India funds among top performers for Gulf investors: Lipper

India funds among top performers for Gulf investors: Lipper

It is not resident Indians alone who have gained from the country's capital market rally last year - the Gulf investors also earned big with India-focused equity and debt funds emerging among the best performers in the region.

According to data compiled by international fund tracking firm Lipper, funds registered for sale in the GCC (Gulf Cooperation Council) region recorded an average gain of 19.26 per cent in 2007, with Equity India emerging as the second best performing category after Equity China.

The Indian rupee-dominated bond funds were the best performers in the bond category with about 20 per cent return.

The India-focused equity funds gave an average return of 71.08 per cent, against the overall average of 26.40 for all the equity funds.

Returns from the rupee-denominated general bond funds and government bond funds stood at 21.56 per cent and 19.79 per cent respectively. This, compared with an overall average return of 9.94 per cent for the bond funds.

Among the sector funds, those focused on technology, media and telecom (TMT) were the top performer with 106.12 per cent average return. Gulf investors took cognisance of the undervaluation of TMT sector, but they "were more attracted to funds investing in the technological sector in Asia, most particularly in India," Lipper said.

While noting that utilities was the second best performing category, Lipper said Reliance Diversified Power Sector Fund-Growth was the top performer in this segment with 152.01 per cent return.

Run by Anil Ambani group Reliance Mutual Fund, India's largest fund house, invests mainly in the country and has Reliance Energy and Tata Power as its top holdings.

China's JF China Pioneer A-Share topped the overall equity category with a whopping 157 per cent return. However, Indian funds grabbed as many as 19 positions among the 20 top performers, Lipper said in its annual review report for GCC- registered funds.

These included six funds from Reliance Mutual Fund stable, four schemes each of UTI MF and Birla Sun Life, three DSP-Merrill Lynch schemes and two HDFC MF schemes.

Among the bond funds, the rupee-denominated schemes gained from the appreciation in the Indian currency. "The Indian rupee appreciated 10.65 per cent against the US dollar over the year, inflating the performance of underlying Indian assets," Lipper said.

Bond INR General category was the top performer with 21.56 per cent return, followed by Bond INR Government at 19.79 per cent.

Investors from the Gulf region are aggressively betting on Asia, particularly on India, the study stated, adding that "the recognised expertise and growing market of the outsourcing and offshoring business in India attracted significant foreign fund flows to the country, boosting the stock market in India."

GCC countries have been aggressive during the past few years in investing abroad through sovereign funds and is estimated to have invested over the past six years around 700 billion dollars.

"Equity China, Equity India, and Equity Turkey were also among the best performing classifications. The worst performing funds in 2007 were real estate Europe funds, real estate global funds and Japan small- and mid-cap funds," said Lipper.

Source- Economics Times

 

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Worst quarter in the decade for equity (Jan 2008- March 2008)

Worst quarter in the decade for equity

Only gold ETFs have ended positive and attracted investors' wealth.

On March 31, 2008, Indian mutual funds ended their worst quarter of the decade. The average returns of almost all categories of equity funds had their worst three months since January 2001, according to the quarterly review of fund performance released by Value Research.

Funds in the key 'Diversified Equity' category, which has the largest number of funds (194) as well as the highest investor interest, lost an average of 28.3 per cent. This was far worse than the previous worst of the decade, when these funds lost 16.9 per cent in Q1 of 2001.

Individual funds in the category lost between 16.2 per cent and 40.6 per cent between January and March this year, during which BSE Sensex and the NSE Nifty both lost 22.9 per cent.

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Financial sector reforms

Financial sector reforms – X

THE REPORT suggests making institutions "ownership neutral." For the public sector, this means removing the overlay of costs and benefits imposed by government ownership. One way is bank privatisation, or reducing the government's majority stake so that even if the government has de facto control, the bank is not "public sector." The other is through serious governance reform. The report believes that while this debate has become entangled in politics and ideology, pragmatic steps are possible in both directions so that experience can guide future moves.

The report makes certain valid observations in regard to foreign ownership. Many arguments are put forward for treating foreign firms differently. Yet the country has had a generally good experience with foreign direct investment elsewhere. And given that there are strong domestically incorporated firms in almost every segment of the financial sector, "infant industry" arguments for protecting domestic financial firms at the expense of domestic financial service consumers hold little water.

As for foreign financial firms the past Indian experience may not have much bearing for the future, given the substantial changes in the Indian economy. But cross-country studies indicate foreign financial institutions would bring competition that would improve service and prices for the consumer – indeed a study finds foreign entry is the single biggest factor in enhancing domestic competition and efficiency. They would also bring skills that are needed in the Indian economy and the talent they bring to India or train in India would become part of the domestic labor pool, leading to cross-fertilisation. Particularly useful might be evaluating and channelling credit to small and medium enterprises. Finally, they will have access to foreign capital that will be available even if the Indian economy is doing badly, thus providing a valuable source of insurance.

