Mutual Fund Roundup: July 2010
Market Overview
In the month of July 2010, the Indian equity markets (BSE Sensex) continued to show its indecisive movement depicting a consolidation, but nonetheless ended the month in green by mere 167.4 points (0.9%). The cool-off in the IIP numbers to 11.5% in May 2010 (data released in July 2010), from 16.5% in April 2010 also attributed in this lacklustre upside movement. Moreover, the talks of a double-dip recession in the global economy also caused this jittery movement in the Indian equity markets. Gold lost its steam in the month, due to lack of demand caused by spiralling gold prices in the earlier months. Crude oil prices on the other hand continued to rise further on supply concerns. The 10-Yr G-Sec yield inched-up as the Reserve Bank of India (RBI), in its first quarter review of monetary policy 2010-11 (on July 27, 2010), increased the key policy rates - repo and reverse repo by 25 basis points and 50 basis points respectively. Similarly, earlier during the month (on July 2, 2010) the RBI had increased the repo rate and the reverse repo rate by 25 basis points each and kept the CRR unchanged.
Monthly Market Roundup
|
Close |
Change |
% Change |
| BSE Sensex |
17,868.3 |
167.4 |
0.9% |
| S&P CNX Nifty |
5,367.6 |
55.1 |
1.0% |
| CNX Midcap |
8,415.3 |
284.4 |
3.5% |
| Gold (Rs/10 gram) |
17,870.0 |
(960.0) |
-5.1% |
| Re/US $ |
46.4 |
0.0 |
0.1% |
| Crude Oil ($/BBL) |
77.0 |
2.2 |
2.9% |
| 10-Yr G-Sec (%) |
7.80 |
0.25 |
25 bps |
| 1-Yr FDs |
5.75% - 6.50% |
(Monthly change as on July 31, 2010)
The graph hereunder clearly depicts that during the month even though the IIP numbers cooled-off, the Foreign Institutional Investors (FIIs) bought net to the tune of Rs 16,617 crore in the Indian equity markets; as compared Rs 10,508 crore (net buying) in June 2010.
BSE Sensex vs FII inflows
(Source: ACE MF)
The IIP (Index of Industrial Production) number for May 2010 (data released in the month of July 2010), cooled-off to 11.5%, after showing a good run-up since October 2009. The IIP number for April 2010 was also revised downwards to 16.5% from the original 17.6%.
Nevertheless, this was the eighth consecutive month that the IIP number was in double-digits helped by:
- Robust domestic consumer demand
- Expanding exports
- Higher infrastructure spending
According to the quick estimates released by the Central Statistical Organisation (CSO), the main reason for the slowdown in the IIP growth was on account of:
Mutual Fund Overview
The mutual fund industry's Average Asset Under Management (AAUM) shrunk by Rs 10,296 crore or -1.6% during July 2010, and the combined average AAUM of the 40 fund houses stood at Rs 6,65,567 crore. The country's largest fund house, Reliance Mutual Fund’s AAUM rose marginally by 0.85% or Rs 859 crore as per the data available with the Association of Mutual Funds in India (AMFI).
Contrary to FII activity, domestic equity mutual funds in July 2010, went on a selling spree. They sold to the tune of (net) Rs 4,182 crore of Indian equity, as the equity markets were on an indecisive mode (consolidating) and as the IIP numbers cooled-off. This was similar to the pattern followed in June 2010, where they were net sellers in Indian equities to the tune of Rs 968 crore.
BSE Sensex vs MF inflows
(Source: ACE MF)
Even though the BSE Sensex showed signs of consolidation, the mid cap segment saw some upward movement, which thus led to diversified mid cap oriented funds giving appealing returns. Similarly, as the key policy rates rose (as expected), the banking and financial services sector funds also garnered steam and gave enticing returns. Balanced funds too, having a mid cap exposure in its equity component, ended the month on a winning streak.
