Market Overview

The Indian equity markets (BSE Sensex) continued to display a descending bias (with seesaw movements) as the impressive impulse (of 7.6%) witnessed in the month of October 2011 was completely washed away in November 2011 (as the BSE Sensex corrected by good -8.9%). The Indian equity markets continued to be a under a blanket of nervous economic sentiments, as the news disseminating from the Euro zone as well as India continued to send shivers down the spine of several investors.

For most part of the month the bears had tightened their grip as they perceived that Euro zone crisis may not stop with Greece and Italy, since Fitch downgraded Portugal’s ratings to ‘BB+’- a non-investment grade (from ‘BBB-’ a low to medium grade). Similarly, later when the rating downgrade for Belgium by Standard & Poors (S&P), to ‘AA’ (from ‘AA+) came in, it made them believe that a contagion is indeed spreading across the Euro zone. Moreover, the report from the Organisation from Economic Co-operation and Development (OECD), stating that "the crisis was now just one step away from plunging advanced economies into an abyss of recession and could trigger waves of bankruptcies", also got the Indian equity markets into a tizzy. The OECD report forecast that the United States faced a period of slow growth, Japan's economy would shrink 0.3% this year and developing nations would also see a slowdown too was worrisome. But, in order to preclude the Euro zone crisis from spreading and to put the global activity back on track, the organisation also mentioned that decisive policies must be urgently put in place. However with Germany and France holding up with that idea, arguing that the priority is for countries in trouble to reform their economies, respite measures weren’t visible.

Back home in India, dismaying economic data too continued to disappoint the Indian equity markets. The WPI inflation, after mellowing in September 2011 (to 9.72% in September, from 9.78% reported in August 2011) inched-up marginally to 9.73% in October 2011 (data released in November 2011) despite persistent anti-inflationary stance maintained by the Reserve Bank of India (RBI). The Index of Industrial Production (IIP) too slumped to a 2 year low (of 1.9%) in September 2011 (data released in November 2011), as the industrial activity felt the brunt of high interest rate regime in the country. The depreciation of the Indian rupee was also not well taken by the market, as it corrected by nearly -18% since August 2011. Moreover, with the Government announcing an increase of Rs 52,500 crore of extra Government borrowing for the second half of the year than budgeted; remained a concern for the Indian equity markets as it implied fiscal deficit target of 4.6% for fiscal year 2011-12 may be difficult to meet.

Taking count of these confluence factors in the domestic economy (as well as global economic outlook), second quarter GDP growth estimates were also revised downwards; but when the data was actually released on November 30, 2011 it didn’t have a detrimental impact on the markets (on the said date) as the Q2 FY2011-12 economic growth of 6.9% was almost near the market expectation of 7.0%. The increase in multi-brand retail to 51.0% (from earlier 26.0%) in the last couple of days of the month did provide an impetus to the Indian equity markets on the November 28, 2011 (the announcement date), but later again with divergent views from the opposition (which is hindering the winter session), the Indian equity markets were immediately dragged in the ensuing trading session.

Taking cue of the global economic uncertainty prevailing, the precious yellow metal - gold displayed an ascending move (gained 6.4%) as smart investors preferred to take refuge under this safe haven. Moreover, festive demand along with consequent marriage season also pushed up demand from stockist and buyers, resulting in prices moving northwards.

Speaking about the Brent crude oil, while prices did experience a corrective phase during the month of November 2011, due to slumping demand from the global economy it ended the month with marginal increase of +0.5%, as Iran's escalating tensions with the west and an agreement by Euro zone ministers to ramp up the firepower of their bailout fund.

For the bonds markets, the Open Market Operation (OMO) purchase in the last week of November 2011 helped to push down yields of 8.79% 2021 G-sec bonds. However the yields of 1-month and 3-month CDs hardened by 20 basis points (bps) each, thus taking them to 9.15% and 9.50% respectively.

