Equity mkt to be more volatile in 2011 than 2010: ICICI Pru

S Naren of ICICI Prudential, in an exclusive interview with CNBC-TV18’s Latha Venkatesh spoke about his reading of the market in the new year and what the road ahead was for the Indian investors seeking to invest in the Indian market.

Below is a verbatim transcript. Also watch the accompanying video for more.

Q: Overall what is the expectation in 2011? Would you say that the market will be able to notch up 15-16% next year like it did this year or does it distinctly look a tougher year?

A: Where we started of in 2010 and where we are starting of now in 2011 appears to be similar. Corporate India is in good shape. The banking system is in good shape. The overall mood is reasonably positive on the economic side. Where we are different now, I would say compared to one year back is that today we have a situation where there seems to be continuous short fall of liquidity on the debt market side.

When I look at equity markets I find everything is fine. I mean you have had huge selling by locals over the last one year. Obviously you are not going to see this kind of selling in the next year because whoever wanted to sell out has sold off. From hereon we actually think there should be net inflows from Indian investors.

But on the debt side what’s happening is that every month we are seeing CD rates continuously going up of banks on a one year basis. The deposit growth doesn’t seem to be going up at all and part of it is maybe because of government balance with the RBI.

Nevertheless, the debt market will hold the cue to equity markets and if interest rates keep going up the way they have been going up, there are fairly big headwinds on the equity side. Particularly, if there is even a percent rise from here, there is a fair amount of headwind on the equity side.

Q: So you don’t want to venture and say something in terms of a possible percentage gain even in the first half? Will gains be maintained or do you see downsides and if you do what kind of downsides?

A: What I am kind of certain about is that 2011 will be a more volatile equity market compared to 2010. The international reasons for volatility particularly from Europe remain and local reasons will be because of the kind of interest rates which prevailed in the Indian economy.

What I am quite sure of is volatility but as far as market returns go, its not very clear whether 2011 looks worse than 2010 or not because if you finally see in 2010, barring China and Brazil, most of the other markets have delivered very good returns. This was not expected in 2010 when people said the US will not do well on the market side.

But if you see the kind of rally we are seeing since September, it’s pretty significant in the US. We have had a situation where many global markets, most commodities and even gold has done well.

There doesn’t seem to be a situation at this point in time where people are saying that the US will tighten and therefore you will have a situation where all risky asset classes will underperform vis-à-vis other things. From that point of view I don’t think we are in a bad situation in anyway but having said that we are very clear that volatility will be high.

Q: In the equity markets where would you hide, would it be in IT which is less prone to the interest rate headwinds? Really what sector do you think could be the flag bearers in the first half?

A: Where we possibly have increased weightages would certainly be in commodities, especially in many metal stocks. We have held on to our weightages in most of the regulated utility stocks. There are stocks in oil and gas which are not going to get adversely affected by increases in oil price.

We have actually seen situations where many of the sectors there have opportunities. The problem lies in over debt sectors, where the interest costs can go up. That’s where we have to be much more stock specific. We have to look at what is the leverage of a company and what kind of increase in interest costs you are going to see in that company. Those are the places where we have been a bit more careful about.

Q: There is a theory that a lot of the existing mutual funds and investors as of 2010 were those who probably entered in the big wave of NFOs of 2007 and the heady stock markets of that time and they probably were waiting to get at least at par levels to get out. Do you think that out of this catharsis could emerge some kind of improved or increased participation of the small investor in mutual funds?

A: A dramatic improvement is certainly on the cards because I don’t think we are going to see net outflow as what we have seen this year. That itself would be a dramatic improvement in 2011. Slowly investors will come back again into the mutual fund market.

Mutual funds have been very good because if you see any of the big up months like September, we have seen huge redemptions and in any down month we have seen inflows. The three down months of the years were January, May and November and in all the three months we have seen inflows.

Investors have got it that equities are a volatile asset class which you have to invest on downturns and take out when there are spikes. They seem to have got it after 2008 very well. That’s why I believe that 2011 will be the year where investors are making money in mutual funds. Definitely, the combination of both debt schemes and equity schemes is going to see solid retail money into 2011.

Source: http://www.moneycontrol.com/news/mf-interview/equity-mkt-to-be-more-volatile2011-than-2010-icici-pru_509667.html

 

Mkts to remain on firm ground till Budget 2011: Experts

The markets rang out 2010 with solid gains in the last trading session of the year. Despite a slide early in the year on growing concerns about the Eurozone, most Asian equities came back strongly. The Indian market is poised for good gains in 2011 after rising 15% in 2010. With the government projecting the economy to grow at 9%, and record FII flows seen this year, India is set to outpace its peers and developing markets in 2011.

