Market Overview

After displaying an ascending move and gaining nearly +14.4% in the last couple of months (i.e. January and February 2012), the Indian equity markets took a breather in March 2012, losing -2.0% on the BSE Sensex.

Although industrial activity showed signs of revival in the month of January 2012 (data released in March 2012), and WPI inflation was within the comfort range (of 6.0% to 7.0%) of the Reserve Bank of India (RBI), the subdued corporate earnings of Q3FY12 worried the markets and supported its descending move. Similarly, with the Congress losing in Uttar Pradesh was considered a big blow for the party, which also made the market wonder about their prospects in the next General Elections in 2014.

Tight liquidity conditions prevailing along with advance tax obligations (in mid-March 2012), also attributed to corrective phase of the Indian equity market. Investors also preferred to wait for the announcements in the Union Budget 2012-13. And indeed when the Budget 2012-13 was announced on March 16, 2012, it did not go too well with the Indian equity markets, as on the date of announcement of the Budget, Indian equity markets ended the trading day losing -1.2% on the BSE Sensex. Although the Budget addressed to the fiscal consolidation measures and put down a whole list of measures, the fiscal deficit projected for the fiscal year 2012-13 at 5.1% was the dampening factor. Moreover, the disinvestment target of Rs 30,000 crore for 2012-13 and the total budgeted expenditure for the 2012-13 of Rs 14,90,925 crore for the Government didn’t throw any positive signals on the fiscal consolidation front as there were no clear signs of increase in Government revenues, which also upset the markets. In order to add depth to the Indian equity markets while the Budget proposed to introduce a new scheme named – “Rajiv Gandhi Equity Saving Scheme” (having a 3 year lock-in) - which will allow income tax deduction of 50% to new retail investors, who invest upto Rs 50,000 directly in equities and whose annual income is below Rs 10 lakh; the lack of clarity on the same (since details of the schemes were not announced in the Budget) didn’t provide an impetus to the markets. But having said that, following proposals in the Budget were quite encouraging and a step towards deepening the capital markets.
 

• Simplification in the process of Initial Public Offerings (IPOs)
   
• Making mandatory for companies to issue IPOs of Rs 10 crore and above in electronic form through nationwide broker network of stock exchanges
   
• Providing opportunities for wider shareholder participation in important decisions of the companies through electronic voting facilities
   
• Allowing Qualified Foreign Investors (QFIs) to access Indian Bond Market
   
• Permitting two-way fungibility in Indian Depository Receipts subject to a ceiling
   

Similarly, the reduction in the Securities Transaction Tax (STT) by 20% to 0.1% for cash delivery transactions was also a welcome move. However the increase in Service Tax (ST) to 12% (from 10%), along with an increase in tax net was not conceived well by the Indian equity markets since services contribute nearly 59.0% of India’s GDP, and increasing the same implies for inflationary pressures setting in.

Global economic factors also paved the path for the Indian equity markets. The U.S. economy illustrated an ascending trend in the four quarter of their financial year 2011, signalling signs of economic recovery. Moreover, their unemployment rate at 8.3% in February 2012 (being the lowest since February 2009) was encouraging, but the slump in business confidence index (also known Purchasing Managers Index) to 52.4 in February of 2012 (from 54.1 in January of 2012) along with consumer confidence too declining got the markets nervous. Speaking about the Euro zone – especially Greece, while the private investors agreed to swap about 85% of their Greek Government bonds (as against the target of 75% set by the Greek Government) for new securities, (a goal to reduce € 206 billion worth of privately held Greek debt by 53.5%) Moody’s Investors Service decided to cut Greece’s sovereign rating to lowest possible level to ‘C’ (which indicates “in default”) from ‘Ca’ (which indicates “in default with little prospect of recovery”) due to hefty losses for private creditors. Consequently the International Monetary Fund (IMF) also scaled backed its aid to Greece’s bailout package to U.S. $23.6 billion, as fresh funds to second aid package for Greece, and has asked Greece to adopt proper austerity measures.

