Mutual Fund Roundup: May 2011
Jun 02, 2011

Author: PersonalFN Content & Research Team

Mutual Fund Roundup: May 2011

Market Overview

The Indian equity markets continued to be on a seesaw ride as the strong upsurge witnessed in the month of March 2011 (BSE Sensex had gained by +9.1%) was partially washed away in the last couple of months.

In May 2011, the BSE Sensex experienced the bears tightening their grip as the BSE Sensex fell by 3.3%, due to expectations of the U.S. QEII (Quantitative Easing - Round II) money being withdrawn by end of June 2011. The fall in the U.S. economic growth rate to 1.8% in Q1 of 2011 (due to slowdown in consumption) and bounce in unemployment rate to 9.0% in April 2011 (from 8.8% in March 2011) also led investors to be cautious. Speaking about the situation in the Euro zone, there too the debt overhang situation prevailed and failure of Greece to put its public finances in place, precluded investors from going long.

The macro-economic situation in India too favoured the bears. WPI inflation for the month of April 2011 (data released in May 2011) continued to remain sticky at 8.66% (above the comfort level of 8.00% set by RBI). Being hawkish about stubborn inflation RBI too increased policy rates (9th successive increase since March 2010), but there was less success to the path adopted by the central bank. Also, the steep increase in petrol prices by 5 on May 15, to compensate the under-recoveries of oil marketing companies upset the equity markets and raised expectation of May 2011 inflation to be higher. While the Index of Industrial Production did show a good jump to 7.3% in March 2011 (data released in May 2011) from 3.7% in February 2011, they didn’t provide much thrust to the Indian equity markets as the corporate earnings were mixed. However on the last day of May 2011, as the GDP data was released (7.8% in Q4FY11 and 8.5% for FY11), the Indian equity markets paid its honour by gaining 271.2 points.

Speaking about the precious yellow metal - gold, it displayed some sideways movement in the last month (May 2011), but finally ended the month losing 0.7%. The non-confirmation of the global economic slowdown and elevated prices, kept gold bugs guarded while investing in gold. Stockist too didn’t pile their inventory which kept the demand for the precious yellow metal low.

Brent crude oil prices also after displaying a northward journey (since the release of the QEII money), displayed a corrective phase where in the last month (May 2011) they mellowed by good 7.9%. This correction occurred due to concerns of slowdown in the U.S. economy, led by expectation of withdrawal of QEII stimulus by end of June 2011. Moreover, the downbeat economic data from the U.S. mellowed the future oil demand from the biggest oil consumer in the world.

Bonds markets saw the yields hardening (for both the short term as well as the long-term debt papers) as the 9th successive increase in the policy rates since March 2010 (brought in by RBI in order to tame the inflation bug) raised expectation of a slowdown in economic growth rate. Moreover, the estimation of inflation for May 2011 scaling up due to steep hike in petrol prices also led to hardening of yields across maturities. 1 month and 3 month CD ended the month at 8.8% and 9.8% respectively, while the 10- Yr G-Sec 7.80% 2021 yield stood at 8.4%.

Monthly Market Roundup

	As on May 31, 2011	As on April 30, 2011	Change	% Change
BSE Sensex	18,503.3	19,136.0	(632.7)	-3.3%
S&P CNX Nifty	5,560.2	5,749.5	(189.4)	-3.3%
CNX Midcap	8,064.8	8,201.0	(136.2)	-1.7%
Gold (/10 gram)	22,555.0	22,710.0	(155.0)	-0.7%
Re/US $	45.1	44.2	(0.9)	-1.9%
Crude Oil ($/BBL)	114.8	124.6	(9.8)	-7.9%
10-Yr G-Sec (%)	8.40	8.12	0.28	28 bps
1-Yr FDs	7.25% - 9.25%

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

The graph hereunder clearly depicts that while the Indian equity markets too got into a nervous mood due to the aforementioned global and domestic economic factors, the Foreign Institutional Investors (FIIs) got wary of pumping more money into the Indian equity markets. In May 2011 they turned net sellers in the Indian equity markets to the tune of 6,614 crore, thus defying their last month’s buying activity which was to the tune of 7,213 crore.