Monthly top gainers: Open-ended equity funds
| Diversified Equity Funds |
1-Mth |
Balanced Funds |
1-Mth |
Sector Funds |
1-Mth |
| SBI Mag. Emerging Businesses (G) |
8.4% |
Birla SL '95 (G) |
3.8% |
Reliance Banking (G) |
9.4% |
| IDFC Premier Equity-B (G) |
7.6% |
HDFC Prudence (G) |
3.6% |
ICICI Pru Banking & Fin Serv (G) |
9.1% |
| Taurus Discovery (G) |
6.7% |
Escorts Balanced (G) |
3.4% |
Sundaram BNPP Fin Serv Oppor (G) |
8.8% |
(1-Mth returns as on July 31, 2010)
(Source: ACE MF)
Monthly top gainers: Open-ended debt funds
| Monthly Income Plans |
1-Mth |
Long-Term Floating Rate Funds |
1-Mth |
Liquid Funds |
1-Mth |
| SBI Magnum MIP-Floater (G) |
2.4% |
ICICI Pru LT FRF-A(G) |
0.5% |
Quantum Liquid (G) |
0.5% |
| HDFC Multiple Yield (G) |
1.0% |
Birla SL FRF-LT (G) |
0.4% |
JM High Liquidity-Reg (G) |
0.5% |
| Birla SL MIP II-Wealth 25 (G) |
0.9% |
SBI Magnum FRF-LTP (G) |
0.4% |
Sahara Liquid-Fixed Pricing (G) |
0.5% |
(1-Mth returns as on July 31, 2010)
(Source: ACE MF)
Like in equities, in debt instruments also domestic mutual funds, displayed selling spree on the expectation of upward movement in the bond yield across the maturity curve. However, the intensity of selling was less, with Rs 582 crore of debt and money market instruments being (net) sold. But, nonetheless Monthly Income Plans (MIPs), long-term floating rate funds and liquid funds performed well.
Performance across various categories of mutual funds
(Source: ACE MF)
(1-Mth average returns of funds in various categories as on July 31, 2010)
As per the above graph, all equity oriented funds ended in the positive terrain, despite the indecisive movement in the Indian equity markets. Particularly the banking and financial services sector funds, generated impressive returns due to the rally seen in banking stocks, as the key policy rates were hiked by RBI. However gold ETFs gave negative returns, as prices of gold in the international markets corrected, due to lack of demand for the yellow metal (as the prices are escalated). Similarly, debt mutual benefits, barring liquid funds, did not give very appealing returns, since the bond yield moved upwards as policy rates inched-up.
Other News and New Fund Offers
- Decelerating manufacturing growth- The manufacturing index, which is the principal component of the IIP, decelerated to 12.3% in May 2010, as compared to 17.9% in the previous month (April 2010).
- Loss of growth in sectoral output - Output of capital goods grew only at 34.3% in May 2010, as compared to 69.9% in the previous month. Similarly, the output of consumer durables and consumer non-durables also slowed down to 23.7% (37.0% in the previous month) and 2.4% (6.6% in the previous month) respectively, with the overall growth in consumer goods also going down to 8.2% (14.5% in the previous month).
-
In its first quarter review of monetary policy for 2010 -11 (July 27, 2010) , the Reserve Bank of India (RBI) increased key policy rates as under with immediate effect, thus making an attempt to tame spiralling double-digit inflation.
- Repo Rate was increased by 25 basis points, from 5.50% to 5.75% and
- Reverse Repo rate was increased by 50 basis points, from 4.00% to 4.50%
Similarly, earlier on July 2, 2010 the RBI had increased the repo rate and the reverse repo rate by 25 basis points each and kept the CRR unchanged.
However taking into account the present liquidity situation the Cash Reserve Ratio (CRR) was kept unchanged at 6.00%.
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Investors will hopefully be able to know their distributors better, as the Association of Mutual Funds in India (AMFI) plans to unveil Know-Your-Distributor (KYD) norms for mutual fund distributors. These norms will be applicable to all who desire to engage in mutual fund distribution and ARN (AMFI Registration Number) holders.
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After showing a minor cool-off in May 2010, the Wholesale Price Inflation (WPI) for June 2010 (data released in July 2010) continued to inch-up in the double-digit space at 10.55% on account of increase in fuel, food and metal prices. Moreover, WPI inflation numbers for April were also revised upwards sharply, from 9.59% to 11.23%.
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In order to enforce discipline and check front running activity in mutual funds houses, the Securities and Exchange Board of India (SEBI) has asked fund houses to install conversation recording facilities in dealing rooms and also disallow dealers from using personal mobile phones in the dealing rooms. Moreover, SEBI has also asked mutual fund houses to maintain records of the phone conversations in the dealing room for at least eight years, which will be open for SEBI inspection and will also be periodically checked by the designated executives of the fund house and reports will be submitted to the trustees of the fund house.
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SEBI directed mutual fund houses to have a uniform exit load for investment through lump sum as well as the SIP (Systematic Investment Plan) route. Presently, mutual fund houses levy an exit load of 1%, in case of investments redeemed before a year.
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In a move to help mutual fund investors, SEBI brought in the next round of changes by proposing that mutual fund houses should mandatorily benchmark the performance of their equity oriented schemes, "primarily" with one of the two most widely accepted indices i.e BSE Sensex or Nifty, along with the index chosen for the particular fund [as mentioned in the Scheme Information Document (SID)].
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