Market Overview

The equity markets closed in the positive terrain in the month of March 2010. The BSE Sensex, S&P CNX Nifty and the CNX Mid Cap Index gained 6.7%, 6.6% and 7.5% respectively. However gold lost its sheen and ended in the negative terrain down by 2.9% in the Indian markets, as the price of gold was more impacted due to appreciation of the rupee against the dollar. Globally too, gold depreciated on account of weak Euro, pressures of unsustainable cost of debt and weak economy which paved way for gains in the U.S dollar.

 

	Close	Change	% Change
BSE Sensex	17,527.8	1,098.2	6.7%
S&P CNX Nifty	5,249.1	326.8	6.6%
CNX Midcap	7,704.9	537.7	7.5%
Gold (Rs/10 gram)	16,320.0	(495.0)	-2.9%
Re/US $	44.8	1.3	2.8%
Crude Oil ($/BBL)	81.3	4.6	6.0%
10-Yr G-Sec (%)	7.8	(0.0)	-0.4%
1-Yr FDs	5.00% - 6.50%

(Monthly change as on March 31, 2010)

 

The graph here under clearly depicts that the Budget 2010 paved the way for some aggressive FII participation in the Indian equity markets, which led to the rally in the BSE Sensex. FIIs were net buyers in equities to the tune of Rs 19,928 crore in the month of March 2010 as compared to Rs 1, 217 crore (net buyers in equity) in the month of February 2010.

 

BSE Sensex vs FII inflows

 

 

(Source: ACE MF)

 

The markets also cheered the Jan 2010 IIP (Index of Industrial Production) numbers declared in the month of March 2010. IIP for January 2010 grew by 16.7% over last year. According to the quick estimates released by the Central Statistical Organisation (CSO), the rise in IIP was broad based and was on account of:

 

• Strong manufacturing growth  - Investors looThe manufacturing index, which is the principal component of the IIP, grew by 17.9% over the last year king for exposure to 3 major asset classes (Debt, Equity and Gold) in a single fund
• Robust expansion in output - Output of capital goods grew over the last year by 56.2%, followed by growth in output of intermediate goods and consumer goods of 21.3% and 31.6% respectively

 

Mutual Fund Overview

 

The industry's average asset under management (AUM) fell by Rs 37,761 crore or 4.83 per cent during March. The combined average AUM of the 37 fund houses stood at Rs 7,43,950 crore. The country's largest fund house Reliance Mutual Fund saw an erosion of Rs 5,340 crore or 4.61 per cent from its average assets to Rs 1.10 lakh crore, as per data released by the Association of Mutual Funds in India (AMFI).

 

BSE Sensex vs MF inflows

(Source: ACE MF)

 

Mutual Funds (MFs) were busy distributing dividends to their unit holders, which thus made them book profits and effectively turned them into net sellers in equities to the tune of Rs 3,798 crore in the month of March 2010.

 

Monthly top gainers: Open-ended equity funds

 

Diversified Equity Funds	1-Mth	Balanced Funds	1-Mth	Banking Funds	1-Mth
Canara Robeco Emerging Eq (G)	9.61%	Reliance Reg Savings Balanced (G)	6.28%	Reliance Pharma (G)	12.55%
Reliance Equity Oppor (G)	9.60%	Canara Robeco Balance (G)	6.16%	UTI Pharma & Healthcare (G)	10.93%
Franklin India Prima (G)	9.53%	JM Balanced (G)	5.66%	Franklin Pharma (G)	10.68%

(1-Mth returns as on February 31, 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
SBI Magnum MIP-Floater (G)	2.72%	Birla SL FRF-LT (G)	0.61%	Edelweiss Gilt (G)	1.50%
Canara Robeco MIP (G)	2.53%	ICICI Pru LT FRF-A (G)	0.51%	SBI Magnum Gilt-STP (G)	0.96%
JM MIP (G)	2.42%	SBI Magnum FRF-LTP (G)	0.46%	Kotak Gilt-Savings (G)	0.77%

 

(1-Mth returns as on March 31, 2010)
(Source: ACE MF)

 

The net investments in debt mutual funds too witnessed a decrease in the month of March 2010 as compared to February 2010, since banks were withdrawing money from debt funds. The net investments decreased from Rs 11,999 crore to Rs 3,798 crore.

 

Performance across various categories of mutual funds

 

(Source: ACE MF)
(1-Mth average returns of funds in various categories as on March 31, 2010)

As per the above graph, all equity oriented funds, especially banking funds performed well. However Gold ETFs gave negative returns on account of the correction in gold prices. Debt funds too ended in the positive terrain.

 

Other News

• The broader price index as measured by the Wholesale Price Index (WPI) touched a 16 month high of 9.89% in the month of February 2010, up from 8.56% in the previous month. The rise in inflation was broad-based with non-food items such as cement, metals and machinery becoming costlier over the month, after manufacturers raised prices to absorb rising input costs. Inflation in manufactured items too has surged from 6.55% (in January 2010) to 7.40% in February 2010. Food inflation also accelerated to touch 16.35% for the week ended March 20, 2010, on account of rising prices of milk and pulses
• In order to combat spiraling inflation, the Reserve Bank of India (RBI) increased short-term lending and borrowing rates by 25 basis points each with immediate effect. The repo rate has been increased from 4.75% to 5.00% and the reverse repo rate has also been increased from 3.25% to 3.50%.
• Securities and Exchange Board of India (SEBI) has tweaked the accounting norms which will result in mutual fund companies finding it difficult to pay the magnanimous dividends paid in the past. SEBI has barred fund houses from using the “unit premium reserve account” to pay dividends. Instead, it has directed mutual funds to pay dividends only from realised gains.
• Investors in New Fund Offers (NFOs) will soon be able to avail the ASBA (Application Supported by Blocked Amount) facility while subscribing for New Fund Offers (NFOs). The Securities and Exchange Board of India (SEBI) released a circular, which stated “the mutual funds / Asset Management Companies (AMCs) have to compulsory provide ASBA facility to investors for all NFOs launched on or after July 1, 2010”. Further, in order to make the process more efficient, the market regulator has called for a reduction in the NFO period for all schemes, barring Equity Linked Savings Schemes (ELSS), to a maximum of 15 days from the current provision of 30 days in case of open ended schemes and 45 days in case of closed-ended schemes.
• Mutual funds are trying out ways to lure investors to gold funds. They are now launching gold Fund-of-Funds (FOF) that invest back into their own exchange traded funds. Quantum Mutual Fund is among the recent ones to file an offer document with SEBI to launch a Gold FOF, while previously Reliance Mutual Fund and UTI Mutual Fund had done so.
  
  Though MIPs aim at generating regular income to its investors in the form of dividends; a word of caution for investors who expect MIPs to declare regular dividends. Contrary to their category name, MIPs are not mandated to declare regular dividends. Dividends in MIPs, as with other mutual fund categories, are declared only if there is adequate surplus for the same.

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