Nandini Sanyal | May 16, 2016, 08.38AM IST | ECONOMICTIMES.COM
News about progress of monsoon, next batch of quarterly earnings , wholesale inflation data along with outcome of assembly polls in five states and will be key driving factor for the stock market this week.
Here’s a look at seven triggers that may move the market today
Under Mauritius pact, no tax exemption for quasi equity investments: There will be no free ride for those wanting to invest in India through quasi equity investments such as convertible debentures via Mauritius under the recently amended treaty between the two countries, officials said. Those holding such instruments would do well to convert them into shares before April 1, 2017, to enjoy the exemption on capital gains tax, or grandfathering, that’s available until then. There has been some confusion over whether entities making an investment in such instruments before April 1, 2017, can enjoy grandfathering with the full capital gains tax exemption benefit even after the amended India-Mauritius Double Taxation Avoidance Convention comes into effect.
Shareholder base for private banks may be broadened: Wealthy individuals and finance companies can pick up more equity in private banks while non-state lenders struggling to make money could emerge as acquisition targets for those on the hunt, following the Reserve Bank of India’s recent relaxation of rules aimed at shoring up capital and encouraging consolidation. Analysts said lenders of interest may include IndusInd Bank , Yes Bank , Kotak Mahindra Bank , Karur Vysya Bank , Lakshmi Vilas Bank , Tamilnad Mercantile Bank and Dhanlaxmi Bank.
Monsoon over Kerala may be delayed by a week: The onset of the southwest monsoon over Kerala is likely to be delayed from the normal date of June 1, the weather office said, the first negative signal since it forecast above-normal rainfall this season after two years of drought. “The statistical model used by IMD for predicting the onset of monsoon indicates that the southwest monsoon is likely to set over Kerala on June 7, with a model error of ± 4 days,” the India Meteorological Department said on Sunday . Last year, the monsoon arrived six days late on June 5, compared with the forecast onset date of May 30.
FSSAI plans comprehensive recall policy: Almost after a year of no food product being pulled out of the market, The Food Safety and Standards Authority of India (FSSAI) has decided to bring a comprehensive recall policy this financial year. The last big food recall was in June 2015, of Nestle India’s Maggi noodles. In the making for five years, the draft procedure for a food product’s recall was put up for public comment on the body’s website last year by FSSAI. Its latest newsletter lists “final notification of recall regulations” as among the 12 important things it plans for 2016-17.
EPFO may invest over Rs 6,000 cr in equity market in 2016-17: Union Labour Minister Bandaru Dattatreya has said the Employees Provident Fund Organisation (EPFO) may invest more than Rs 6,000 crore in equity market during the current financial year. The minister, however, said a final decision will be taken by the Central Board of Trustees at the next meeting. Last year, EPFO had invested about Rs 6,000 crore through SBI Mutual Fund’s two index-linked ETFs (exchange-traded funds) — one to BSE’s Sensex and the other NSE’s Nifty.
Sebi planning to tighten listing norms: The Securities and Exchange Board of India (Sebi) is planning to attach bank accounts and properties of promoters who repeatedly flout listing and disclosure norms and fail to take corrective steps. The penalty structure may also be changed to deter publicly traded firms from taking listing regulations casually.Sebi’s latest proposals come amid widespread violations of listing and disclosure norms
Employees’ rights to be foremost in Bankruptcy law: The new Bankruptcy Law will fast- track recovery of dues from defaulters and employees will be first in line to get their share from liquidation of assets if a company goes belly-up, says Union Minister Jayant Sinha. Besides, it would also bring down drastically the time taken to wind up a sick company while making the entire process much easier, the Minister of State for Finance said.
Rupee down: The rupee ended weak by 15 paise at 66.77 due to increased demand for the us dollar from importers amid a weak domestic equity market. Rupee sentiment was also hit as the IIP growth plunged to 0.1 per cent in March and retail inflation soared to 5.39 per cent in April.
Bonds: The 7.88 per cent government securities maturing in CG2030 traded value at Rs 300.00 crore at weighted yield of 7.75 per cent, the 7.59 per cent government securities maturing in CG2026 traded value at Rs 225 crore at weighted yield of 7.45 per cent and the 7.72 per cent government securities maturing in CG2025 traded value at Rs. 100 crore at weighted yield of 7.63 per cent. The weighted yield on government securities with a maturity period of 0-3 years, 3-7 years, 7-10 years and more than 10 years was quoted at 7.11 per cent, 7.51 per cent, 7.52 per cent and 7.76 per cent, respectively.
NSE bond auction on May 16: The National Stock Exchange (NSE) will auction investment limits for overseas investors on May 16, for the purchase of government debt securities worth Rs. 3,340 crore. The auction will be conducted on NSE’s ebid platform from 3.30 pm to 5.30 pm, after the close of market hours, the exchange said in a circular today.
Source : http://goo.gl/ntxH8X
Equity funds have made a comeback with strong returns. Here is how to select the right fund.