BSE Sensex vs FII inflows

(Source: ACE MF , PersonalFN Research)

Mutual Fund Overview

The domestic mutual funds however, assessing the fact that the following factors favour long-term investments, bought to the tune of 353 crore (which was unlike their net selling activity to the tune of 148 crore in April 2011).

Attractive valuations (markets have already corrected 11.9% from their last peak of 21,004.96 made on November 5, 2010)
Core sector offering robust growth (7.4% in March 2011 - data released in May 2011)
Promising industrial growth (7.3% in March 2011 - data released in May 2011)
Gradual expansion of the Indian economy on a year on year basis (8.5% in FY11, while 8.0% in FY10)
Robust gross capital formation (at 32.1% in Q4FY11)
Achievable fiscal deficit target (FY12 target of 4.6%)
Expectation of favourable monsoon leading to better harvest (thus cooling food inflation)
Expectation of WPI inflation to cool down

BSE Sensex vs MF inflows

(Source: ACE MF, PersonalFN Research)

Moreover despite the corrective phase in the Indian equity market, most diversified equity funds along with pharma and FMCG funds did perform well. Offshore Fund of Fund (FoF) focusing on the China story also rewarded their investors well during a month’s time frame. However amongst the hybrid funds balanced funds had mixed performance to display, while Monthly Income Plans (MIPs) performed better due to short-term papers delivering luring returns in the debt component of their portfolio.

Monthly top gainers: Open-ended equity funds

Diversified Equity Funds	1-Mth	Sector Funds	1-Mth	ELSS	1-Mth
Mirae Asset Emerging BlueChip-Reg (G)	2.15%	Franklin FMCG (G)	3.62%	Edelweiss ELSS (G)	0.36%
Religare Mid N Small Cap (G)	1.05%	Reliance Pharma (G)	2.77%	BNP Paribas Tax Adv (G)	-0.18%
HDFC Mid-Cap Oppor (G)	0.97%	SBI Magnum Pharma (D)	2.34%	Axis Tax Saver (G)	-0.39%

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

Monthly top gainers: Open-ended Fund of Funds

Fund of Funds	1-Mth
JPMorgan JF Gr China Eq Off-Shore (G)	2.51%
ING Global Real Estate-Reg (G)	0.93%
Mirae Asset China Advantage-Reg (G)	0.54%

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

Monthly top gainers: Open-ended Hybrid Funds

Balanced Funds	1-Mth	Monthly Income Plans	1-Mth
HDFC Balanced (G)	0.62%	Templeton India Low Duration Fund (MD)	0.85%
LIC Nomura MF Balanced (G)	-0.76%	Sahara Classic (G)	0.80%
ICICI Pru Balanced (G)	-0.79%	HDFC Multiple Yield (G)	0.72%

(1-Mth returns as on May 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
Escorts ST Debt (G)	0.89%	Sundaram Select Debt-STAP (G)	1.03%	Religare Gilt-Short Dur-Ret (G)	0.65%
Canara Robeco FRF (G)	0.83%	Religare STP (G)	0.92%	Canara Robeco Gilt Adv Fund (G)	0.59%
L&T FRF (G)	0.82%	Birla SL ST Oppor-Ret (G)	0.87%	SBI Magnum Gilt-STP (G)	0.57%
Long Term		Long Term		Long Term
SBI Mag Income FRP-LTP-Reg (G)	0.77%	SBI Dynamic Bond (G)	0.84%	Taurus Gilt (G)	0.66%
Birla SL FRF-LT (G)	0.76%	Sahara Income (G)	0.79%	UTI Gilt Adv-LTP (G)	0.59%
HSBC FRF-LT-Reg (G)	0.69%	L&T Select Inc-Flexi Debt-Ret (G)	0.77%	Sahara Gilt (G)	0.56%

Liquid Funds	1-Mth	Liquid Plus funds	1-Mth
Escorts Liquid Plan (G)	0.86%	JM Money Mgr-Reg (G)	0.86%
Sahara Liquid-Fixed Pricing (G)	0.76%	IDFC Ultra ST (G)	0.84%
Quantum Liquid (G)	0.75%	JM Money Mgr-Super (G)	0.80%

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

Debt mutual funds across all categories performed well as RBI continued to be vigilant about the inflation bug. In effect to RBI’s calibrated approach of increasing policy rates, the short-term bond yields did harden (to around 8.8% - 9.8%), but adequate liquidity situation defied the worry.