The Sensex closed the last session on a positive note closing above 20,500 while the Nifty settled at 6,134, about 220 points away from its all-time high that it hit in January 2008. Experts feel the Nifty is poised to take out 6350 in the first quarter of the new year and see a further upside of 8-10% from thereon for the next three to four months post scaling new highs.

According to Hemen Kapadia of chartpundit.com, 6185 is an important level for the market which will pave the way for it to scale new highs. “I have a feeling I think Monday is the time when the markets could just about peak for the time being, correct a bit and after that on the rebound when we take out 6185 I think then we are testing 6350 and if you take a view for the first quarter, I think if we take out 6350 which seems like a possibility at this point in time I wont be surprised if we would see a 8% to 10% upside in the next 3 to 4 months after that.”

Amit Dalal, Executive Director of Tata Investment feels the markets are likely to remain in high expectation mood till the budget. He however sees large headwinds for the markets post the budget. “For the first two months we will have a better market than what we really think that it should based on concerns that we have on fundamentals. But the fundamentals will finally catch up with the market at some point and I am more concerned as the second and third quarter builds up into the system,” Dalal said.

Below is a verbatim transcript of Hemen Kapadia and Amit Dalal’s views on CNBC-TV18. Also watch the accompanying video.

Q: If the mood is upbeat till the budget, closing above which technical levels do you think it will pave the way for new highs?

Kapadia: We were in this range between 5700 on the downside around 6070 in terms of the Nifty spot. We are just getting out of that. Currently 6185 is important.

But I have a feeling, I think Monday is the time when the markets could just about peak for the time being, correct a bit and after that on the rebound when we take out 6185, I think then we are testing 6350 and if you take a view for the first quarter, I think if we take out 6350 which seems like a possibility at this point in time I wont be surprised if we would see a 8% to 10% upside in the next 3 to 4 months after that. Is that going to be sustainable? I don’t think so but that’s too far off as of now.

Q: What is the initial thought you have about the New Year ahead? Is it looking like or maybe a slightly shorter period or a more visible and predictable period of the first quarter. Will the first quarter be able to breakout of the headwinds that we see in terms of inflation, interest rates, political scams simply not seasoning and a certain lethargy in terms of reforms. Will all this keep the index pretty much ranged or do you think we have something else coming?

Dalal: I think the markets last year as you very rightly pointed out have given us a very good support and a great year for us to have built the base on. As far as the headwinds are concerned the concerns are quite large. I think those will perhaps become more to play out towards the end of the budget.

Till the budget I think the market will remain in high expectation mood. We are already closing this year or this week I should say with a far better market than what you would have thought two weeks ago. Technically I am told if you remain at these levels above 6060 you will see an upside in the market even further going forward.

So for the first two months we will have a better market than what we really think that it should, based on concerns that we have on fundamentals. But the fundamentals will finally catch up with the market at some point and I am more concerned as the second and third quarter builds up into the system.

Q: The fuel for this market came from the FIIs in the year that is just getting over – USD 29 billion or thereabouts an all time high. Chances are that there are going to be rival attractions in 2011. Already the last month showed some kind of tepidness and there are some who forecast that US equities itself would become very attractive and that would act as accountable. What are you expecting in terms of that getting replaced by domestic investors? We have had some mutual fund managers telling us that we could see practically a dramatically a different year in 2011 with respect to domestic investors because the core of SIP investors is growing as well those who invest in 2007 and got tired of waiting to reach even par levels have taken their profit or booked out of industry. Now there is a new core and more perhaps lasting set of investor who look at mutual funds as an essential part of their asset allocation? Whether domestic investors will be able to provide a shoulder to stock markets in the coming year?

Dalal: That particular argument in terms of whether we will be able to substitute FII interest in the market has been a case for concern for almost a decade for these markets. I do not think so. I think the FII flows still remain the backbone of the rallies and the backbone of making the market move either way up or minus.

Where the US market performance is concerned and allocation towards US market is concerned I think yes there will be more interest in the viewers market and perhaps in the western hemisphere than there was last year. But the kind of allocations we need are much smaller than what the huge allocations are made worldwide. I do not think that will disturb our flows.