 

Monthly Market Roundup

	As on Nov 30, 2011	As on Oct 31, 2011	Change	% Change
BSE Sensex	16,123.5	17,705.0	(1,581.6)	-8.9%
S&P CNX Nifty	4,832.1	5,326.6	(494.6)	-9.3%
CNX Midcap	6,641.1	7,267.2	(626.1)	-8.6%
Gold (/10 gram)	28,965.0	27,220.0	1,745.0	6.4%
Re/US $	52.2	48.7	(3.5)	-7.2%
Crude Oil ($/BBL)	111.4	110.8	0.5	0.5%
10-Yr G-Sec (%)	8.76	8.87	(0.11)	11 bps
1-Yr FDs	7.25% - 9.40%

(Monthly change as on November 30, 2011)
(Source: ACE MF, PersonalFN Research)

 

Ascertaining the confluence of factors in the global as well as domestic economy, Foreign Institutional Investors (FIIs) too turned net sellers in the Indian equity markets to the tune of Rs 4,198 crore, thereby snapping October’s buying activity to the tune of Rs 1,677 crore. The chart below reveals that their withdrawal of funds from the Indian equity markets, also attributed to heavy downswing of the markets from the mid of November 2011.

 

BSE Sensex vs FII inflows

 

(Source: ACE MF , PersonalFN Research)

Mutual Fund Overview

But unlike FIIs, domestic mutual funds turned net buyers in the Indian equity markets to the tune of Rs 810 crore, thereby snapping their last month’s net selling activity worth Rs 212 crore. It seems that the following positive factors enthused them to budge and buy into the Indian equity markets:
 

• Attractive valuations (markets have already corrected 23.2% from their last peak of 21,004.96 made on November 5, 2010)
• Better growth prospects for India (Q2 FY2011-12 GDP growth rate at 6.9%, which was near to market estimates) when compared to the other developed economies
• Food inflation numbers mellowing below the double-digit mark (9.01% for the week ended as November 12, 2011), and expectation that it would drop further due to above normal monsoon
• Expectation that WPI inflation would therefore mellow to sub 8.0% mark.
• Robust consumption story to continue due to policy measures taken by the Government in that direction by increasing multi-brand retail FDI limit (from 26.0% to 51.0%)
   

BSE Sensex vs MF inflows

(Source: ACE MF, PersonalFN Research)

 

However, the descending move of the Indian equity markets took a toll on the performance of all categories of domestic equity funds. Even pharma and healthcare sector funds, which are considered to be defensive in nature, delivered negative returns. But Infra funds, energy funds and banking funds plunged the most as the underlying stocks felt the nuance of problems faced their respective sectors. For instance the infra and banking sector felt the brunt of anti-inflationary stance adopted by RBI, while the power sectors companies encountered hurdles with the Environment Ministry, along with problems such as procuring fuel and idling capacity.

Contrary to the performance of domestic equity funds (across categories), Fund of Funds (FoFs) led by some gold funds and offshore funds displayed luring returns to investors. In the Hybrid fund category, balanced funds due to their dominant exposure to equity, delivered negative returns, but some of the Monthly Income Plans (MIPs) ended the month in green.

 

Monthly top gainers: Open-ended equity funds

Diversified Equity Funds	1-Mth	Sector Funds	1-Mth	ELSS	1-Mth
Axis Triple Advt (G)	-0.38%	SBI Magnum Pharma (G)	-0.67%	Religare AGILE Tax (G)	-4.38%
Edelweiss Absolute Return (G)	-1.66%	UTI Pharma & Healthcare (G)	-2.26%	ICICI Pru R.I.G.H.T (G)	-5.60%
UTI Wealth Builder-II (G)	-3.28%	Reliance Media & Ent. (G)	-3.42%	Sundaram Tax Saver (G)	-5.93%

(1-Mth returns as on November 30, 2011)
(Source: ACE MF, PersonalFN Research)

 