The precious yellow metal – gold, too lost sheen (as it fell by 2.0%) after depicting a northward trend in the last couple of months. With the proposal in the Union Budget 2012-13 to increase custom duty, excise duty (on unbranded jewellery) and TDS on purchase of gold jewellery over Rs 2 lakh by cash, jewellers went on nationwide stir, and this in turn dented the demand for gold amid Gudi Padwa. Sales were also dented as banks, the primary sellers of bullion, were closed for the festival. Moreover, the rupee getting stronger against the U.S. dollar in the earlier part of the month, also led to a corrective phase in the precious yellow metal.

Speaking about the Brent crude oil, prices continued to scale upwards (as witnessed in the last couple of months), on account of worry of supply contraction occurring from Iran and North Sea (marginal sea of Atlantic Ocean).

For the bonds markets, despite a reduction of 75 basis points (bps) in the Cash Reserve Ratio (CRR) brought in by the Reserve Bank of India (RBI) on March 9, 2012 to ease the tight liquidity situation in the system (due to advance tax payment obligation on March 15, 2012), liquidity remained tight in the entire month of March 2012, as indicated by the record high borrowing worth around 1.95 lakh crore by banks through the Liquidity Adjustment Facility (LAF). This thus resulted in the short-term CD yields – both 1-month and 3-month CDs inching up by 205 bps and 30 bps (taking them to 11.7% and 11.0% respectively), while the 10-Yr G-Sec yield rising by 33 bps. Going forward too, while the RBI has tried to address to the tight liquidity situation prevailing, by planning to buy bonds amounting to Rs 10,000 crore, we have to see how the yield curve takes shape given the fiscal deficit target of FY13 set at 5.9%.

 

Monthly Market Roundup

	As on March 31, 2012	As on Feb 29, 2012	Change	% Change
BSE Sensex	17,404.2	17,752.7	(348.5)	-2.0%
S&P CNX Nifty	5,295.6	5,385.2	(89.6)	-1.7%
CNX Midcap	7,711.4	7,705.6	5.8	0.1%
Gold (Rs/10 gram)	28,040.0	28,620.0	(580.0)	-2.0%
Re/US $	50.9	49.0	(1.9)	-3.8%
Crude Oil ($/BBL)	123.5	122.5	1.1	0.9%
10-Yr G-Sec (%)	8.52	8.19	0.33	33 bps
1-Yr FDs	7.25% - 9.25%

(Monthly change as on March 31, 2012)
(Source: ACE MF, PersonalFN Research)

 

Unlike February 2012, Foreign Institutional Investors (FIIs) too participated in a rather cautious manner, as the “General Anti-Avoidance Rules (GAAR)” tax proposals clouds loomed for most part of the month, until the Finance Minister clarified (later at the end of the month) that Participatory Notes (PNs) will be exempted from the GAAR tax proposals. It is noteworthy that in the Budget 2012, the Finance Minister had proposed to introduce GAAR in order to "counter aggressive tax avoidance schemes”; but this had wiggling implication on FII flows.

 

BSE Sensex vs FII inflows

 

(Source: ACE MF , PersonalFN Research)

In the month gone by, FII bought net to the tune of Rs 8,381 crore, thereby treading cautiously unlike the month of February 2012, where they aggressively net bought aggressively to the tune of Rs 25,212 crore.

 

Mutual Fund Overview

Domestic mutual funds too were on a cautious footing, as they preferred to remain net sellers in the Indian equity markets to the tune of 1,412 crore, thereby following their February 2012 activity where they were net sellers to the tune of Rs 2,171. It seems that fund managers preferred to book profits, after a +14.4% absolute returns delivered by the Indian equity markets together in the month January and February 2012.

Also they also seemed to be vigilant over the economic condition (in India and abroad) and also policy issues. For instance they seemed to be watchful over the Governments clarification over GAAR rules, and predictability of India’s tax policies (after Vodafone being unfairly treated). It is noteworthy that, the Supreme Court of India passed a judgement (over Vodafone’s suit) in favour of the company, but now the Government in the Union Budget 2012-13 has proposed to amend the tax rules that will allow it override the court judgement and retrospectively tax cross-border share sales, sending shivers down the spines of Vodafone and other groups.

