%), as the corporate earnings announcement exhibited mixed emotions. Moreover, with WPI (Wholesale Price Index) inflation nearing 9.0% (8.98% in the month of March – data released in April 2011), the fears of a policy rate hike by RBI (Reserve Bank of India) also loomed which too attributed to the downward movement of the Indian equity markets. The IIP number of 3.6% for the month of February 2011 (data released in April 2011) was also quite dismaying for the Indian equity markets, as signs of slowdown appeared.

 

Anna Hazare's anti-corruption campaign (which was an awakening lesson for the citizens of India) caused the political seats at the "North Block" to rattle, which in turn also led to Indian equity markets shiver. The political unrest in the MENA (Middle East and North African) region was also persisting during the same time, but the impact of the same was trivial. While the BSE Sensex did fall marginally, some investors continued to discover value and growth in the mid cap space as the CNX Midcap Index rose by 2.0%.

 

The precious yellow metal - gold after a displaying sideways movement in the last month, once again became bold (rose by 9.3%), as the inflation bug continued to disturb the "North Block" as well as the Reserve Bank of India (RBI). Moreover, the rattling political scenario due to Anna Hazare's anti-corruption campaign and the 2G scam story unfolding also led to investors taking refuge in the precious yellow metal (due to exposure to political risk). To meet the demand on Gudi Padwa day stockist piled-up inventory which in turn attributed to the upward movement in gold.

 

Crude oil prices however continued to hover above the U.S. $ 120 per barrel mark, as the political unrest in the MENA region fuelled their upward path (prices of Brent crude oil rose by 8.2%). This is because MENA region sits on top of some of the world's largest oil & natural gas reserves; and any supply disruptions would have an adverse effect on the global economy – especially those nations which are dependent on the oil-rich nations for oil consumption.

 

Speaking about the bond markets, softening of yields as witnessed in the last month didn't last too long. In April 2011 with the WPI Inflation data for March 2011 being announced, yields of debt papers once again hardened across the yield curve. The expectation of a policy rate hike (of 25 basis points) by the RBI (in its annual monetary policy review meeting) in order to tame WPI inflation too didn't bring any respite to the yields, thus leading to the 10- Yr G-Sec 7.80% 2021 yield stand at 8.12% as on April 29, 2011.

 

Monthly Market Roundup

	As on April 30, 2011	As on March 31, 2011	Change	% Change
BSE Sensex	19,136.0	19,445.2	(309.3)	-1.6%
S&P CNX Nifty	5,749.5	5,833.8	(84.3)	-1.4%
CNX Mid cap	8,201.0	8,040.2	160.8	2.0%
Gold (Rs/10 gram)	22,710.0	20,775.0	1,935.0	9.3%
Re/US $	44.2	44.6	0.4	0.9%
Crude Oil ($/BBL)	124.6	115.2	9.4	8.2%
10-Yr G-Sec Yield (%)	8.12	8.00	0.12	12 bps
1-Yr FDs	7.00% - 9.25%

(Monthly change as on April 29, 2011)
(Source: ACE MF, PersonalFN Research)

 

The graph hereunder clearly depicts that while the Indian equity markets took a breather, the FIIs like the last month (where they were net buyers to the tune of Rs 6,898 crore) continued to exude confidence towards India (an emerging Asian economy) and bought aggressively to the tune of Rs7,213 crore despite the following upsetting economic factors:

 

• Stiff WPI inflation at 8.98% for March 2011(data released in April 2011)
• Slowdown in industrial production as revealed by dismaying IIP of 3.6% in February 2011 (data released in April 2011)
• High crude oil prices
• High borrowing costs

 

BSE Sensex vs FII inflows

 

(Source: ACE MF , PersonalFN Research)

 

Mutual Fund Overview

The domestic mutual funds on the other hand, were quite conscious about elevated valuations of the Indian equity markets along with the downbeat economic data of WPI inflation and industrial production. Moreover since the Q4FY2011 earnings were mixed, they turned net sellers in the Indian equity markets to the tune of Rs 148 crore (which was unlike their net buying activity of worth Rs 459 crore in March 2011). Mutual fund investors too got jittery about the narrow hovering of the equity markets, which in turn also caused redemption pressures building in for mutual fund houses.