Yes I believe that you will not be able to do IPOs of the magnitude that we did last year but with the same ease that we did last year, next year. But our flows will remain intact. It may not be USD 29 billion, it may be lower on an accumulative level but that will be sufficient for the marketplace.

Q: Do domestic investors come in at all? Are you getting a feeling that there is a certain maturity process that is underway and therefore you will not have these net outflow situation that is over and done with?

Dalal: I think those outflows are more of a systemic problem that has come into the mutual fund industry; it is more of a situation based on their own ability to market their schemes. It is not necessarily the investors view on market place. I think the investors view on market place and allocation to equity is becoming more and more professional in their thinking in a sense they do not want to take a stand on their own in the equity markets.

You see a large number of people saying I just want to give our money to good portfolio managers in mutual funds. So if you were to market it I think there are sufficient savings that can come into the system through these intermediaries be it mutual fund or portfolio managers.

Q: You were also quite positive on the entire IT space would you be preferring frontline heavy weights like Infosys and TCS or perhaps a midcap ones where there is more by way of a valuation headroom – your top picks?

Dalal: I can’t really disclose my top picks. But yes I think that largecaps have a great story to tell because they have this whole market in front of them which they are exploiting completely worldwide and they are doing a great job of growth so you really have the highest capacity utilisations now in these companies. You also have improving margins. When you come to the midcap if you are certain about a companies ability to retain people and not had attrition problem yes then there is a case to be made for evaluation and one should look at these companies.

Q: What kind of leads can you give within the banking space itself. Time was even we were used to giving much higher valuation to private sector banks and much lower to public sector banks – we saw that gap narrowing much in the year 2008 and for a better part of 2009 now will you start giving much more weightage to some of the public sector players especially those who have shown some inorganic moves like Axis, even ICICI. There is Bank of Rajasthan which went through a painful period of balance sheet consolidation and now on the path of growth so would it be a period of outperformance from the private sector banks?

Dalal: I completely agree with you. I think one should definitely look at that because the gap which has taken place on a price to book which has been reduced between the private sector and public sector has been substantial in the last 12 months and now the price to book ratios do not justify putting more money into the public sector.

One should go back to private sector. The NIMs are going to be under pressure for the banking sector on the whole and given that non fund base income is going to be very important. So that part of the business is best run by the private sector. So I would look at private sector banks.

Q: In the year gone by it is quite a sectoral divergence. You had banks, autos, IT, pharma doing well but on the flipside sector something like real estate, infrastructure stocks gave you negative returns- so now when we enter into the New Year and we have to make tactical changes to the portfolio which are the sectors you would think that the money would be flowing in and you would book out of?

Dalal: I am a little concerned on the auto sector mainly because the cost of money has gone up substantially. The EMIs have short up considerably if you were to buy a car now or even a CV so that is a major concern for demand on this particular sector. Where real estate and construction is concerned I remain concerned even now. I am not an economist but you can correct me or perhaps extrapolate on my thinking. M3 has come down and credit growth has gone up substantially.

To me that spells inventory levels having gone up in the system in some form or the other. The biggest inventory level going up is in real estate. Just tremendous unsold stock in the system so where that is concerned that particular sector itself spells considerable risk. Construction because the ability of the government to concentrate on development, to concentrate on what is needed in the country has gone down because of its own problems remains a concern. Therefore I would not put in money very easily or very quickly into this sector right now.

Q: In that case where would you want to put your money? Where do you think the alpha for growth is coming sectorally speaking?

Dalal: I would still remain with IT, pharma even NBFCs and certain private sector banks.

Q: It is confirmed news a proper announcement the came from ADAG group that they are changing their branding to drop the ADAG word but only keep the word Reliance. The markets are reading something into it. As a group would you get positive at all?

Dalal: If you take the businesses which are in the space for instance Reliance Infra, Reliance Power, Reliance Capital in terms of AMC business of its subsidiary. The Reliance communication all these three can do a lot more if they get the right kind of mix of capital and management from the Reliance Group. So if you were to make a scenario in front of your eyes that something like that could happen yes but of course we do not know if there is any confirmation to that.

Q: What would be your call on Reliance Industries? It has had a down year, the gas expectations in terms of volumes have not lived up and there were other issues in terms of margins as well. But would 2011 herald something different – would you be an early bird better on the stock because its telecom ambitions will also come into frusion before the year is out.

Dalal: I am positive on that particular company now. I think that they definitely went through their period of figuring out how they would like their capital to be utilised in the years to come. It is not something that you ignore for a very long period of time. Mr Ambani with due credit to him does have a history of very large and very successful execution. I think the next 2-3 years I am sure that he is going to spell out some strategy on how he wants to build up his base and it is time that one invest into that stock.

