Market Overview

The consolidation phase experienced by the Indian equity markets in the month of March 2012, continued in the month of April 2012 as well, as the BSE Sensex lost 0.5% (or 85.4 points).

With Spain reporting a contraction in its economic growth (-0.3% for Q1 2012), it sent signals of confirmation of the scale of recession in one of the two large economies at the centre of the Euro zone's debt crisis. The Bank of Spain's report said, weak domestic demand had dragged the economy into its second formal recession - two consecutive quarters of negative quarterly growth (since 2008), while the outlook for the rest of the year was uncertain. Moreover, with the new Government in Spain announcing that the fiscal deficit target (of 4.4%) may not be achieved got the global markets into a tizzy.

Likewise, shrinkage in U.K.'s Q1 2012 GDP growth rate (to -0.2%) confounded the forecast of a +0.1% GDP growth rate for Q1 2012, and got the global markets into a nervous mood as the data indicated it to be first double-dip recession since the 1970, thus heaping pressures on the David Cameron's coalition Government. It is noteworthy that shrinkage in U.K's economic growth rate for the last quarter (i.e. from January 2012 to March 2012) occurred as construction output reported the biggest fall in the last three years, coupled with anaemic service sector growth and a fall in industrial output.

Back home in India, with global rating agency axing India's sovereign rating outlook to negative from stable, and warning one-in-three chance of a rating downgrade in the next couple of years, got the Indian equity markets into a nervous grip. The rating agency cited the following reasons for the downgrade:
 

• Persistent external risk
• High fiscal deficit
• Heavy debt
• Weakened political setting (that could slow reforms)
   

Moreover, S&P also slashed its outlook to negative for companies including Infosys, Wipro and TCS in the private sector, besides state-owned Exim Bank, IIFCL, IRFC, PFC, NTPC, NHPC and SAIL; which all have significant global presence. The change in the outlook thus reflected worrisome situation of the Indian economy, as such a rating downgrade could lead to increase in borrowing cost for corporate India and have negative impact on the development of the economy (led by dampening of business sentiments and drying up of investments).

Meanwhile Moody's Analytics was of the view that India's growing, but below its potential, as politics is weighing on the economy. It termed the national Government as the "single biggest drag" on business activity.

On the General Anti-Avoidance Rules (GAAR) (which spooked the sentiments in the Indian equity markets earlier in the month of March 2012), although there was news of Finance Ministry considering exempting transactions or tax-saving arrangements less than Rs 15 crore to ensure only corporate structures of significant size come under the ambit and deferring the implementation of GAAR to April 1, 2013 (thereby enabling stakeholders to exhaustively debate the new rules, which will spell out how GAAR is to be implemented, and also enable investors to restructure their businesses to bring them in line with the changed tax code); it did not enthuse the Indian equity markets much, as uncertainty over GAAR yet lingered.

Likewise, although the industrial activity reported an uptick of 4.1% for the month of February 2012 (data released in March 2012), it did not enthuse the markets much. This was mainly because the IIP data for January 2012 underwent a downward revision (placing it at mere 1.1%), due to the incorrect production data of sugar which was originally reported as 134.08 lakh tonne and then subsequently rectified to 58.09 lakh tonne.

Thus in the background of all these macro-economic factors, while the RBI tried to reduce policy rates by 50 basis points (bps) in attempt to provide impetus to economic growth (encouraged by signs of moderation in WPI inflation); barring the date of announcement of annual monetary policy 2012-13 the Indian equity markets didn't reveal any sharp upswing in the ensuing trading sessions of April 2012. Considering the fact that a weakening Indian Rupee may infuse upside risk to WPI inflation, the central bank guided that the space for further reduction in policy rates would get limited and this in turn also got the Indian equity markets move in consolidative manner.

Speaking about the precious yellow metal - gold, it too took cues from the downbeat sentiments prevailing in the global economy and thus rose by +4.2% (after undergoing a corrective phase in March 2012), displaying its trait of being a safe haven. However high prices, dampened the demand for gold on the Akshaya Tritiya Muhurath (on April 24, 2012), and jewellers too refrained from keeping heavy stock on the festival day, in view of pending issue of imposing of excise duty on unbranded jewellery.

As far as Brent crude oil is concerned, after showing an ascending trend since the beginning of January 2012, a correction was witnessed in the prices as gloomy global economic outlook and slowdown in China's growth rate pulled down the demand for oil.