 

BSE Sensex vs MF inflows

(Source: ACE MF, PersonalFN Research)

 

However most open-ended equity funds led by those in the mid and small cap space gave enticing returns during the month as buying activity was evident in mid and small cap space. FMCG and Pharma funds too delivered luring returns due to the defensive nature of these sectors. Fund of Fund schemes also rewarded their investors well during a month's time frame, but gold saving funds gave bolder returns. Hybrid funds got the advantage of the equity component performing well along with their short-term papers delivering luring returns in their debt component of their portfolio.

 

Monthly top gainers: Open-ended equity funds

Diversified Equity Funds	1-Mth	Sector Funds	1-Mth	ELSS	1-Mth
HSBC Small Cap (G)	6.85%	SBI Magnum FMCG	5.30%	Escorts Tax (G)	3.50%
SBI Magnum Global'94 (D)	6.80%	ICICI Pru FMCG (G)	5.19%	BNP Paribas Tax Adv (G)	2.19%
HSBC Midcap Equity (G)	6.48%	Franklin FMCG (G)	4.45%	ICICI Pru Tax Plan (G)	2.11%

(1-Mth returns as on April 29, 2011)
(Source: ACE MF, PersonalFN Research)

 

 Monthly top gainers: Open-ended Fund of Funds

Fund of Funds	1-Mth
Reliance Gold Savings Fund (G)	6.63%
ING Global Real Estate-Reg (G)	4.29%
JPMorgan JF Gr China Eq Off-Shore (G)	3.80%

(1-Mth returns as on April 29, 2011)
(Source: ACE MF, PersonalFN Research)

 

 Monthly top gainers: Open-ended Hybrid Funds

Balanced Funds	1-Mth	Monthly Income Plans	1-Mth
Escorts Balanced (G)	3.10%	DWS Twin Advantage (G)	2.50%
HDFC Balanced (G)	2.85%	DWS Money Plus Advt-Reg (G)	1.59%
Reliance Reg Savings-Balanced (G)	2.50%	HDFC Multiple Yield 2005 (G)	1.54%

(1-Mth returns as on April 29, 2011)
(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
Escorts ST Debt (G)	1.00%	IUTI ST Income (G)	1.53%	Birla SL Gilt Plus-Liquid (G)	0.56%
SBI Mag. Income FRP-Saving Plus Bond (G)	0.83%	Pramerica ST Income (G)	1.03%	DSPBR Treasury Bill (G)	0.48%
Canara Robeco FRF (G)	0.80%	Taurus Dynamic Income Fund (G)	0.98%	Canara Robeco Gilt Advt Fund (G)	0.48%
Long Term		Long Term		Long Term
SBI Mag. Income FRP-LTP-Reg (G)	0.90%	UTI Bond (G)	1.42%	ING Gilt-PF-Dynamic (G)	0.57%
HDFC FRF-LT (G)	0.72%	Escorts Income Plan (G)	1.26%	Sahara Gilt (G)	0.43%
HSBC FRF-LT-Reg (G)	0.65%	SBI Dynamic Bond (G)	0.99%	UTI Gilt Adv-LTP (G)	0.40%

 

Liquid Funds	1-Mth	Liquid Plus funds	1-Mth
IDFC Ultra ST (G)	0.85%	Sahara ST Bond (G)	0.78%
Sahara Liquid-Fixed Pricing (G)	0.82%	JM Money Mgr-Reg (G)	0.78%
Escorts Liquid Plan (G)	0.75%	JM Money Mgr-Reg (G)	0.78%

(1-Mth returns as on April 29, 2011)
(Source: ACE MF, PersonalFN Research )

 

Debt mutual funds across all categories performed well as yields of short-term bonds had softened (to around 8.5% - 9.0%) until the last week of April 2011 as adequate liquidity situation prevailed and short-term papers issued in the month of January 2011 and February 2011 were due of maturity in April 2011.

 

In debt instruments the buying from domestic mutual funds was far more aggressive (as compared to equity segment). They net bought to the tune of Rs 66,002 crore, thus accelerating from their last month's net buying activity of Rs 31,240 crore.