Q: What about midcaps? Will this be a space you will have the courage to bet on and will it be the relative outperformer at least in the first half?

Dalal: You have to be very careful when you invest in businesses and in companies because cost of money has gone up substantially and you can today put into a bank and FD – 9.5% for 12 months. Assuming that may not remain and it will come down.

You are still not going to have cost of money for borrowing less than 11-11.5% for the small guys. Therefore one has to be very careful when you select a company because you see marginal contraction, you will see earnings contraction in many-many companies in the next 12 months.

Source: http://www.moneycontrol.com/news/market-edge/mkts-to-remainfirm-ground-till-budget-2011-experts_509720.html

 

FIIs were key growth drivers of Indian markets in 2010

Bought stocks for $29 billion net.

The buying spree on the part of FIIs slowed down in the last month amidst all the scams and the routine FII year-end exits

Dec. 31 Year 2010 saw foreign institutional investors buy Indian stocks for $29 billion net. This is the most that they have pumped into the Indian market in a single year despite the market-indices here being fairly range-bound during this period.

This is also much more than the inflows ($17.6 billion) seen in 2007, when the Sensex was on a gaining streak.

The markets did surge a little in 2009, too, when FIIs were net buyers for a total of $17.45 billion.

Domestic institutions, on the other hand, were net sellers of equities for Rs 19,503 crore in calendar 2010.

FIIs were also net buyers in equities in all months this calendar, except in January and May. August saw the highest net purchases in a single month this year for $13 billion.

On a year-to-date-basis, the Sensex and the Nifty returned 15 per cent and 16 per cent, respectively.

It was this relentless buying from the FIIs that pushed up the Indian markets in 2010.

Though the Sensex did reach an all-time high this year, it was quite range-bound. The benchmark has been trading between 17,000 points and 21,000 points right through 2010.

Over-valued

The buying spree on the part of FIIs slowed down in the last month amidst all the scams and the routine FII year-end exits when they need to pay their investors. Their net purchases during December has so far amounted to $0.3 billion only.

“Part of this pullback is because India is perceived to be overvalued vis-a-vis other emerging markets.

“Indian markets have enjoyed around a 30 per cent premium to the other emerging markets. But what has happened this year is that the scams have made FIIs start to question the rich valuations here,” said Mr Saurabh Mukherjea, Head of Equity at Ambit Capital. He added that the next year might see a moderation in FII inflows into the country.

Domestic institutions were net buyers of equity during December and November after being net sellers for five consecutive weeks. Mr Mukherjea said that insurance companies have been seeing inflows trickling in during December and that the fund houses here are also in “slightly better health”.

Mr K. Ramanathan, Chief Investment Officer at ING Investment Management, said that mutual funds faced a lot of redemptions this year and they did not get much incremental net inflows.

“The changes in the regulatory framework too hurt the mutual fund industry. Distributors find it better to sell insurance products as the brokerage there is better than from distribution of mutual funds,” he added.

Source: http://www.thehindubusinessline.com/2011/01/01/stories/2011010152710900.htm

 

Two-wheeler segment to see strong sales growth: Sanjay Sinha, L&T Mutual Fund

Sanjay Sinha, CEO, L&T Mutual Fund , in a chat with ET Now talks about the two-wheeler stocks .

Would you be buying two-wheeler stocks?

Yes, because if you look at the large consumption aspiration that is still now resting with the Indian middle class, the first object of aspiration is a vehicle and the two wheeler segment is the play for that. The fact that we have very entrenched brands, the fact that we have very wide sales and distribution network already established, the incumbents players will continue to enjoy in advantage for some more time to come.

Also, the fact that we are just about beginning to wake up as consumers as far as Indians are concerned, you will have fairly strong sales growth happening in 2011 in the two wheeler segment and it is worth a play.

Source: http://economictimes.indiatimes.com/markets/stocks/views/recommendations/two-wheeler-segment-to-see-strong-sales-growth-sanjay-sinha-lt-mutual-fund/articleshow/7196442.cms

 

Kotak Mahindra MF launches Multi Asset Allocation Fund

Kotak Mahindra Asset Management Company, today launched of Kotak Multi Asset Allocation Fund.

The fund is an open-ended debt scheme that aims to generate income by predominantly investing in debt and money market instruments, growth by investing moderately in equities and overall diversification by investing in gold, the company said in a statement.