 

BSE Sensex vs MF inflows

(Source: ACE MF, PersonalFN Research)

 

As far as the performance of various categories of mutual funds is concerned, in the diversified equity fund category, mid and small cap funds delivered luring returns as compared to the large cap ones (which provided dismal returns).

Amongst the sector funds, as the Indian equity markets got into a corrective mood, schemes focusing on defensive sectors such as FMCG and pharma, helped in creating wealth for investors. However, media & entertainment, banking & financial services, infrastructure and technology took a beating.

In the Fund of Fund (FoF) schemes, the equity oriented international feeder funds did well.

Speaking about the hybrid funds, balanced funds felt the impact of descending move of the Indian equity markets, but their debt portfolios – especially the composition holding shorter maturity papers, have been able to take advantage of steep rise in short-term yields. Likewise Monthly Income Plans (MIPs) holding greater composition of lower maturity papers (of less than 5 years) benefited with steep rise in yields of short-term papers.

 

Monthly top gainers: Open-ended equity funds

Diversified Equity Funds	1-Mth	Sector Funds	1-Mth	ELSS	1-Mth
Principal Emerging Bluechip (G)	3.38%	ICICI Pru FMCG (G)	7.98%	Reliance Tax Saver (ELSS) (G)	2.10%
Canara Robeco Emerging Eq (G)	3.06%	SBI Magnum Pharma (G)	3.98%	Religare AGILE Tax (G)	2.07%
BNP Paribas Mid Cap Fund (G)	3.02%	UTI Pharma & Healthcare (G)	3.20%	ICICI Pru R.I.G.H.T (G)	2.03%

(1-Mth returns as on March 31, 2012)
(Source: ACE MF, PersonalFN Research)

 

 Monthly top gainers: Open-ended Fund of Funds

Fund of Funds	1-Mth
ING Global Real Estate (G)	5.37%
DWS Global Agribusiness Offshore (G)	5.02%
JPMorgan JF ASEAN Equity Off-shore Fund (G)	4.31%

(1-Mth returns as on March 31, 2012)
(Source: ACE MF, PersonalFN Research)

 

 Monthly top gainers: Open-ended Hybrid Funds

Balanced Funds	1-Mth	Monthly Income Plans	1-Mth
Tata Smart Investment-1-A (G)	1.48%	DWS Twin Advantage (G)	1.33%
Kotak Balance	0.72%	SBI Magnum MIP-Floater (G)	1.15%
Canara Robeco Balance (G)	0.71%	ICICI Pru Multiple Yield-A (G)	1.10%

(1-Mth returns as on March 31, 2012)
(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
Birla SL FRF-ST (G)	0.83%	IDBI ST Bond (G)	1.10%	Canara Robeco Gilt Adv Fund(G)	0.98%
Canara Robeco FRF (G)	0.83%	Morgan Stanley ST Bond-Reg (G)	1.03%	IDFC G Sec-STP-Reg (G)	0.84%
DSPBR Income Opportunities (G)	0.63%	AIG ST-Ret (G)	1.00%	UTI G-Sec-STP (G)	0.78%
Long Term		Long Term		Long Term
HDFC FRIF-LT (G)	1.13%	Birla SL Medium Term-Reg (G)	1.03%	Baroda Pioneer Gilt (G)	1.05%
SBI Magnum Income FRP-LTP-Reg (G)	1.07%	Canara Robeco Yield Adv Fund (G)	0.90%	Sahara Gilt (G)	0.69%
Templeton FRF Income (G)	0.90%	BNP Paribas Flexi Debt Fund (G)	0.90%	Escorts Gilt (G)	0.65%

 

