Your mutual fund investments at Risk!! Jan 14, 2011


	January 14, 2011

Your mutual fund investments at Risk!!

Impact HDFC Mutual Fund SIP." The other - "Invest in Franklin Templeton Mutual Fund." At the bottom of the boards, one of their funds' name is written in a small font, the corpus from which possibly the cost of promotion is met.

In our opinion such ad-campaigns (mentioning the lines above) reveals that the mutual fund houses are indulging in "rats race"of increasing their Assets Under Management (AUM) - which in our opinion isn't wrong; but at the same time we think that there has to be greater accountability, responsibility and transparency while managing investors money which should reflect in the overall investment processes and systems followed by the fund house.

A see-saw ride for the IIP

Impact

(Source: CSO, PersonalFN Research)

The Index of Industrial Production (IIP) witnessed a sharp decline for the month of November 2010, registering a growth of mere 2.7% from the 11.29% registered in the previous month. Since April 2010, the IIP has been witnessing wild swings as depicted by the graph above.

This lacklustre performance of the November IIP can be attributed to the following reasons:

Decelerating manufacturing growth: The manufacturing index, which is the principal component of the IIP (constitutes around 80% of the index) took a nose dive to 2.3% for November 2010 from the 11.9% registered in the previous month.

Dismal sectoral growth: The consumer non-durables took a solid beating and posted a negative growth of 6% as against a positive growth of 2.3% a year ago. Also, the consumer durables index declined to 4.3% from 36.3% in November 2009. This thus resulted in consumer goods index as a whole to register a negative growth of 3.1%. Moreover, the capital goods index registered a marginal a growth of 12.6% from 11.0% in November 2009 (on a month-on-month basis the capital goods index too, took a beating - 12.6% in November 2010 from 21.5% in October 2010).

Reacting to the IIP, Finance Minister - Mr. Pranab Mukherjee said, "We shall have to look into and take corrective measures so that IIP numbers revive in the remaining four months (of this fiscal)."

We believe that the lacklustre core sector (constituting 26.8% of the IIP) growth of 2.3% in November 2010 has led to the down fall of the overall IIP in this month. RBI would now be in a tensed state, as on one hand there is spiralling food inflation and on the other there is this lacklustre IIP number. It will be interesting to see how RBI reacts to these challenging situations on January 25, 2011. In our opinion there is a likelihood of 25 basis point hike in the key policy rates by the RBI in its third quarter review of monetary policy 2010-11 (scheduled on January 25, 2011), as the main focus would be to tame inflation without derailing economic growth, and thus the GDP data would be of more relevance to them while taking their stance.

A level playing field for bond market players

Impact