The scheme aims to invest at least 75-90 per cent in debt and money market instrument, 5-20 per cent in equity and equity related instruments and 5-20 per cent in gold, it said.

The scheme will take exposure to gold through Gold Exchange Traded Funds (ETF). The New Fund Offer (NFO) will be open from December 31 to January 14, 2011.

Sandesh Kirkire, chief executive officer, Kotak Mahindra Asset Management Company said, “Currently the equity market is reeling under aftermath of the Eurozone crisis and domestic political uncertainty and uncertainty over global growth still remains.”

“On the other hand, yields remain high in the debt market, providing high-yielding opportunities. Gold has been a good performer the recent past due to the impact of global economic turbulence,” Kirkire said.

“There is thus the need for a product which offers stability of debt, growth from equities as well as overall diversification from gold and this is what we are looking at offering our investors with the Kotak Multi Asset Allocation Fund ,” Kirkire said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/kotak-mahindra-mf-launches-multi-asset-allocation-fund/articleshow/7190245.cms

 

2010: Year of bumper divestment

The year 2010 will go down in the history of Indian markets as the one that witnessed the revival of the government divestment process with the Coal India IPO emerging to be the jewel in the crown.

It was also the year when the India stood out as one of the favourite emerging markets among foreign investors, despite the series of scams, rising inflation and interest rate, and a burgeoning fiscal deficit, the last one coming despite inflows from auctioning of 3G spectrum that surpassed all expectations.

After 2009, when the BSE sensex and investors’ wealth nearly doubled, expectations were raised as Dalal Street entered 2010. So if one compares the 81% return in sensex in 2009, the 17.4% rise in the benchmark index during the year looks like just a trickle. But even this modest rise was enough to beat the 14.3% rise in the Shanghai index, 5.3% in Hang Seng and the 3% fall in Nikkei. However, among its other Asian peers Indonesia and South Korea fared much better.

One of the high points of the year was the IPO for Coal India and the subsequent listing. The IPO, that closed on October 22, was subscribed about 15 times and generated a demand worth Rs 2.36 lakh crore, making it the largest and the most successful offer ever. And on listing on the eve of Diwali, the stock gave a 47% return to retail investors and 40% to others, as it closed at Rs 342.

The year also witnessed sensex rising to beyond the 21,000 mark on Diwali Day, at 21,109 and closed at a 33-month high at 21,005.

On the FII front, the $29.4 billion of net inflow also made it the best year ever in terms of foreign fund flows but the Rs 27,500 crore net mutual fund outflow also gave it the tag of the worst year in terms of MF outflows.

Source: http://timesofindia.indiatimes.com/articleshow/7199395.cms

 

The Best-Performing Investments of 2010

And the winner is: silver.

With a 66% return for investors this year in India, silver has outperformed most asset classes in 2010.

But that doesn’t mean you should rush to buy silver coins in the New Year. If anything, the recent steep gains should be cause for skepticism about the potential for further profits.

“Maybe the story is already over, we don’t know,” says Narendra Kondajji, director of Procyon Financial Planners Pvt. Ltd. in Bangalore.

Besides, Mr. Kondajji says that like other precious metals silver can be hard to sell on short notice, so risk-averse investors should limit their exposure to commodities. “For a common investor, the major option to create wealth is investing in equities,” says Mr. Kondajji.

Here’s a look at how some popular investments fared in 2010:

Stock Indexes: 16% to 17%

If you had invested in an index of India’s leading stocks at the beginning of the year, you would have earned a return of 16% or 17%.

The UTI Master Index Fund, which invests in the 30 stocks that comprise the Bombay Stock Exchange’s Sensitive Index or Sensex, was up 16% through Wednesday.

If you had bought the Benchmark Nifty BeES, an exchange-traded fund which tracks the returns of the S&P CNX Nifty Index, you would have earned 16.6%.

Stock Mutual Funds: 14.4%

Most individual investors prefer to buy one of those funds in which money managers attempt to beat the Sensex of Nifty or some other index. How have these done?

The average mutual fund which invests in stocks of large Indian companies was up 14.4% through Monday, according to data from research firm Morningstar India Pvt. Ltd. Of course, this means that some mutual funds did very well, while others did poorly.

One of the best-performing funds in Morningstar’s large cap stock fund category was the HDFC Equity fund, which gained 27% in 2010. One of the worst-performing in the year was the Reliance Equity fund, which lost 1.3%.