For the bonds markets, a reduction of 50 basis points (bps) brought in by the Reserve Bank of India (RBI) in its annual monetary policy 2012-13 helped to ease the tight liquidity situation (which was prevailing despite an intermediate reduction of 75 bps in the Cash Reserve Ratio (CRR) on March 9, 2012) in the system, which in turn resulted in yields of shorter maturity papers mellowing down. 1-month and 3-month CD yields dropped by 235 bps and 145 bps respectively, placing them at 9.4% and 9.6% respectively. However, the 10-Yr G-Sec yields continued to inch-up, on host of macro-economic factors such as sovereign credit rating downgrade, politics weighing on the economy, bloating Current Account Deficit (CAD), weakening rupee and estimation that the fiscal deficit target of 5.1% for the fiscal year 2012-13 may not be met.

  Monthly Market Roundup

	As on April 30, 2012	As on March 31, 2012	Change	% Change
BSE Sensex	17,318.8	17,404.2	(85.4)	-0.5%
S&P CNX Nifty	5,248.2	5,295.6	(47.4)	-0.9%
CNX Midcap	7,471.1	7,711.4	(240.3)	-3.1%
Gold (Rs/10 gram)	29,215.0	28,040.0	1,175.0	4.2%
Re/US $	52.7	50.9	(1.9)	-3.7%
Crude Oil ($/BBL)	119.7	123.5	(3.8)	-3.1%
10-Yr G-Sec (%)	8.62	8.52	0.10	10 bps
1-Yr FDs	7.25% - 9.25%

(Monthly change as on April 30, 2012)
(Source: ACE MF, PersonalFN Research)

 

Tracking all the aforementioned economic factors - both global as well as domestic, Foreign Institutional Investors (FIIs) too turned net sellers in the Indian equity markets to the tune of Rs 1,109 crore, thereby bucking their last month's cautious buying activity (where they net bought to the tune of Rs 8,381 crore).

  BSE Sensex vs FII inflows

(Source: ACE MF, PersonalFN Research)

 

FIIs seemed to be worried about the uncertainty prevailing over GAAR. It is noteworthy that in the Budget 2012, the Finance Minister had proposed to introduce GAAR in order to "counter aggressive tax avoidance schemes"; but thus far this has had wiggling implication on FII flows.

 

Mutual Fund Overview

Likewise, domestic mutual funds too continued to be net sellers in the Indian equity markets in the month gone by, to the tune of Rs 677 crore thereby following their March month's activity where they stood net sellers to the tune of Rs 1,412 crore. It seems that fund managers preferred to be on a cautious footing given an uncertain global economic environment, and the vulnerability of FII flows until clarification issued over GAAR. It is noteworthy that in order to attract foreign flows, India has to make the tax policies more predictable, or else it would impede foreign investors from investing in India.

  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, mid and small cap funds continued to deliver luring returns as compared to the large cap ones (which provided dismal returns).

Amongst the sector funds, as the Indian equity markets got into a nervous mood (which set in a consolidation phase), schemes focusing on defensive sectors such as FMCG and pharma, helped in creating wealth for investors. However, media & entertainment, banking & financial services, infrastructure and technology depicted a descending move.

In the Fund of Fund (FoF) schemes, the equity oriented international feeder funds did well; especially the ones focusing on investing in China and ASEAN (Association of South East Asian Nations).

Speaking about the hybrid funds, balanced funds felt the impact of gradual descending move of the Indian equity markets, but their debt portfolios - especially the composition holding shorter maturity papers, have benefited due to fall in in short-term yields. Likewise Monthly Income Plans (MIPs) holding greater composition of lower maturity papers (of less than 5 years) also benefited as RBI initiated reduction in policy rates.

