Market Overview

The equity markets closed in the positive terrain in the month of February 2010. BSE Sensex gained 0.4%, while the midcap index (CNX Midcap) fell 0.5% during the month. Gold, ended in the positive terrain, up 3.3%.

 

	Close	Change	% Change
BSE Sensex	16,429.6	71.6	0.4%
S&P CNX Nifty	4,922.3	40.3	0.8%
CNX Midcap	7,167.3	(34.6)	0.5%
Gold (Rs/10 gram)	16,815.0	530.0	3.3%
Re/US $	46.1	0.3	0.6%
Crude Oil ($/BBL)	76.7	5.1	7.1%
10-Yr G-Sec (%)	7.9	0.3	4.0%
1-Yr FDs	6.00% - 7.50%

(Monthly change as on February 26, 2010)

 

The graph below shows that FIIs were net buyers of equities to the tune of Rs 121.7 m in the month of February as compared to being net sellers in equities to the tune of Rs 1,464 m in the month of January

 

(Source: ACE MF)

 

The markets cheered the Budget 2010 (announced on February 26, 2010) with the BSE Sensex touching an intra-day high of nearly 400 points before ending the Budget day up by 175 points at 16,429.55.

The Budget 2010 as announced by the Finance Minister, Mr. Pranab Mukherjee, laid the road map for the economic growth for the next financial year and took steps to move towards fiscal consolidation.

 

However the Finance Minister said there are major challenges for the Government which are:

1. To quickly revert to the high GDP growth path of 9% and then find the means to cross the ‘double digit growth barrier’

2. To harness economic growth to consolidate the recent gains by making development more inclusive

3. To address the weaknesses in Government systems, structures and institutions at different levels of governance

For the first time, the Government targeted an explicit reduction in its domestic public debt to GDP ratio. The Government has kept a fiscal deficit target of 5.5% for F.Y. 2010-11, 4.8% for F.Y. 2011-12 and 4.1% for F.Y. 2012-13.

The major focus areas in the Budget 2010 were:

• Infrastructure – The Government increased the allocation towards infrastructure development, to Rs 1,73,552 crore, which accounts for over 46% of the total plan allocation.
• Housing – The Government also increased the allocation for urban development by more than 75% from Rs.3,060 crore to Rs.5,400 crore in 2010-11. Similarly, allocation for Housing and Urban Poverty Alleviation was also raised from Rs.850 crore to Rs.1,000 crore in 2010-11.
• Banking Sector – The Budget also emphasized inclusive growth in the banking sector. In order to give a fillip to the banking sector, more licenses will be issued, which will thus facilitate private players and Non Banking Financial Companies (NBFCs) to enter the banking sector.
• PSU Disinvestment - The Government also proposed to raise Rs. 25,000 crore through PSU disinvestment and the disinvestment proceeds are budgeted higher in F.Y. 2010-11 vs. F.Y. 2009-10.

 

Overall the Budget 2010, in our opinion is a balancing act, done by the Government, for the overall economy and also for the “aam aadmi”, since it encourages higher consumption and will benefit the domestic economy.

 

Mutual Fund Overview

BSE Sensex vs MF inflows

(Source: ACE MF)

 

Mutual Funds (MFs) were net sellers of equities to the tune of Rs 71.7 m in the month of February as compared to Rs 1,563 m in the month of January.

 

Monthly top gainers: Open-ended equity funds

Diversified Equity Funds	1-Mth	Balanced Funds	1-Mth	Banking Funds	1-Mth
Religare AGILE (G)	2.59%	Reliance Reg Savings Balanced (G)	3.53%	Reliance Banking (G)	3.65%
Tata Dividend Yield (G)	1.82%	HDFC Prudence (G)	1.50%	Sahara Banking & Financial Services (G)	2.43%
Principal Large Cap (G)	1.81%	FT India Balanced(G)	1.12%	UTI Banking Sector (D)	1.88%

(1-Mth returns as on February 26, 2010)
(Source: ACE MF)

Monthly top gainers: Open-ended debt funds

Monthly Income Plans	1-Mth	Long-Term Floating Rate Funds	1-Mth	Short-Term Gilt funds	1-Mth
Baroda Pioneer Income (G)	0.66%	ICICI Pru LT FRF-A (G)	0.47%	Baroda Pioneer Gilt (G)	0.48%
Birla SL Medium Term (G)	0.39%	Birla SL FRF-LT (G)	0.46%	HSBC Gilt-ST (G)	0.32%
Religare Credit Opp (G)	0.38%	SBI Magnum FRF-LTP (G)	0.39%	Birla SL Gilt Plus-Liquid (G)	0.18%

(1-Mth returns as on February 26, 2010)
(Source: ACE MF)

 

The net investments in debt mutual funds witnessed a decrease in the month of February 2010 as compared to January 2010. The net investments decreased from Rs 3,122.39 m to Rs 1,199.86 m.

 

Performance across various categories of mutual funds

(Source: ACE MF)
(1-Mth average returns of funds in various categories as on February 26, 2010)

As per the above graph, the returns of all equity oriented funds, except banking funds and diversified equity funds were in the negative terrain. The top losers in the equity funds were the midcap funds. Debt funds performed comparatively better and closed in the positive terrain, except for long-term income funds and Long-term gilt funds.

 

Other News

• The inflation as measured by the Wholesale Price Index (WPI) touched a 15 month high of 8.56% in the month of January 2009, up from 7.31% in the previous month. The food inflation also accelerated to touch 17.87% for the week ended February 20, 2010. With food inflation showing signs of impacting the wider economy, the RBI is widely expected to raise borrowing rates at its next policy review given that inflation has already topped its (RBI’s) revised March-end forecast of 8.5%.
• The Railway budget announced by Ms. Mamata Banerjee, the Railway Minister, appeared to be pro-Consumer, since it concentrated on social sector spending. The ministry also emphasised the importance of Public Private Partnership (PPP) for the development of railways. For the first time ever private players too will be allowed to run special freight trains. However Ms. Banerjee also mentioned that “the railway department will not be privatised and will remain with the Government”.
• As many as 23 firms are awaiting approval from Securities and Exchange Board of India (SEBI) to enter the mutual fund space, which is already overcrowded with 38 players. Some of the Indian companies whose applications are with the regulator include Indiabulls, Future Finance, SREI Infrastructure Finance, ASK Investment Holding, India Infoline, Prime Securities, Karvy Stock Broking and Jaypee Capital Services. But on the other hand, there is an interesting study which suggests that there isn’t room for even 10 players in this market.
• Former Indian Bank’s Association chief H.N. Sinor has been appointed as the CEO of the Association of Mutual Funds in India (AMFI), with immediate effect. Mr. Sinor’s tenure will be for three years. Mr. A.P. Kurien, the current Chairman of AMFI, will retire from his post in September this year.

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