A spokesman for the fund’s money manager, Reliance Capital Asset Management Ltd., declined comment.

Balanced Mutual Funds: 6% to 12%

These are mutual funds which invest in both stocks and bonds. These funds are meant for risk-averse investors because bond prices don’t swing as sharply as stock prices. On the other hand, lower risk means that these funds provide lower returns than pure stock funds.

A typical balanced fund which invests around two thirds of its money in stocks and one third in bonds, gained 12% this year, according to Morningstar. Meanwhile, funds which invest only up to 25% in stocks and the rest in bonds were up on average 6%. These funds are often called “Monthly Income Plans.”

Bond Mutual Funds: 4% to 5%

Mutual funds which invest in short-term bonds gained an average of 4.5% this year. Medium-term bond funds, which often have the word “income” in their name, gained 5.1%.

Bond funds are used by investors as a substitute for bank fixed deposits, partly because returns on them are not subject to income tax whereas interest on fixed deposits is taxable. However, these funds are more volatile than fixed deposits.

Bank Fixed Deposits: 6.5% to 7%

At the beginning of 2010, one-year fixed deposits typically paid 6.5%. As interest rates have gone up lately, returns in 2011 will be higher. A one-year fixed deposit from ICICI Bank currently pays 7.75%, while the same from Bank of Baroda pays 8%.

Gold: 20%

A gold bar of 99.9% purity gained 23% through Tuesday, according to the Bombay Bullion Association. However, this return doesn’t reflect the cost of buying, storing and selling the gold bar.

To avoid the hassle of safe-keeping etc., investors have lately been buying gold ETFs. These trade on a stock exchange like a stock, and are held in an electronic account in the investor’s name. The ETF-provider buys physical gold proportionate to your investment and keeps it in a bank vault.

Benchmark’s Gold BeEs ETF gained 19.6% for the year through Tuesday.

Prithviraj Kothari, president of the Bombay Bullion Association, expects gold prices to remain strong in 2011, but adds that an increase in interest rates in the U.S. could affect the demand for gold.

Silver: 66%

Silver prices in India rose 66% this year on the back of huge demand from global investors looking to make quick money on commodities. Prices have risen despite oversupply and poor industrial demand.

Barclays Capital expects that given the excess supply of silver, prices could be curbed in 2011. So, this might not be the best time to load up on it.

Mr. Kondajji, the financial planner, notes that for individual investors in India, this is a hard asset to buy because it’s not available in an ETF format. He advises clients to “not go beyond 10%” for their overall allocation to commodities, including gold and silver.

Real estate: 5% to 30%

It’s tough to measure the performance of real estate because prices vary by cities and neighborhoods.

Still, here’s an estimate of how residential real estate prices have moved this year in three major Indian cities.

The smallest returns came in Bangalore, where apartment prices gained 5% to 10%, according to Gulam Zia, national director for research and advisory services at Knight Frank India Pvt. Ltd., a real estate consulting firm.

In Delhi, Mr. Zia estimates that prices went up between 10% and 20% but for some luxury apartments they gained as much as 25%.

Mumbai was the best-performer, with gains of 20% to 30% this year. However, Mr. Zia adds that toward the end of the year sales volumes of new apartments dropped and he expects prices to drop as much as 10% to 20% in the first few months of 2011.

“Buyers in Mumbai should wait for the next quarter or two,” says Mr. Zia. He expects some decline in Delhi prices as well.

Given the large amounts of money required to buy real estate, and the lack of liquidity, only the very rich should consider dabbling in this for investment.

Source: http://online.wsj.com/article/SB10001424052748703909904576052793218751106.html?mod=googlenews_wsj

 

Expect 10-12% returns in 2011

Focus will shift to midcaps/smallcaps and firms with lower leverage, believe analysts.

Premium valuations, global uncertainty and higher inflation will lead to moderate returns of 10-12 per cent in 2011 for the broader markets, say money managers.

Unlike the 80-plus per cent returns in 2009 and 17 per cent in 2010, investors will need, for the year ahead, to temper their expectations from the broader markets and focus more on mid-caps and small-caps, available at attractive valuations. Expensive valuations and uncertainty could lead to significant volatility, with the Sensex likely to swing between 16,000 and 23,000.