 Monthly top gainers: Open-ended Fund of Funds

Fund of Funds	1-Mth
Reliance Gold Savings Fund (G)	6.49%
JPMorgan JF ASEAN Equity Off-shore Fund (G)	5.11%
Fidelity Global Real Assets Fund (G)	5.04%

(1-Mth returns as on November 30, 2011)
(Source: ACE MF, PersonalFN Research)

 

 Monthly top gainers: Open-ended Hybrid Funds

Balanced Funds	1-Mth	Monthly Income Plans	1-Mth
Tata SIP-S3 (G)	0.34%	Templeton India Low Duration Fund (G)	0.76%
SBI Magnum NRI Inv-FlexiAsset (G)	-2.01%	Sahara Classic (G)	0.70%
ICICI Pru Balanced (G)	-3.86%	Taurus MIP Advt (G)	0.70%

(1-Mth returns as on November 30, 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)	0.79%	IDFC SSIF-MT-F (G)	1.06%	Templeton India G-Sec-Treasury (G)	1.23%
L&T FRF (G)	0.76%	IDFC SSIF-MT (G)	1.04%	HSBC Gilt-ST (G)	1.14%
Canara Robeco FRF (G)	0.76%	Religare STP-A (G)	1.04%	Tata Gilt SMF (G)	1.05%
Long Term		Long Term		Long Term
Sundaram Flexible-FIP(G)	1.38%	SBI Dynamic Bond (G)	1.55%	IDFC G Sec-PF (G)	1.97%
SBI Magnum Income FRP-LTP (G)	0.75%	IDFC Dynamic Bond-A (G)	1.45%	IDFC G Sec-Invest-A (G)	1.86%
Birla SL FRF-LT(G)	0.72%	UTI Bond (G)	1.29%	DWS Gilt Fund (G)	1.81%

 

Liquid Funds	1-Mth	Liquid Plus funds	1-Mth
Escorts Liquid Plan (G)	0.78%	JM Money Mgr (G)	0.79%
Pramerica Liquid Fund (G)	0.75%	JM Money Mgr-Super (G)	0.79%
IDFC Ultra ST (G)	0.75%	Pramerica Ultra ST Bond (G)	0.77%

(1-Mth returns as on November 30, 2011)
(Source: ACE MF, PersonalFN Research )

 

Debt mutual funds delivered moderate gains in the month gone by as RBI maintained its anti-inflationary monetary policy stance and expected inflation to mellow down in the next couple of months. Also being aware of the fact that interest rates are nearing the peak and attractive yields are offered by most debt papers, domestic mutual funds bought net to the tune of Rs 9,819 crore, thereby continuing their net buying activity as seen in October 2011 (where they net bought to the tune of Rs 15,155 crore).

 

Performance across various categories of mutual funds

(1-Mth average returns of funds in various categories as on November 30, 2011)
(Source: ACE MF, PersonalFN Research)

 

The graph above displays how various categories of mutual funds performed in the previous month. As revealed above, all equity funds across categories (i.e. diversified equity funds and thematic funds) and styles delivered negative returns. Even balanced funds (which predominantly hold an equity portfolio), eroded investors’ wealth as their underlying portfolio were rocked by downbeat economic situation prevailing in the Euro zone. But while the global equity markets were under a blanket of nervous economic sentiments, gold ETFs and gold fund stood to gain as smart investors preferred to take refuge under the precious yellow metal. Similarly, debt mutual funds across categories performed well as RBI maintained its anti-inflationary monetary policy stance and expected inflation to mellow down in the next couple of months.

Other News and New Fund Offers

• SEBI recently shot down a suggestion by Asset Management Companies (AMCs) to appoint an external agency to audit mutual fund distributors and IFAs. Thus now the mutual funds’ audit teams will mainly look into the revenues along with regulatory records of these distributors, and would be supposed to review associate and subsidiary businesses of distributors.
  