 

Performance across various categories of mutual funds

(1-Mth average returns of funds in various categories as on April 29, 2011)
(Source: ACE MF, PersonalFN Research)

 

The graph above also displays how various categories also mutual funds performed in the previous month. As displayed above under the equity funds headed by FMCG and pharma funds (under the thematic funds) delivered stellar returns, while in the diversified equity funds the mid caps accelerated the most amongst others. Under debt funds especially those holding short-term debt instruments accentuated on the returns front.

Other News and New Fund Offers

• The Revenue Secretary – Mr. Sunil Mitra said, foreign retail investors investing their money in Indian equity schemes would attract existing capital gains tax laws unless India has a double taxation avoidance agreement with the country the investor belongs to.
   
• A few weeks back the Securities and Exchange Board of India (SEBI) had written to the mutual fund houses asking them to conduct necessary due diligence at the time of empanelling institutional distributors (such as banks and companies) to sell their products.
  
  But the mutual fund industry body – AMFI (Association of Mutual Funds in India) interestingly conveyed to SEBI that fund houses are not well equipped to do due diligence of institutional distributors and the regulator instead is in a better position to carry out the exercise. Mutual fund houses are of the belief that it is practically not possible for them to conduct due diligence of institutional distributors in the absence of a regulatory framework.
  
  In our opinion while we think that a regulatory framework would enforce greater accountability (through legal checkpoints); we believe that instead of just passing the buck, the mutual fund industry should go ahead and take the responsibility of undertaking due diligence of institutional distributors (such as banks and companies). We are also of the view that AMFI should also participate in this initiative, thereby refraining from just being a mere industry body, and get into the SRO (Self Regulatory Organisation) mode. AMFI at present has the KYD norms in place, but a thorough due diligence through regulatory check-points would enable strengthening of the whole exercise which is in the interest of investors.
   
• ING Mutual Fund recently launched a new fund named "ING Optimix Financial Planning Fund", whose objective is to generate returns by investing in mutual fund schemes selected in accordance with the ING OptiMix Multi Manager Investment process, as per the risk return profile of investors. The scheme has 4 plans named – cautious, conservative, prudent and aggressive and has a pre-set asset allocation under each of them. To read more click here
   
• HSBC Mutual Fund launched a new open ended Fund of Fund (FoF) scheme designed to provide investors an opportunity to benefit from the investment opportunities in Brazil. The scheme invests 95% to 100% of its assets in units / shares of HSBC Global Investments Funds Brazil Equity Fund (HGIF-BEF), while upto 5% in money market instruments. To read more click here
   
• Birla SunLife Asset Management Company launched Gold ETF – an open ended gold Exchange Traded Fund. The investment objective of the scheme is to generate returns that are in line with the performance of gold, subject to tracking errors. The scheme will invest 95% to 100% of its assets in physical gold and upto 5% in debt and money market instruments.
  
  The minimum application amount is Rs 6,000 and in multiples of Rs 2,000 thereafter. The issue is available for subscription from April 25, 2011 till May 9, 2011.
  
  The units of the scheme will be listed on the National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Limited (BSE). Investors will also have the option to convert to physical gold provided by certain vendors.

 

Disclaimer: This note / article is for information purposes and Quantum Information Services Limited (PersonalFN) is not providing any professional / investment advice through it. The recommendation service, views, articles and other contents are provided on an "As Is" basis by PersonalFN. The facts mentioned in the note are believed to be true and from a public source. The Service should not be construed to be an advertisement for solicitation for buying or selling of any scheme / financial product. PersonalFN disclaims warrants of any kind, whether express or implied, as to any matter/content contained in this note, including without limitation the implied warranties of merchantability and fitness for a particular purpose. PersonalFN and its subsidiaries / affiliates / sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this note. Use of this note is at the user's own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. PersonalFN does not warrant completeness or accuracy of any information published in this note. All intellectual property rights emerging from this note are and shall remain with PersonalFN. This note is for your personal use and you shall not resell, copy, or redistribute this note, or use it for any commercial purpose. Please read the terms of use.

Add Comments