Tanvi Varma | Edition:February 2015 | Business Today
Haven’t your equity funds given handsome returns in the past one year after underperforming for a sizeable period? The change in fortunes of these funds can be attributed to the sharp run up in the stock market over the period. But did you invest in UTI Transportation and Logistics Fund, Sundaram SMILE (Small and Medium Indian Leading Equities) Fund, DSP Blackrock Micro Cap Fund or Birla Sun Life Pure Value Fund? If the answer is no, then you may have missed a trick.
UTI Transportation and Logistics Fund topped the equity fund category in the last one year with returns of 121% compared to 38% returned by the BSE Sensex, followed by Sundaram SMILE (Small and Medium Indian Leading Equities) Fund (119%), DSP Blackrock Micro Cap Fund (115%), Birla Sun Life Pure Value Fund (114%) and the Canara Robeco Emerging Equities Fund (110%).
Winners and Losers: How various indices have performed over 7 years
What worked for these funds, some of which are not the top-of-the-mind schemes in the Source: Ace Equity mutual fund universe? For UTI Transportation and Logistics, it was the sharp run-up in auto stocks. As the name suggests, the fund invested large amounts in companies in the transportation and logistics sector. Though a large-cap fund, it takes specific sector calls (74% investment in the automobile sector) and, hence, also qualifies as a sectoral fund. The commonality between UTI Logistics and the other funds mentioned above is that they all invest in mid- and small-cap stocks, again a specific theme. The run up in these funds performances can be attributed to the rise in mid-cap stocks in general.
The mid-cap index, for instance, has returned 65% in the last one year compared to a 38% return delivered by the BSE Sensex. Small- and midcap funds typically outperform in an upward trending market owing to the marginal incremental risk they take. The small- and mid-cap stocks come with high beta (an indicator of their relative volatility) and, hence, their returns can be multifold, which is difficult for large-caps to mimic.
MARKET-CAP BASED PERFORMANCE
In terms of market cap, the midcap and small-cap indices returned an astounding 69% and 96% respectively during the bull run from January 2007 to January 2008 leaving behind the BSE Sensex’s 46% return. This was mimicked by funds investing in these stocks like the SMILE Fund, which returned 82% during the period. Thereafter, came the market bust (January 2008 to January 2009) and the smallcap and mid-cap indices lead the race to the bottom, losing 66% and 72%, respectively, compared to the Sensex’s fall of 51%.
According to Anil Rego, CEO and founder of Right Horizons, small- and mid-cap funds are a ‘high-risk high-return’ strategy and, hence, during a bull run they tend to do well. However, when the markets are down, mid-caps tend to fall more than large-caps because of their high beta (usually more than one). Since they are less liquid than large-caps, they are inherently more volatile.
Financial planners say midcaps should not be part of your core portfolio at any point of time. There is good reasoning behind this: from 2007 till date the BSE Sensex has returned a 9% a year, the Mid-cap Index has returned 7% while the Small-cap Index has returned only 6%.
Sectoral funds have higher risk than mid-cap funds but they could also have periods of extreme outperformance. The infrastructure sector was touted as the star during the bull run of 2006 and 2007 and the Infrastructure Index retained the top slot for about two years owing to a roaring economy and the government’s thrust on the sector. Hence, funds based on the infrastructure theme delivered returns of 85% (in 2007) but were also among the biggest losers (their value eroded 56%) when the sector went out of favour in 2008.
On the other hand, diversified equity funds didn’t make a killing in the bull run but ended up with a limited downside compared to the fall in the Sensex. Further, diversified funds help deliver higher riskadjusted returns in the long term by mitigating risk by spreading across different sectors.
With the economy back on track, the focus is now likely to shift towards investment. Capital goods and infrastructure have already started doing well. But only focusing on infrastructure funds would entail quite a bit of risk in case investment activity does not pick up. Only if you have the research expertise and conviction on a certain sector should you consider investing 15-20% money into sectoral funds.
According to Raghvendra Nath, MD, Ladderup Wealth Management, it would be improper to come to a conclusion on the basis of a year’s performance. Such performance can be due to a few chance allocations to certain stocks or sectors. Rego adds that Sundaram SMILE Fund’s performance is not consistent with its peers and returns in the short term can be like a flash in the pan. He instead suggests funds with consistent returns. Even though they may offer lower returns in the short-term, they don’t get stuck on the down side.
PICKING THE RIGHT FUND
Past performance is only one of the indicators for evaluating a fund. “Developed markets deploy many ways to evaluate fund performances. However selective data display and ‘cherry picking’ can harm investors,” says Tushar Pradhan, CIO, HSBC Global Asset Management, India.