• Outlook for the markets in 2011

Sensex to trade in range 16K-23K

First half could be more volatile

Broader markets expensively valued, focus to shift to mid and small caps

Expect modest returns of about 10%

• Events to watch out for

Euro zone issues, Chinese tightening

US economic recovery

Surging crude oil prices, higher interest rates, inflation leading to possible earnings downgrades

Budget, government finances

• Investing strategy

Invest in companies offering revenues and earnings visibility, and trading at lower valuations

Stick to companies not dependent on external borrowing and having manageable debt

Stock specific approach will pay better dividends

Debt instruments a better bet than holding cash

• Sectors to buy

Mid-cap IT companies

Banking, Infrastructure

Capital Goods

Textiles

• What to avoid

Telecom

Real Estate

FMCG

• Top picks

Indian Hotels

Coal India

BHEL

L&T

Power Grid

ICICI Bank

Tulip Telecom

Renuka Sugar

Euro, inflation key concerns
Several factors, domestic and global, could lead to volatility. “Increasingly, global events will influence Indian equity markets. The problematic euro zone economies, uncertainty over the US economic recovery and an expected slowing in the Chinese economy are the biggest worries,” says Trideeb Pathak, senior director, equities, IDFC Mutual Fund. Experts cite North Korea as another flash point investors need to watch. Local concerns due to rising commodity prices, inflation and an expected rise in interest rates could lead to a jump in input cost and erode operating and net margins, especially of capital-intensive and interest rate-sensitive sectors.

Expect earnings’ downgrades
Analysts say there is a high probability of earnings’ downgrades. It could happen later next year, as the actual impact of inflation and interest rates starts kicking in. The recent rise in crude oil and metal prices could also have a ripple effect on companies and consumers, leading to pressure on demand. Estimated earnings of the Sensex for 2011-12, now Rs 1,240-1,250 per share, could come down. And, valuations which look reasonable could turn expensive.

Dilip Bhat, joint managing director of broking firm Prabhudas Lilladher believes measures taken to deal with the global (liquidity concerns due to Europe) and domestic issues (higher commodity prices) could easily clip off some points from India’s economic growth and temper earnings growth, leaving these vulnerable to downgrades.

Hotels, mid-cap IT, infra preferred
The year was good for commodities, information technology, banking and auto, among other sectors. However, this year, money managers prefer some of the beaten-down sectors and those which exhibit good visibility. Also, sectors that generally participate in the second leg of the economic recovery, such as those in the services space, including hotels and tourism, and mid-cap IT companies, could prove good bets.

Infrastructure is another sector that analysts recommend, as most companies here are trading at 10-12 times next year’s earnings, despite strong visibility. Also, analysts expect a pick-up in new orders due to the rush to achieve the targets set for the XI Five-Year Plan, ending March 2012.

On the back of a pick-up in the industrial capex and government spending, the capital goods sector should do well in the year ahead. As the economy grows and the credit growth remains firm, banking, especially the private banks, are also expected to do well. Many also believe the textiles’ space (trading at eight times the estimated earnings for 2010-11) this year could be a better option to invest, as things are turning in favour of the companies, especially those with the domestic presence.

What to avoid
Telecom is among the leading contenders, due to regulatory uncertainty and heightened competition. Others such as real estate are in the list, given a rapid rise in real estate prices, interest rates and leveraged balance sheets. Fast moving consumer goods, which did well in the current rally, could deliver lower returns with the rises in input cost, and higher valuations, at 25 times the 2011-12 estimated earnings.

What should you do?
As the broader markets are expensive and expected to remain volatile, most money managers advise that you stick to high-quality stocks and avoid portfolio leveraging.

Analysts say a stock-specific approach will work in 2011, but investors should not simply chase returns at the cost of quality, which could be tested in the year 2011. The memories of several scams, which broke in the year 2010, are still fresh. With investigations on, investors need to do more due diligence before investing.

If the global uncertainties materialise, they could pose renewed concerns for our markets and lead to a steep correction. In the light of those risks, investors should look at companies which not only offer growth but also trade at reasonable valuations. “I would try to keep the price earnings ratio of the portfolio down to the extent possible,” says Manish Sonthalia, vice president and fund manager, Motilal Oswal AMC.

Money managers such as Trideeb Pathak of IDFC add that it’d be better to stick with companies which do not require much capex immediately and ones not dependent on external borrowings, as interest costs and the impact of global events could skew the picture.

Source: http://www.business-standard.com/india/news/expect-10-12-returns-in-2011/420139/

 

KYC must for MF investors from Jan 1

Mutual fund (MF) investors, irrespective of the amount they invest, will have to complete the Know Your Customer (KYC) requirements for all purchases, switches and new systematic investment plan registrations from January 1.

