Market Overview

After shaving-off 13.3% in the last couple of months due to the crisis in Egypt and Libya, the Indian equity markets (BSE Sensex) in the last month of the fiscal year 2010-11 (i.e. in March 2011) witnessed a relief rally. The Indian equity markets sidelined the political unrest prevailing in the MENA (Middle East and North African) region and gained 1,621.8 points (rose by 9.1%). Domestic factors such as Reserve Bank of India’s (RBI’s) stance of taming WPI inflation, food inflation mellowing below the double-digit mark (9.50% for the week ended March 19, 2011), uptick in the IIP (3.7% in January 2011 - data released in March 2011) and robust core sector growth of 6.8% in February 2011 (data released in March 2011) also attributed to the positive move in the Indian equity markets.

 

In the U.S. as their economy continued to trail on the growth path and the jobless rate too came down (to 8.9% in February 2011), the precious yellow metal - gold didn’t see many investors and thus continued to display sideways movement. Even in the Indian markets the stockist did pile up stocks (of physical gold), for sufficing the demand on Gudi Padwa day but that did not lead to any price rise.

 

Crude oil prices however continued to hover above the $ 100 per barrel mark, as the political unrest in the MENA region fuelled their upward path (the prices of Brent crude oil rose by 2.7%). This is because MENA region sits on top of some of the world’s largest oil & natural gas reserves; and any supply disruptions would have an adverse effect on the global economy - especially those nations which are dependent on the oil-rich nations for oil consumption.

 

Speaking about the bond markets, they too experienced a relief as the yields softened due to RBI’s persistent efforts on taming WPI inflation. In its fourth quarter mid-review of Monetary Policy 2010-11 (held on March 17, 2011) the central bank once again stepped and increased policy rates by 25 basis points - both on the repo as well as the reverse repo rate. This in turn led to 1 month CD and 3 month CD yields softening to 10.2% and 9.3% respectively, while 7.80% 2020 10- Yr G-Sec yield softening to 8.00% as March 31, 2011.

 

	As on March 31, 2011	As on Feb 28, 2011	Change	% Change
BSE Sensex	19,445.2	17,823.4	1,621.8	9.1%
S&P CNX Nifty	5,833.8	5,333.3	500.5	9.4%
CNX Midcap	8,040.2	7,370.1	670.0	9.1%
Gold (/10 gram)	20,775.0	20,800.0	(25.0)	-0.1%
Re/US $	44.6	45.3	0.7	1.5%
Crude Oil ($/BBL)	115.2	112.1	3.1	2.7%
10-Yr G-Sec (%)	8.00	8.01	(0.01)	1 bps
1-Yr FDs	7.00% - 9.00%

(Monthly change as on March 31, 2011)
(Source: ACE MF, PersonalFN Research)

 

The graph hereunder clearly depicts that, FIIs unlike last couple of months (where they were net sellers to the tune of Rs 9,399 crore), once again exuded their confidence towards India (an emerging Asian economy) due to the following reasons:

 

• Food inflation mellowing (to 9.50% for the week ended March 19, 2011)
• Robust core sector growth of 6.8% in February 2011 (data released in March 2011)
• Uptick in IIP (Index of Industrial Production) to 3.7% in January 2011 (data released in March 2011)



 

BSE Sensex vs FII inflows

(Source: ACE MF , PersonalFN Research)

 

They bought aggressively to the tune of Rs 6,898 crore in the month of March 2011, which in turn pulled the markets up.

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Mutual Fund Overview

The domestic mutual funds, on the other hand were quite conscious about every up-move in the Indian equity markets (despite the positive domestic economic factors mentioned above). Unlike last month where they bought aggressively (to the tune of Rs 2,025 crore); in the month of March 2011 their participation in Indian equities was far muted with a net buying only to the tune of Rs 459 crore. Moreover, they also faced redemption pressures during this upswing of the markets.