Comparing a fund’s performance against others over a stipulated period can be hazardous. “Risk parameters, expense ratios, fund manager’s track record, turnover ratios and many other fund metrics can help provide a much more balanced view. We encourage investors to look at the performance in conjunction with the risks undertaken,” says Pradhan. Risk statistics like beta, for instance, will tell you the stock’s relation to the general market. A beta of one indicates that the stock will move with the market while a beta of less than one means that the stock will be less volatile than the market. A beta of greater than one indicates that the stock will be more volatile than the market.
While selecting a mutual fund, analysts also use other ratios such as Sharpe ratio, which helps gauge how much of the extraordinary returns generated by a fund are a result of extra risk taken by the fund manager. A higher ratio indicates that the investor is earning a good return despite low risk. A combined rank encapsulating these can be a better measure than comparing performance alone. It is also important to ascertain whether the fund is being run in accordance with its investment objective and the investment strategy is transparently communicated to investors.
CHECK FUND RATINGS
Research companies like Value Research and Morningstar assign ratings to funds based on certain parameters. However, they may not all be the same. “Ratings should not be the only criteria; investors should also look at the overall outlook and also compare performance of funds in a similar segment,” says Rego.
The best approach is to take an equal exposure in large-cap and midcap funds. “Large caps give stability to the portfolio and mid-caps provide extra returns in the long term,” adds Nath. Once the market has gone up, invest via SIPs which will help generate higher returns by reducing the average purchase cost.
Source : http://goo.gl/R1elX6
Sachin P Mampatta | Mumbai July 9, 2013 | Business Standard
Foreign investors, who hold 40% of free float, have lost 10% on rupee fall this year so far
The biggest buyers in Indian markets over the past 10 years are staring at huge losses as a falling rupee chips away at their portfolios.
The BSE Sensex has fallen only 0.52 per cent since the beginning of 2013, from 19,426.71 to 19,324.77 on Monday. However, foreign institutional investors (FIIs) have seen losses of about 10 per cent because of the rupee depreciation. Some have seen losses of nearly 20 per cent on account of the fall in the market.
This could pose a risk of outflows from the equity market, said experts, who point out that FIIs collectively hold 43.4 per cent of the publicly held shares, or free float, in Indian markets.
However, the sharp decline in the rupee might be a deterrent for many foreign investors to exit Indian stocks, as many of the investments were made when the currency was at much higher levels. In 2012, FIIs poured in close to $26 billion. Since FII shareholdings are valued in the rupee, any fall in the currency would impact them.
Selling by FIIs, the biggest buyers of Indian stocks in the past decade, could hit sectors that have experienced high inflows, according to a July report, India Strategy, by Motilal Oswal Securities. “If FII selling was to continue in the coming months, we believe sectors that saw high allocations earlier will be impacted,” said the report, authored by Navin Agarwal, Rajat Rajgarhia and Dipankar Mitra.
The report noted FIIs bought in $124 billion in 10 years, about half of which came in after 2010. Foreign institutions have bought in $67 billion since January 2010. They were net sellers by $1.6 billion in Indian equities during June.
U R Bhat, managing director at Dalton Capital Advisors (India), a registered FII, said high foreign holdings can pose a peril. “That (FII ownership) is quite a risk…. They generally factor in a four-five per cent depreciation in the currency. This is dramatically more than that.” The depreciating rupee, he said, has caused severe underperformance for anyone who chose India over developed markets.
“This needs to be compared with the 13-14 per cent gain in the American markets. So, an institution which chooses to put its money in India as opposed to the US is sitting on relative losses of over 25 per cent,” he added. FIIs have been net buyers in India equities by $13.42 billion in 2013.
Anish Damania, business head-institutional equity at Emkay Global Financial Services, said investors would continue to watch the rupee. “Flows have been weak because there has been a global trend (to move) away from emerging markets. Inflows into India have pretty much stopped. People are worried the rupee depreciation could get worse and are also keeping an eye on corporate earnings,” he said.
The Motilal Oswal report said financial sector companies, excluding public sector banks, accounted for 25 per cent of the flows since 2010. Utilities accounted for 12 per cent, consumer companies 11 per cent, information technology nine per cent and automobile companies eight per cent.
The rupee touched a new low on Monday, falling past 61 against the dollar on fears that the US might cut back on its injections of liquidity into the global financial system. It has depreciated 10.22 per cent against the dollar since January and 13 per cent since May.
FII ownership had hit its previous high at the end of 2007, at 41.9 per cent. It had touched a low of 35 per cent in March 2009, according to data from Motilal Oswal Securities.
Some are more optimistic on foreign flows. Rajesh Cheruvu, chief investment officer-India at The Royal Bank of Scotland’s private banking division, said there could be an impact on account of money coming in from short-term arbitrageurs, but said longer term money was unlikely to exit in a hurry. “There had been a fall in risk appetite for emerging markets (EMs). But over the last one week, interest seems to have returned. As return of appetite and improvement in EM flows is in place, India is expected to attract flows into the market on account of superior growth and structural advantages, including strong domestic demand,” he added.
Source : http://goo.gl/vOgL2