Liquid Funds	1-Mth	Liquid Plus funds	1-Mth
IDFC Ultra ST (G)	0.99%	DWS Treasury-Invest (G)	1.04%
HDFC Cash Mgmt-Savings (G)	0.88%	IDFC Money Mgr (G)	1.03%
Pramerica Liquid Fund (G)	0.86%	Baroda Pioneer Treasury Adv-Reg (G)	0.92%

(1-Mth returns as on March 31, 2012)
(Source: ACE MF, PersonalFN Research )

 

Debt mutual funds, across categories and tenure showed a decent performance in the month gone by. But those holding shorter maturity papers – especially short-term income funds and liquid plus funds (also known as ultra-short term funds) impressed on the performance front. Long-term debt funds across category also delivered decent returns, on the expectation that RBI may initiate policy rate cuts in its annual monetary policy review meeting on April 17, 2012.

It is noteworthy that in the Indian debt market, domestic mutual funds net bought aggressively to the tune of Rs 1,10,866 crore thereby accelerating at a greater pace from their last month’s activity where they net bought to the tune of Rs 20,575 crore.

Performance across various categories of mutual funds

(1-Mth average returns of funds in various categories as on March 31, 2012)
(Source: ACE MF, PersonalFN Research)

 

The graph above depicts how various categories of mutual funds performed in the previous month. Amongst the sector and thematic funds, barring FMCG and pharma funds (which have a trait of being defensive), all others took a beating. In the diversified equity funds category too, only mid cap funds managed to delivered positive returns (of average +1.1%), as there was an ascending move of +0.1% in the CNX Midcap index. From a fund management style perspective, only funds following contrarian style of investing, and some those having a mandate to invest in dividend yield stocks managed to deliver positive returns, but they were marginal. Tax saving funds (which are diversified equity scheme and generally follow a fluid investment style) too reported negative returns in the month gone by.

Tracing with descending move in the precious yellow metal, Gold ETFs too exhibited negative returns for investors (losing by an average of -1.3%).

The Assets Under Management (AUM) of the mutual fund industry fell 2% or Rs 16,916 crore in the quarter January 2012 to March 2012, from Rs. 6.81 lakh crore in the quarter October 2011 to December 2011. HDFC Mutual Fund held onto its top rank and added Rs 1,251 crore in the quarter thus placing its AUM at Rs 89,879 crore. Reliance Mutual Fund on the other hand, lost assets worth Rs 4,194 crore thereby placing its assets at Rs 78,112 crore.

Other News and New Fund Offers

• L&T Finance, a subsidiary of L&T Finance Holdings Ltd. and operating L&T Mutual Fund acquired FIL Fund Management Private Ltd. (Fidelity AMC) and FIL Trustee Company Private Ltd., which are carrying on the Fidelity's mutual fund business in India. The acquisition transaction is however subject to regulatory approvals from SEBI and Competition Commission of India.
  
  With this acquisition, L&T MF intends to become one of the top players in the Rs 6,82,000 crore Indian Mutual Fund Industry. After the deal is through, L&T MF will become the 13th largest fund house with a market share of around 2%. As of December 2011, L&T MF is the 24th largest fund house in India with just 0.7% market share. With this deal L&T MF also aims to strengthen its equity base and balance its overall assets.
  
  To know whether you should continue your investments in Fidelity Mutual Fund schemes please click here.
   
• In Budget 2012-13, the Finance Minister has proposed to exclude services rendered by a mutual fund distributor from the Service Tax net (forming part of the 34 items exempt from service tax). However, Asset Management Companies (AMCs) await more clarity from the government on exemption of service tax for distributors. Distributors will be exempted from service tax only after the Finance Bill is enacted. Thus, AMCs are unlikely to exempt distributors from service tax from April, 2012 onwards.
  
  Though the above changes are not going to affect the investors in mutual funds directly, we may see a more pro-investor approach by the mutual fund distributors as the exemption of their services from the Service Tax net will give them some boost post the entry load ban enunciated by the Securities and Exchange Board of India (SEBI) in September 2009. This move will put more cash in the hands of all classes of distributors, including Independent Financial Advisors (IFAs), corporate distributors and banks. Moreover, the proposal in the Budget will help revive the mutual fund industry already reeling under pressure since the entry load ban in September 2009 followed by a series of regulatory moves for over a couple of years now.
   