  We believe that that this move is attempted to make mutual funds directly responsible for distributors, and thus would infuse transparency in the way mutual fund industry operates. However, distributors and IFAs should co-operate and take this move in the right spirit by overcoming the anxiety of disclosing their revenues to the world.
   
• The Association of Mutual Funds in India (AMFI) directed all the fund houses to implement the SEBI directive to issue consolidated accounts statement (CAS) to its investors. Thus now CAS would enable an investor to view all his or her transactions in a particular month in mutual funds across fund houses.>
   
• Bajaj FinServ, the financial services arm of Bajaj Group, received approval from the capital markets regulator SEBI for setting up mutual fund business and is likely to make foray by end-2012.
   
• India's advertising regulator - Advertising Standards Council of India (ASCI) initiated a probe into allegations that a television promotional campaign by the Association of Mutual Funds in India (AMFI) was masking the risky nature of mutual fund investments by equating them with savings.
  
  The ASCI has asked Publicis Capital, the agency that created the advertisements, to respond to the complaint. The council will then call the two sides for a hearing.
  
  We believe that the advertisement initiated by the AMFI was intended to promote awareness amongst investors for investing in mutual funds. However we believe, the inherent risks involved while investing mutual funds should also be aptly displayed in the advertisement.
   
• Motilal Oswal Mutual Fund launched its open-ended long-term gilt fund - "Motilal Oswal MOSt 10 Year Gilt Fund" (MGF) (which is available for subscription from November 21, 2011 until December 5, 2011); which focuses on investing in Government securities having maturity of over 3 years.
  
  As per its offer document, the fund’s investment objective is "to generate credit risk-free returns by investing in a portfolio of securities issued by the Central Government and State Government. However, there can be no assurance or guarantee that the investment objective of the scheme would be achieved."
   
• Franklin Templeton Mutual Fund launched its open-ended income fund - "Templeton India Corporate Bond Opportunities Fund" (TICBOF) which is mandated to invest Debt & money market securities issued by private sector corporate and Public Sector Undertakings including banks, financial institutions, Non-Banking Financial Companies: 65%-100% [including securitised Debt (ABS, MBS, single loan) up to 50%]; CBLO and T-Bills: 0%-35%. As per its offer document, the fund’s investment objective is "to provide regular income and capital appreciation through a focus on corporate securities."
   
• Religare Mutual Fund introduced a gold savings fund - "Religare Gold Fund"; a gold fund of fund scheme which is mandated to invest its corpus into the underlying fund - "Religare Gold Exchange Traded Fund" (RGETF). The Fund is launched especially considering the requirements of those who want to buy gold in a paper form but do not have a demat account.
  
  As per its offer document, the fund’s investment objective is "to provide returns that closely correspond to returns provided by Religare Gold Exchange Traded Fund. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved." As far as allocation of its assets is concerned, the scheme invests 95% - 100% of its total assets in units of RGETF and the rest (i.e. upto 5%) in money market instruments.
   
• Union KBC Mutual Fund added to its stable an Equity Linked Savings Scheme - "Union KBC Tax Saver Scheme" (UKTS) (which is available for subscription from November 8, 2011 until December 9, 2011). UKTS is a typical diversified equity fund (along with tax efficiency) with no bias towards any market capitalisation, thus following a multi-cap strategy. Hence, it will also look out for opportunities to invest in stocks across market segments (i.e. large cap, mid cap and small cap) along with promising sectors.
  
  As per its offer document, the fund’s investment objective is "to generate income and long-term capital appreciation by investing substantially in a portfolio consisting of equity and equity related securities. However there can be no assurance that the investment objective of the scheme will be achieved."





 

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Comments
admin@swamptales.org Dec 16, 2011 A perfect reply! Thanks for taking the trouble.
matheis@eielson.af.mil Dec 16, 2011 Action requires knowledge, and now I can act!
sidney.ruiz@bbcr.com.br Dec 16, 2011 That insight would have saved us a lot of effort early on.

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