 

BSE Sensex vs MF inflows

(Source: ACE MF, PersonalFN Research)

 

However most open-ended equity funds gave quite enticing returns during the month as the Indian equity markets bounced back. RBI’s fourth quarter mid-review of monetary policy 2010-11 held on March 17, 2011 got the banking stocks roaring which in turn led to banking and financial services sector funds too delivering appealing returns. Diversified equity funds, including the ELSS ones too delivered luring returns during the month. And the rally in the equity markets along with the softening of the yield also helped balanced funds and Monthly Income Plans to perform well.

 

Monthly top gainers: Open-ended equity funds

Diversified Equity Funds	1-Mth	Sector Funds	1-Mth	ELSS	1-Mth
HDFC Long Term Equity (G)	10.31%	Sundaram Fin Serv Oppor (G)	12.25%	Reliance Tax Saver (G)	10.08%
ICICI Pru Target Returns-Reg (G)	10.14%	ICICI Pru Banking & Fin Serv (G)	10.31%	BNP Paribas Tax Adv (G)	9.41%
ICICI Pru Power (G)	10.10%	UTI Banking Sector (G)	10.14%	JM Tax Gain (G)	9.41%

(1-Mth returns as on March 31, 2011)
(Source: ACE MF, PersonalFN Research)

 

 Monthly top gainers: Open-ended Fund of Funds

Fund of Funds	1-Mth
ING OptiMix 5 Star Multi-Mgr FoF (G)	7.51%
Quantum Equity FoF (G)	7.47%
Kotak Equity FOF (G)	6.39%

(1-Mth returns as on March 31, 2011)
(Source: ACE MF, PersonalFN Research)

 

 Monthly top gainers: Open-ended Hybrid Funds

Balanced Funds	1-Mth	Monthly Income Plans	1-Mth
JM Balanced (G)	7.75%	Sundaram MIP-Aggr (G)	3.27%
SBI Magnum NRI Inv-FlexiAsset (G)	7.36%	HSBC MIP-Savings (G)	2.94%
FT India Balanced (G)	6.52%	HDFC Multiple Yield (G)	2.89%

(1-Mth returns as on March 31, 2011)
(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)	1.35%	Sundaram Select Debt-STAP (G)	3.18%	Birla SL Gilt Plus-Liquid (G)	0.55%
Sundaram Flexible-ST (G)	0.98%	Axis Income Saver (G)	1.75%	Birla SL G-Sec-ST (G)	0.45%
SBI Magnum Income FRP-Saving Plus Bond (G)	0.85%	IDFC SSIF-STP (G)	1.33%	DSPBR Treasury Bill (G)	0.53%
Long Term		Long Term		Long Term
HDFC FRF-LT (G)	1.39%	Escorts Income Bond(G)	2.28%	HDFC Gilt-LT (G)	1.09%
Birla SL FRF-LT (G)	0.80%	Peerless Income Plus Fund-Reg(G)	1.45%	Escorts Gilt (G)	1.09%
Principal Near-Term Fund-Moderate Plan (G)	0.78%	Escorts Income Plan(G)	1.38%	DWS Gilt Fund-Reg (G)	1.02%

 

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Liquid Funds	1-Mth	Liquid Plus funds	1-Mth
Escorts Liquid Plan (G)	0.86%	IDFC Money Mgr-IP-Reg (G)	1.28%
IDFC Ultra ST (G)	0.84%	ICICI Pru Ultra ST-Reg (G)	0.92%
IDFC Savings Advt (G)	0.83%	JM Money Mgr-Reg (G)	0.84%

(1-Mth returns as on March 31, 2011)
(Source: ACE MF, PersonalFN Research )

 

Debt mutual funds across all categories performed well as yield on short-term bonds softened after the RBI’s fourth quarter mid-review of monetary policy. This positive impact was especially seen in liquid plus schemes and short-term income schemes.

 

In debt instruments the buying from domestic mutual funds was also very aggressive as they bought to the tune of Rs 31,240 crore (in the previous month they bought to the tune of Rs 21,442 crore), as RBI stepped in to tame inflation.