  Monthly top gainers: Open-ended equity funds

Diversified Equity Funds	1-Mth	Sector Funds	1-Mth	ELSS	1-Mth
SBI Magnum Emerging Businesses (G)	5.55%	ICICI Pru FMCG (G)	6.90%	Reliance ELSS-I (G)	4.67%
IDFC Sterling Equity (G)	4.05%	UTI Transportation & Logistics (G)	6.28%	Axis LT Equity (G)	2.28%
Reliance Long Term Equity (G)	3.64%	Reliance Pharma (G)	4.51%	SBI TAX Adv. Fund - Series (G)	1.53%

(1-Mth returns as on April 30, 2012)
(Source: ACE MF, PersonalFN Research)

   Monthly top gainers: Open-ended Fund of Funds

Fund of Funds	1-Mth
Mirae Asset China Advantage (G)	7.01%
JPMorgan JF Gr China Eq Off-Shore (G)	5.16%
JPMorgan JF ASEAN Equity Off-shore Fund (G)	4.62%

(1-Mth returns as on April 30, 2012)
(Source: ACE MF, PersonalFN Research)

   Monthly top gainers: Open-ended Hybrid Funds

Balanced Funds	1-Mth	Monthly Income Plans	1-Mth
SBI Magnum Balanced (G)	1.34%	IDFC MIP (G)	1.41%
Canara Robeco Balance (G)	0.75%	Reliance MIP (G)	1.29%
HDFC Balanced (G)	0.74%	ICICI Pru MIP 25 (G)	1.20%

(1-Mth returns as on April 30, 2012)
(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)	1.00%	Religare STP-A (G)	1.24%	Tata Gilt SMF (G)	1.00%
SBI Mag. Income FRP-Saving Plus Bond (G)	0.97%	DWS Short Maturity-Reg (G)	1.08%	HSBC Gilt-ST-Reg (G)	0.81%
Canara Robeco FRF (G)	0.96%	Pramerica ST Income (G)	1.07%	Templeton India G-Sec-Treas. (G)	0.80%
Long Term		Long Term		Long Term
Tata FRF-LTP (G)	1.69%	Canara Robeco InDiGo (G)	1.58%	JM G-Sec-Reg (G)	1.34%
HDFC FRIF-LT (G)	1.02%	Baroda Pioneer PSU Bond (G)	1.22%	L&T Gilt - Investment (G)	1.30%
Birla SL FRF-LT (G)	1.00%	Tata Income (G)	1.19%	UTI Gilt Adv-LTP (G)	1.16%

 

Liquid Funds	1-Mth	Liquid Plus funds	1-Mth
Religare Overnight (G)	1.34%	Pramerica Treasury Advantage (G)	1.14%
Sahara Liquid-Fixed Pricing (G)	1.00%	DWS Treasury-Invest-Reg (G)	1.01%
ING Liquid-Reg (G)	0.94%	Fidelity Ultra ST Debt-Ret (G)	0.99%

(1-Mth returns as on April 30, 2012)
(Source: ACE MF, PersonalFN Research )

 

Debt mutual funds, across categories and tenure showed a decent performance in the month gone by. Those holding shorter maturity papers - especially short-term income funds and liquid plus funds (also known as ultra-short term funds) impressed on the performance front, with the drop in short-term yields, while the Long-term debt funds across category also delivered decent returns, as RBI initiated policy rate cuts in its annual monetary policy review meeting on April 17, 2012.

It is noteworthy that while the FIIs turned net sellers in the Indian debt market to the tune of Rs 3,788 crore (as against being net seller to the tune of Rs 6,589 crore in March 2012); domestic mutual funds net bought aggressively to the tune of Rs 41,130 crore. But having said that, they treaded cautiously compared to their March month's activity where they net bought to the tune of Rs 1,10,866 crore.

  Performance across various categories of mutual funds

(1-Mth average returns of funds in various categories as on April 30, 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, barring FMCG and pharma funds (which have a trait of being defensive), all others took a beating. In the diversified equity funds category too, only mid cap funds managed to deliver positive returns (of average +0.4%), despite a descending move of -3.1% in the CNX Midcap index. From a fund management style perspective, only some funds following a value style of investing, and some of those having a mandate to invest in dividend yield stocks managed to deliver positive returns, but they were marginal. Tax saving funds (which are diversified equity scheme and generally follow a fluid investment style) category too reported negative returns in the month gone by.

However, tracing with upward move in the price of the precious yellow metal - gold, Gold ETFs exhibited positive returns for investors (gaining by an average of +2.8%).

Other News and New Fund Offers

• Sudden and intense policy changes have sometimes adverse repercussions in the long run. The decision of 'entry load ban' taken by the SEBI (Securities and Exchange Board of India) in September 2009 did not go down well with the mutual fund industry. The decision of entry load ban was implemented in a cut-and-dry manner instead of in a slow, phased manner. This thus resulted in a difficulty for the mutual fund industry to adjust to this new business model.
  
