Sector funds making a comeback through ULIPs Feb 19, 2010

Sector funds making a comeback through ULIPs

Feb 19, 2010

Weekly Facts
	Close	Change	%Change
BSE Sensex	16,327.84	175.3	1.08%
Re/US$	46.29	0.2	0.45%
Gold Rs/10g	16,615.00	325.0	2.00%
Crude ($/barrel)	75.51	3.1	4.31%
FD Rates (1-Yr)	5.00%-6.50%

Weekly change as on Feb,18, 2010

Sector funds making a comeback through ULIPs

Impact

Sectoral and thematic funds which were big hits with mutual funds investors during the bull run and lost steam during the more recent times, are now making a comeback through Unit Linked Insurance Plans (ULIPs) this year. Private insurers have introduced sectoral or thematic flavours such as power, infrastructure, PSU companies, blue-chip stocks and price-to-earnings multiples.

Till recently, ULIP as a segment in insurance, only had products that acted like diversified equity funds or mid and small-cap funds. However, now in a bid to attract more investments this tax season, private insurers like Bharti AXA, Aviva, ICICI Life and Tata AIG have launched schemes that invest in themes and sectors such as infrastructure and PSU's. Broad based themes such as 'blue-chip portfolio' and 'price-to-earnings multiple funds' have also been launched by private insurance companies.

We believe that the introduction of such sectoral or thematic funds in ULIPs, is a pure marketing gimmick on the part of the insurers to attract more investments. Also it is noteworthy that during the turbulence of the equity markets, such funds have a tendency to plunge more, as compared to a diversified equity fund. This is on account of the sectoral or thematic concentration which they hold in their portfolio. Hence, investors would be better-off investing in a diversified equity mutual fund. From an insurance perspective, investors should look at only pure term insurance plans.

IIP at 15-year high

Impact

(Source: CSO)

After showing depressive signs by being in the negative for the first quarter of the calendar year 2009, the Index of Industrial Production (IIP) hit a 15-year high of 16.8% in December 2009.

According to the quick estimates released by the Central Statistical Organisation (CSO), the rise in IIP is broad based and is on account of:

Strong manufacturing growth

Robust expansion in output of capital goods, intermediate goods and consumer durables

We believe that such robust IIP numbers may tempt the Government to withdraw some components of the stimulus, which may lead to a negative impact on the Indian capital markets.

Super ATMs for Mutual Funds now

Impact

In order to facilitate investments in the mutual fund industry and to make available information to investors, the Securities and Exchange Board of India (SEBI) is building a concept of 'Super ATMs'. The regulator is set to launch 1,500 - 2,000 super-ATM centres across the country in the next 12 -18 months.

The Super ATMs will facilitate investors at a press of a button to:

Transact easily in mutual funds

Ask queries

Get information about the various schemes

In order to put the infrastructure in place for 'Super ATMs', the regulator is expected to partner with the mutual fund industry.

We feel that such a measure by SEBI, will further enhance the ease and comfort for mutual fund investors and will also lead to growth in the mutual fund industry. A good initiative overall!!

INTERVIEW

In an interview with CNBC TV 18, S. Naganath, President and CIO of DSP BlackRock Investment Managers Pvt. Ltd and his colleague Anup Maheshwari, expressed their views on the outlook for the markets.

They believe that in the financial year 2011, we will see much stronger growth relative to 2010 and therefore are looking at 20%-plus earnings growth next year. On the current market valuations, they think that there are some interesting opportunities. But, they also felt, that the first half of 2010 will be choppy globally whilst the second half could perhaps lead to a better trend. The signs of this happening are already seen in the first half, at least with regard to the sovereign issues, which were talked about towards the end of last year.

With the external market conditions, especially in the developed countries, which are now grappling with higher fiscal deficit and sluggish growth, they feel there will more money that will head towards India, which will be positive for our economy.

AND OTHER NEWS...

The broader price index as measured by the Wholesale Price Index (WPI) touched a 15 month high of 8.56% in the month of January 2010, up from 7.31% in the previous month. The food inflation too inched up to 17.97% for the week ended February 6, 2010. However we feel that it is unlikely that the Reserve Bank of India (RBI) will increase interest rates, to control inflation, any time before the annual policy revision coming up in April.

SEBI will help the mutual fund industry in its efforts to increase financial literacy. Mr. C.B. Bhave, Chairman of SEBI said that "they are keen on focusing on investor education. It will help the mutual fund industry in its efforts to increase financial literacy". However, on this issue he said "it is a big challenge due to the vastness and diversity of the country. The importance of having financial literacy in regional languages cannot be emphasised enough", he said.

Soon after RBI's proposal for the introduction of a 'base rate' as the benchmark for all lending, the banks feel that extension of the April 1, 2010 deadline for the implementation of base rate is necessary. This is because the task of gathering segment wise data, to arrive at the base rate would take time.

Foreign exchange reserves fell by $ 2.24 billion to $ 278.71 billion during the week ended February 5, 2010. This was mainly on account of currency revaluation.

HDFC Ltd. has decided to extend it dual home loan scheme to February 27 from January 31 as announced earlier.

Peerless Fund Management Company, a wholly-owned subsidiary of the Kolkata- based Peerless General Finance & Investment Company, has announced the commencement of its mutual fund operations.

L&T after making its foray into the Indian mutual fund industry by acquiring DBS Cholamandalam, is now ready to enter the general insurance business in the next 3-5 months. The company named L&T General Insurance has already received the R1 license from the Insurance Regulatory and Development Authority (IRDA).

IndusInd Bank is contemplating an entry into credit card and personal loans in the next financial year. "We see good potential in these segments and are considering introducing these products in 2010-11", said Mr. S.V. Parthasarthy, Head of consumer finance at the private sector bank. It should be noted that IndusInd Bank used to offer personal loans till 2005-06, but stopped due to high delinquencies.