 

Performance across various categories of mutual funds

(1-Mth average returns of funds in various categories as on March 31, 2011)
(Source: ACE MF, PersonalFN Research)

 

The graph above, also displays the impact of the upswing of the markets in March 2011, across all categories of equity funds. However, gold ETFs gave flat returns expressing their inverse relationship with the equity markets.

Other News and New Fund Offers

• SEBI has given a final approval to Indiabulls Financial Services, India Infoline and Union Bank of India-KBC Asset Management to start their mutual fund business. Thus, ending the 3 year waiting period for Indiabulls Financial Services and India Infoline for starting their mutual fund business.
  
  India Infoline will operate its mutual fund business through its wholly owned subsidiary IIFL Mutual Fund.
   
• Plagued with similar sounding schemes (not much of a difference in the investment objective), the Industry body Assocham (The Associated Chambers of Commerce and Industry of India) has asked the mutual fund (MF) industry to come up with differentiated products. This would help attract more investors to the mutual fund industry.
  
  Assocham is of the view that investors are losing interest as products offered by different MFs are not innovative and offer limited asset classes. The industry body also suggested that the Asset Management Companies (AMCs) should be given the flexibility to charge management fees, since such fees should be determined based on market forces.
  
  In our opinion Assocham's view of introducing differentiated and innovative products in the mutual fund space, would be a case of exhibiting unnecessary financial exuberance. We believe, the products should be easy and simple to understand for investors, as at present the issue of scheme duplication has been daunting since last many years.
  
  The mutual fund industry should keep aside their objective of garnering more and more AUMs (asset under management) for a while and strive towards simpler and easy to understand products. In our opinion while innovation may bring in unnecessary exuberance, simpler products would attract investors.
  
  Earlier (in June 2010) while addressing at the mutual fund summit organised by the Confederation of Indian Industry (CII), SEBI's Ex-Chairman - Mr. C.B. Bhave too had criticised the mutual fund industry for its financial innovation. He had made a valid point by saying, "Even if you put before me 3,000 investment products, I won't know how to choose from those products. I'll have no idea of which scheme is good for me. If you really want to reach to the so-called small investors in whose name you do everything, does he need 3,000 options? Is there really so much of innovation that is going on? Are these schemes really so different from each other or were there incentives operating in the market that made us generate these 3,000 options?"
  
  Hence dear investors, the next time your agent / distributor / relationship manager tries to persuade you to invest in a New Fund Offer, or a so called "innovative" mutual fund scheme please assess whether that financial innovation is really meant for you.
  
  Remember, a simple and easy to understand financial product can also help you achieve your financial goal!
   
• In order to mark its entry into the Indian mutual fund industry, Goldman Sachs Asset Management Company (AMC) is all set to acquire Benchmark Asset Management Company, India's largest exchange traded funds (ETF) player (subject to regulatory approvals).
   
• JM Mutual Fund announced the merger of 8 equity oriented mutual fund schemes with the existing ones. JP Morgan Mutual Fund and UTI Mutual Fund too followed the same suit. JP Morgan Mutual fund announced the merger of JPMorgan India Alpha Fund (a debt oriented interval scheme) with JPMorgan India Treasury Fund (an open ended income scheme), while UTI Mutual Fund announced the merger of UTI Variable Investment Scheme - Index Linked Plan (an open ended equity scheme) with UTI Balanced Fund (again an open ended equity oriented hybrid scheme).
   
• An estimated $1 trillion wealth management industry will soon get its new rules as the Government is planning to frame a comprehensive rule-book for wealth management practices by seeking inputs from Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and other financial sector regulators.
   
• The Union Budget 2011 had a very little impact on the mutual fund investors. However, keeping the structure of fund investment intact, the Government in order to provide an impetus to the mutual fund industry, permitted foreign investors to invest in equity schemes of Indian mutual funds subject to the Know Your Client (KYC) compliance.
   

 

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