Mutual Fund Roundup: June 2010

Market Overview

After being on a losing streak for the last two consecutive months, the Indian equity markets (BSE Sensex) displayed a rebound of 756.3 points (+4.5%) in the month of June 2010, as the Index of Industrial Production (IIP) numbers provided a fillip to the buying activity. But, not ruling out that the economic uncertainties still prevails, gold too continued to become bold and ended up 2.3%. Crude oil prices too continued to increase after gasoline surged on a report that U.S. refineries cut operating rates and supply of motor fuel drying up. The 10-Yr G-Sec yield did inch-up by 3 basis points, on the expectation of a policy rate hike by the Reserve Bank of India (RBI), before its first quarter review of monetary policy 2010-11, scheduled for July 27, 2010.

 

Monthly Market Roundup
 

	Close	Change	% Change
BSE Sensex	17,700.9	756.3	4.5%
S&P CNX Nifty	5,312.5	226.2	4.4%
CNX Midcap	8,130.9	374.9	4.8%
Gold (Rs/10 gram)	18,830.0	425.0	2.3%
Re/US $	46.5	(0.1)	-0.2%
Crude Oil ($/BBL)	74.8	1.0	1.4%
10-Yr G-Sec (%)	7.55	0.03	3 bps
1-Yr FDs	5.00% - 6.50%

(Monthly change as on June 30, 2010)

 

The graph hereunder clearly depicts that during the month as the IIP numbers roared, the Foreign Institutional Investors (FIIs) bought net to the tune of Rs 10,508 crore in the Indian equity markets; as compared to being net sellers in Indian equities to the tune of Rs 9,437 crore in May 2010.

 

BSE Sensex vs FII inflows

 

(Source: ACE MF)

 

The IIP (Index of Industrial Production) numbers for April 2010 (data released in the month of June, 2010), roared at 17.6%, on account of buoyant consumer demand and higher infrastructure spending. This new high, led to IIP breach its 20-year high of 16.8% reached in December 2009.

According to the quick estimates released by the Central Statistical Organisation (CSO), this strong up-tick in IIP did reveal the following positives:

 

• Strong manufacturing growth - - The manufacturing index, which is the principal component of the IIP, grew by 19.4% over the last year (April 2009).
   
• Growth in sectoral output   - Output of capital goods grew smartly over the last year (compared to April 2009) by 72.8%, followed by a growth of 10.8% in the output of intermediate goods. Similarly, the output of consumer durables and consumer non-durables also grew by 37.0% and 6.6% respectively, with the overall growth in consumer goods being 14.5%.

Mutual Fund Overview

After registering a growth of 4.5% in May 2010, the mutual fund industry's Average Asset Under Management (AAUM) shrunk by Rs 127,624 crore or 15.8% during June 2010, and the combined average AAUM of the 39 fund houses stood at Rs 677,616 crore. The country's largest fund house, Reliance Mutual Fund, also witnessed shrinkage of Rs 17,653 in its AAUM as per the data available with the Association of Mutual Funds in India.

The decline in assets in June 2010, was mainly on account of withdrawal by banks and corporates. The tight liquidity conditions due to 3G and BWA bidding forced the banks to withdraw a chunk of their holdings in mutual funds, while corporates withdrew their funds to meet their advance tax commitments. The debt funds AUM suffered a major hit in June 2010 as the new guideline on debt valuations which will make the returns unpredictable, created fear among the corporates. This has also been one of the factors for the corporates withdrawing their money from mutual funds.

Overall domestic equity mutual funds did show some buying conviction for 1st half of the month, on account of good IIP numbers reported; but later (2nd half of the month) went on selling spree and turned net sellers in Indian equities to the tune of Rs 968 crore, following its previous month’s (May 2010) path of turning net sellers in equities to the tune of Rs 389 crore.

 

BSE Sensex vs MF inflows

(Source: ACE MF)

 

As the equity markets rallied up, in the month of June 2010, equity oriented mutual funds across all segments, gave handsome returns in the range of 5.0% - 15.0%. However, Debt oriented mutual funds did not show much of winning streak, on account of expectations of intermediate policy rate hike by RBI.

Monthly top gainers: Open-ended equity funds

Diversified Equity Funds	1-Mth	Balanced Funds	1-Mth	Sector Funds	1-Mth
Sahara Wealth Plus-Fixed Pricing (G)	9.14%	JM Balanced (G)	7.0%	ICICI Pru FMCG (G)	14.2%
Reliance Equity Adv (G)	8.94%	Baroda Pioneer Balance (G)	5.4%	Reliance Media & Ent. (G)	12.6%
Fortis Opportunities (G)	8.78%	SBI Mag. NRI Inv-FlexiAsset (G)	5.3%	Franklin FMCG (G)	11.1%

(1-Mth returns as on June 30, 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
Tata MIP Plus (G)	2.0%	HDFC FRF-LT (G)	0.5%	IDFC Savings Advt-A (G)	0.5%
SBI Magnum Income Plus-Invest (G)	1.9%	Birla SL FRF-LT (G)	0.4%	JPMorgan India Liquid (G)	0.5%
HDFC MIP-LTP (G)	1.8%	SBI Magnum FRF-LTP (G)	0.4%	Shinsei Liquid-Reg (G)	0.5%

(1-Mth returns as on June 30, 2010)
(Source: ACE MF)

 

Like in equities, in debt instruments too domestic mutual funds, displayed selling spree. The upward movement in the 10 -Yr G-Sec yield and the selling pressure from the banks and corporates, compelled fund houses to sell Rs 25,406 crore worth of debt instruments. This was unlike its buying behaviour to the tune of Rs 2,088 crore in May 2010.