Investors have to submit the KYC form, which is available with fund houses, along with necessary documents at the nearest investor services centre. They have to provide a photocopy of the PAN card , proof of address document and a passport size photograph. Earlier, only resident individual investors making investments above Rs 50,000 were required to complete the KYC formalities.

Fund houses have made arrangements with CDSL Ventures for KYC compliance. On submission of KYC application along with the prescribed documents, a KYC acknowledgement letter will be issued. Investors have to provide the letter for carrying out transactions in MF schemes.

The category of investors who need to comply with the KYC norms also include power of attorney (PoA) holders (for investments done through a PoA), each of the applicants in case of investments in joint names and guardian for investments made on behalf of minors.

Non-individual investors (such as corporates, Hindu undivided families [HUFs], partnerships and trusts) that already have an MF Identification Number (MIN—not valid anymore) and have not provided PAN at the time of obtaining MIN should also complete the KYC formalities mentioned above.

Investors who have already completed KYC formalities should submit a copy of the acknowledgement along with a list of folio numbers. After verification, the status will be updated in records and investors would be able to transact as usual. Applications by investors without valid KYC acknowledgement letter are liable to be rejected from January 1, fund houses said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/kyc-must-for-mf-investors-from-jan-1/articleshow/7188955.cms

 

Large-cap funds’ bets on small companies backfire

UTI Leadership , Reliance Equity, Bharti Axa Equity and Sundaram Select Focus funds led the under-performance of more than half the large-cap equity schemes in 2010 as fund managers stacked up small companies in their portfolio to outperform, a strategy that backfired and strengthened the case for investing in index funds.

Nearly 37 of the 61 funds run by Reliance Mutual Fund, UTI Asset Management and Sundaram Mutual Fund returned lesser than their benchmark indices as mid-cap and small-cap companies lost value faster towards the end of the year on the back of a series of scandals. The returns of these underperforming funds ranged from -0.8%% to 15.8% in 2010, when the Sensex rose 15.6% and the S&P CNX Nifty gained 16.09%, data from Value Research, a mutual fund tracking company, shows.

“Fund managers wanted to have a diversified portfolio with mid-cap stocks to give the return kicker,” said A Balasubramaniam, CEO, Birla Sun Life Mutual Fund. “In most cases, however, the strategy of seeking alpha by investing in mid-cap stocks misfired. 2010 was a year of rapid market movements; such volatility required faster alignment to broader markets. Most fund managers failed to keep their portfolio in line with the markets,” he said. Alpha refers to the risk-adjusted return on investments.

The underperformance has dealt the 6.65 lakh-crore mutual fund industry, which has been facing tough times ever since the 2008 meltdown, another blow. Due to the poor performance of equity schemes, Indian investors who keep more than half their savings in bank deposits, may increase their investments in fixed-income securities as interest rates climb.

Poor performance of some of the index constituents such as Reliance Industries and metals company Sterlite Industires also added to the woes of these schemes.

The dwindling optimism about Indian markets’ prospects due to soaring commodity prices and the possibility of higher interest rates may make it difficult for funds to provide market-beating returns in the new year, too. “2011 may also not be a great year for equity mutual funds,” said Dhruva Raj Chatterji, senior research analyst, Morningstar India, a fund research firm. “Equity funds are likely to generate just about 10% from the current market levels. Equity funds outperformed in 2009 only because of the lower performance base created in 2008. The course ahead will be difficult for fund managers. Risk-averse investors should start looking at balanced funds.”

Foreign fund flows may also be lower than the record $29 billion this year as investors begin to buy equities in the US and other developed markets, where the prospects are looking up. Fixed-income returns have jumped more than 50% with the yield on the 10-year US treasury jumping to more than 3.5% from less than 2.5%.

Mid-cap and small-cap companies that provide higher returns fell off investors’ radar in the last quarter after the Securities & Exchange Board of India revealed price rigging in companies such as Murli Industries and the Central Bureau of Investigation arrested some bank executives for taking bribes to sanction loans.

Among funds that have outperformed are Religare PSU Equity Fund, with over 11% return versus the benchmark return of -1.42%, Reliance Equity Opportunities at 29%, Magnum Emerging Business at 30% against the benchmark’s 15%, and DSPBR Microcap Fund, which clocked 43% returns versus the 15% gain of the BSE Smallcap index.

Source: http://economictimes.indiatimes.com/markets/stocks/market-news/large-cap-funds-bets-on-small-cos-backfire/articleshow/7181937.cms