However, in debt instruments domestic mutual funds turned net sellers to the tune of 1,189 crore (as against their aggressive buying to the tune of 66,002 crore seen in April 2011), as they remained wary about RBI’s persistent efforts to tame inflation (which slows GDP growth rate) and also the restriction (to the extent of 10% of the bank’s net worth in six months) enforced by RBI on bank’s investments in liquid funds.

Performance across various categories of mutual funds

(1-Mth average returns of funds in various categories as on February 28, 2011)
(Source: ACE MF, PersonalFN Research)

The graph above also displays how various categories also mutual funds performed in the previous month. As displayed above under the equity funds headed by FMCG and pharma funds (under the thematic funds) delivered stellar returns, while in the diversified equity funds across styles and capitalisations (i.e. large caps, mid caps and small caps) on an average were losers. Debt funds on the other hand across categories accentuated on the returns front.

Other News and New Fund Offers

In a bid to provide the much needed transaction and tracking ease to the investors, the capital market regulator - Securities and Exchange Board of India (SEBI) directed the mutual fund (MF) houses to provide investors an option to hold their units in demat account. The regulator has asked the MF houses to ensure that such option is provided to the investors in both existing and new schemes from October 1, 2011.

SEBI has also clarified that the MF houses should provide an option to the investors to receive allotment of MF units in their demat account while subscribing to any scheme, be it an open ended, close ended or interval scheme.

We believe once again keeping investors interest in forefront, SEBI has taken the right step in bringing about transparency and accountability among the mutual fund houses. Providing demat option under all schemes will make life easier for investors as this will allow them to track their investments in different mutual fund houses all at one time and on one screen, instead of going through several account statements issued by MF houses.

However, we think such steps should have been taken a bit earlier. Nevertheless, it's 'better late than never'.
Once again maintaining its pro-investor stance, the Securities and Exchange Board of India (SEBI) has asked the mutual fund (MF) houses to inform their investors on an urgent basis about their support or opposition to various business decisions of the companies.

SEBI is of the view that the fear of a possible opposition by institutional investors like mutual funds being made public would force the companies to follow best corporate governance practises while conducting their businesses.

Moreover retail investors will benefit from this practice and will be aware of the stance taken by the MF houses on various business proposals entered by the companies they are invested in. Also since they have a significant holding in these companies it provides them, as institutional investors a considerable say in the business proposals of these companies.

In our opinion such a vigilant move on the part of SEBI, infuses transparency in the way MF houses manage investors' money. This is because since the vote on the proposal (either for or against the business proposal) is being made available in public domain, it helps you investors' to assess whether the fund management team does consider a qualitative parameter like corporate governance. We also feel this would bring a sea change in how corporate governance is adhered to by various companies. It will not only make the companies more alert in their transactions but also will aid you investors in knowing the quality of your investments.

Prudent vigilance over a period of time will lead to good corporate governance practices and in turn will increase the value of investments for you investors.
Union KBC Mutual Fund launched its first diversified open-ended equity fund designed to provide long-term capital appreciation by investing substantially in a portfolio of equity and equity related securities. The fund invests 75% to 100% of its assets in equity and equity related instruments (including equity derivatives), while upto 25% in debt and money market instruments. To read more click here

Disclaimer: This note / article is for information purposes and Quantum Information Services Limited (PersonalFN) is not providing any professional / investment advice through it. The recommendation service, views, articles and other contents are provided on an "As Is" basis by PersonalFN. The facts mentioned in the note are believed to be true and from a public source. The Service should not be construed to be an advertisement for solicitation for buying or selling of any scheme / financial product. PersonalFN disclaims warrants of any kind, whether express or implied, as to any matter/content contained in this note, including without limitation the implied warranties of merchantability and fitness for a particular purpose. PersonalFN and its subsidiaries / affiliates / sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this note. Use of this note is at the user's own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. PersonalFN does not warrant completeness or accuracy of any information published in this note. All intellectual property rights emerging from this note are and shall remain with PersonalFN. This note is for your personal use and you shall not resell, copy, or redistribute this note, or use it for any commercial purpose. Please read the terms of use.