 

Performance across various categories of mutual funds

(Source: ACE MF)
(1-Mth average returns of funds in various categories as on June 30, 2010)

 

As per the above graph, all equity oriented funds ended in the positive terrain, as the Indian equity markets did rebound in the month of June 2010. Similarly, gold remained bold and gold ETFs ended the month in a positive terrain as the turbulent times continued for the global economy. As the 10 Yr G-Sec yield moved upwards, debt mutual funds felt the heat, but managed to end in the positive terrain, across all categories.

 

Other News

• While addressing at the 6th Mutual Fund Summit 2010 organised by Confederation of Indian Industry (CII), Mr. C.B. Bhave - Chairman of SEBI (Securities and Exchange Board of India) criticised the mutual fund houses for their incentive structure and their short-term interests. He said, "the incentive structure drives away the investors, as what is good for the industry in the short-term would not be beneficial to the investors in the short-term".
   
• PricewaterhouseCoopers (PwC) in its report (released at the CII Mutual Fund Summit 2010) on "Indian Mutual Fund Industry - Towards 2015", has highlighted a few aspects which mutual fund companies need to focus on to ensure the industry meets its growth objectives. The report said:

  ü Mutual fund houses should introduce new range of offerings in the market to attract investments

  ü In order to make mutual funds more acceptable to retail investors, the industry should offer comprehensive life       cycle planning, and not produce products alone

  ü Exchange Traded Funds (ETFs) should be given a boost by bringing them into increased focus

  ü  Mutual fund houses need to invest in technology, in order to streamline their distribution network

• SEBI expressed its desire for making mandatory demat account for mutual fund investors and has sought suggestion from the industry body - Association of Mutual Funds in India (AMFI). But the distributors have already expressed their dissent on this issue.
   
• SEBI’s Mutual Fund Advisory Committee took the first step in order to preclude mis-selling, by putting in place a system for distributor regulation. A note was released by the committee, titled - “Right Selling vs. Mis-selling: building institutional processes”, which is a virtual road map to put in place, sales guidelines for all sellers of mutual funds, including banks, national distribution houses and independent financial advisors.
  
  The SEBI proposal seeks to install a system of "product suitability", which would mean, that a set of products will be described as having attributes that fit a certain type of investor
   
• The broader price index as measured by the Wholesale Price Index (WPI) rose as temperatures dropped. WPI inflation for the month of May remained in doubled digits at 10.16% (declared in June 2010), after showing signs of cooling-off in the previous month (9.59% in April 2010). As per Government data, the jump in WPI inflation was on account of increase in prices across all segments.
   
• ICICI Prudential Mutual Fund launched an open ended index fund named "ICICI Prudential Nifty Junior Index Fund". As per the offer document, the fund is mandated to invest 90% - 95% of the collected corpus, in stocks covered by the CNX Nifty Junior Index, as well as derivatives linked to the CNX Nifty Junior Index. But its investments in debt and money market instruments are restricted to 10%. The fund’s investment objective is "to invest in companies whose securities are included in Nifty Junior Index and to endeavour to achieve the returns of the above index as closely as possible. The fund intends to track only 90% - 95% of the Index i.e. it will always keep cash balance between 5% - 10% of the net assets to meet the redemptions and other liquidity requirements. However, as and when the liquidity in the Index improves the fund intends to track upto 100% of the Index".
   
• Peerless Mutual Fund launched an open ended debt fund named "Peerless Income Plus Fund". As per the offer document, the fund is mandated to invest 80% - 98% of the collected corpus, in debt and money market instruments, and the remaining 2% - 20% in equity and equity related instruments. The fund’s investment objective is “to generate regular income through a portfolio of predominantly high quality fixed income securities and with a marginal exposure to equity and equity related instruments. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. The Scheme does not assure or guarantee any returns".
   
• Taurus Mutual Fund launched an open ended index fund named "Taurus Nifty Index Fund". As per the offer document, the fund is mandated to invest 95% - 100% of the collected corpus, in stocks covered by the Nifty, as well as derivatives linked to the S&P CNX Nifty Index. Its investments in debt and money market instruments will be restricted to 5%. The fund’s investment objective is "to replicate the S&P CNX Nifty index by investing in securities of CNX Nifty Index in the same proportion/weightage".
   
• In a move to help cancer patients, HDFC Mutual Fund filed an offer document with SEBI to launch a 3 year close-ended fixed income fund, in which investors will have the discretion to make donations to the Indian Cancer Society. Investors can select to donate 50% or 100% of the dividend they receive.

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