• In an effort to do away with the upfront commissions on mutual fund schemes in a phased manner, the Asset Management Companies (AMCs) are mulling over multiple options such as
   
  • Each AMC to decide its own upfront commission (status quo)
  • Abolish upfront and hike trail linked to stickiness of assets
  • Higher upfront for business of up to Rs 5 lakh or higher trail commission (no upfront) for business of more than Rs 5 lakh
     
  However, a few others believe paying higher trail commissions is a win-win situation for both AMCs and distributors, as distributors will not churn portfolios while AMCs are assured of long term assets. A higher trail (with no upfront) for big distributors like banks and National Distributors (NDs) will help them generate enough cash flows to run their business. But this model doesn't work well for Independent Financial Advisors (IFAs) bringing in small ticket applications.
  
  In our view, a fee based model should be adopted wherein the distributor of the IFA would be paid fees based on the advice given by them to the investors. However, for the fee based model to be effectively implemented, a lot of efforts are required on the investor education front and also convince investors to pay for genuine investment advice they receive from either an IFA or a distributor.
  
  Apart from the advice the distributors or IFAs should also take concentrated efforts to provide after sales service to the investors for maintaining long term clientele relationships.
   
• The Bombay High Court quashed the Income-Tax Department's demand for tax from mutual funds on income from investment in securitised instruments - mainly pass through certificates (PTCs). The ruling was in response to petitions filed by UTI Mutual Fund. Terming the move as "hasty", the division bench comprising Justices D.Y. Chandrachud and M.K. Sanklencha barred the revenue department from attempting 'any coercive measure' till the time all pleas of concerned mutual funds are disposed of. The bench also directed the I-T department to vacate all attachments on fund houses, saying that revenue collection cannot come at the expense of existing rules.
   
• The Securities and Exchange Board of India (SEBI) decided to replace the old advertising code with a brand new one, which essentially simplifies and relaxes many of these rules. The elaborate rules governing the content and format of mutual fund ads have been done away with. Instead, the new code merely specifies certain principles that mutual funds should not violate. However, ads still need to be truthful, fair and complete and must not mislead investors. Imposing slogans, celebrities and promises of bounty are still forbidden. But complicated and scary-sounding ‘risk factor' statements and disclaimers have been done away with. While rules on calculation of returns have been done away with, the performance or other data that a fund puts out must be standard across offer documents, a fund's website and other literature.
   
• Schroders, a U.K. based Asset Management Company which manages assets worth $291 billion is planning to acquire nearly 30% stake in Axis Asset Management Company. The transaction will help Schroders revive its India presence and end Axis Asset Management Company’s search for a strategic partner in the mutual fund business.
   
• IDFC Mutual Fund has filed the offer document for Infrastructure Debt Fund (IDFs) with the SEBI, India’s first infrastructure debt fund through MF route and has filed an offer document with SEBI.
  
  IDFC infrastructure debt fund shall have a minimum tenor of five years and not greater than 15 years from the date of allotment of units. The investment objective of the scheme is to seek to generate income and capital appreciation by investing primarily in a portfolio of infrastructure debt instruments. The corpus under the IDF will be invested in debt securities, bank loan and securitized debt instruments.
   

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korisettar@yahoo.com May 10, 2012 Why not write to your current ladolnrd and ask him/her if you can use your security deposit for your last months' rent. If they will permit that, then you don't need to do a payday loan.Otherwise, try to borrow it from family members, friends, or if you belong to a church, see if they will help out. payday loans are killers and you will pay a fortune to borrow this.Another option, since your score is pretty high, is to go to the bank or credit union where you have your checking account and ask them for a personal loan. They will usually approve an amount this small on the spot.If all this fails, see if you can get a postponement for a month on some other big bill such as utilities to free up some cash that way.

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