  Citing this difficulty, the Association of Mutual Funds in India's (AMFI) Chief Executive - Mr H.N. Sinor has expressed his concerns, and plans to initiate a discussion with SEBI to review its 2 year old decision of a complete ban on the entry load. In an interview with the Economic Times, Mr Sinor raised a few points to express his concern for the mutual fund industry.
  
  To read more about this news please click here.
   
• The Association of Mutual Funds in India (AMFI) is trying to convince the Finance Ministry to secure an exclusive mandate to implement the Rajiv Gandhi Equity Savings Scheme (RGESS), a tax-efficient investment plan for retail investors that was introduced in the Union Budget 2012. This proposal, according to AMFI will allow the domestic mutual funds to handle the proposed equity scheme - RGESS, and help it replace its existing tax-saver product - Equity-Linked Savings Scheme (ELSS), which will lose its tax-saver status under the Direct Taxes Code (DTC) regime.
  
  It is noteworthy that the demand for RGESS comes at a time when the mutual fund industry is passing through its roughest patches. The industry's month-end assets under management plunged by over 13% to Rs 5.87 lakh crore in March 2012, the lowest AUM since June 2009.
   
• After having being the first distributor to have offered mutual funds on an online platform to its customers via 49 Banks in the country (thereby enabling a complete paperless investment process), Abchlor Investment Advisors have yet again pioneered an offering in the form of an electronic front-end to its customers for setting up an SIP into various AMC's MF schemes (MF iSIP) through its well-known portal, InvestOnline.in.
  
  MF iSIP is an extremely convenient service that would provide investors the ability to set up an SIP (number of months of SIP) without having to fill forms or issue cheques repeatedly.
   
• IDBI Mutual Fund introduced its first actively managed diversified equity fund, named "IDBI India Top 100 Equity Fund" (IIT100) which will be linked to the CNX 100 index as its benchmark. Being a diversified equity fund, IIT100 will have the freedom to invest across stocks and sectors within the universe of the CNX 100 index, thereby attempting to generate opportunities for long-term wealth creation.
  
  As per its offer document, the fund's investment objective is "to provide investors with opportunities for long-term growth in capital through active management of a diversified basket of equity stocks, debt and money market instruments. The investment universe of the scheme will be restricted to equity stocks and equity related instruments of companies that are constituents of the S&P CNX Nifty Index (Nifty 50) and the CNX Nifty Junior Indices comprising a total of 100 stocks. These two indices are collectively referred to as the CNX 100 Index. The equity portfolio will be well-diversified and actively managed to realize the Scheme objective." As far as allocation of its assets is concerned, the IIT100 will invest 70% - 100% of its total assets in equity and equity related instruments constituting from the CNX 100 Index, and the rest (i.e. 30%) in debt & money market instruments.
   
• Taurus Mutual Fund added to its stable a sector fund - "Taurus Banking & Financial Services Fund" (TBFSF) which will focus on citing opportunities available within the Banking and Financial Services (BFSI) sector, and thereby link its performance against the BSE Bankex. TBFSF will be actively managed fund, intended to optimize returns by investing into various equity and equity related instruments within BFSI sector, including derivative contracts (both futures & options) - upto 25% of the net assets, subject to regulatory approvals.
  
  As per its offer document, the fund's investment objective is "generate capital appreciation through a portfolio that invests predominantly in equity and equity related instruments of Banking, Financial and Non-Banking Financial Companies that form a part of the BFSI Sector. However, there is no assurance or guarantee that the objectives of the scheme will be realized and the scheme does not assure or guarantee any returns." As far as of its assets is concerned, the scheme will invest 80% - 100% of its total assets in Equity and Equity Related Instruments of companies belonging to the Banking & Financial Services Sector, and the rest (i.e. 20%) in debt & money market instruments.
   

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tarfa13@yandex.ru Jun 17, 2012 It is very unlikely that you will be ask to pdvrioe a bank statement or proof of your income. This is normally done when you apply for visa. I have duel nationality and I have traveled to USA on both of my passports Croatian (with visa for USA) and British and I was never ask to pdvrioe any evidence of my funds. My partner (with British passport) was ask to pdvrioe itinerary for our holiday, but not any bank statements or proof of funds or earnings!Have great time!!!

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