There are, no doubt, concerns about foreign financial firms. There is some academic evidence that their entry is not particularly helpful when an economy is at a low level of financial development. India's financial sector is probably much above that threshold. Also, to the extent foreign financial firms are not domestically incorporated, regulatory authorities may not have full control over them. This is remedied by requiring domestic incorporation in exchange for full domestic business privileges. Yet another concern is reciprocity. Domestic banks would like to expand abroad and feel that some countries erect undue hurdles in their way. It is important for the Indian authorities to exert every pressure on foreign governments to extend reciprocal privileges to Indian banks. However, the report believes that the expansion of foreign banks in the Indian economy is beneficial to the Indian public and should not be held hostage to the vagaries of foreign governments. In the same way as India benefited by liberalising trade over and beyond its foreign commitments, India will benefit by welcoming foreign financial firms. The high road seems to be the most beneficial one for our country here.

The report offers some cautions about any reforms. First, it may be impossible to level the playing field completely. Some differences may be warranted, for example, for prudential reasons. For instance, a bank making certain loans has a capital requirement that an NBFC does not have to meet. This is because the bank has issued demand deposits, which entail a higher supervisory burden. Of course, the more an NBFC approaches the characteristics of a bank by issuing short term deposits, the greater should be the similarity in treatment. Indeed, this principle is being followed by the RBI in its approach towards deposit taking NBFCs. There are, however, differences that are not essential, and deserve to be eliminated. These differences are often highlighted through competition, as one entity or product appears to gain a seemingly unfair advantage. There are obviously two ways of eliminating burdensome differences. One is to place the burden on everyone. The second is to eliminate it for everyone. In general, the report favours equalisation by removing burdens rather than by adding burdens. To the extent that a burden cannot be removed for sound economic reasons, it would suggest a "warranted" difference that might have to remain, rather than a need to increase burdens for everyone.

Second, institutions should be given time to adjust, so that legacy institutions can compensate for the loss of rents by developing new skills and businesses or by shrinking gracefully, rather than by taking risks they do not understand or cannot manage. A time-bound, pre-announced, steady withdrawal of differentiation is usually better than an overnight change.

Third, as financial integration proceeds apace, a variety of institutional linkages may emerge to provide the products people need. For example, a loan linked with crop insurance (or alternatively, one where interest and principal payments are linked to rainfall) seems to be a felt need of farmers. Given the desire of investors for safety, an equity linked deposit account, with a guaranteed minimum interest rate, liquidity, and some (but not full) upside performance related to the performance of the stock market could be popular. Such products would require linkages across institutional and regulatory silos, some of which is already happening. More needs to be encouraged. Holding company structures could help facilitate such linkages.

Fourth, care should be taken that institutions do not misuse their freedom of activity and structure to create fragile institutions that impose charges on the system. Certain activities do tend to create fragility and should be monitored particularly closely or in extremis, even prohibited for certain structures. For example, the key to open-ended mutual funds being safe is the fact that their assets are liquid and continuously marked to market. An open-ended real estate mutual fund has neither characteristic and can be very fragile – mutual fund "runs" have occurred in some countries like Germany. Similarly, banks, mutual funds, or insurance companies with guaranteed returns necessitate additional monitoring to ensure that the institutions are managing their assets to produce the guaranteed returns; else they too could suffer runs and become a public charge. The point therefore is to proceed steadily, predictably, but with care to reduce privilege and obligations, while expanding permissible activities wherever possible.

Written by S Shivakumar (Merinews)

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Gold prices move down

Gold prices move down

Gold prices moved down in the bullion market here during the week on poor demand coupled with fresh stockists offerings on the back of lower global advices, while silver prices firmed up on mild industrial demand.

On Thursday, standard gold rose to Rs 12,260 on persistent stockists buying in view of current marriage season coupled with strong rally in global market. Pure gold (99.9 purity) also rose to Rs 12,315. However, standard gold (99.5 purity) ended lower at Rs 11,895 as against the last weekend's level of Rs 11,990, showing a loss of Rs 95 per 10 grams.

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Investment Strategy-Portfolio Rebalancing

Investment Strategy-Portfolio Rebalancing

 

Why is it important and how you can do it?

Over the course of the year, the market value of each security within your portfolio earned a different return, resulting in a change in the allocation pie. This might change the investor's risk profile. While in the short term this may not have an adverse impact, such changes in risk profiles can have a far-reaching impact in the longer run. Portfolio rebalancing is a strategy that allows individuals to keep their risk level in check and minimize risk.

What Is Rebalancing?

Rebalancing is the process of buying and selling portions of your portfolio in order to set the weight of each asset class back to its original state. In addition, if an investor's investment strategy or tolerance for risk has changed, he or she can use rebalancing to readjust the weightings of each security or asset class in the portfolio to fulfill a newly devised asset allocation.

Assume an investor's portfolio worth Rs 1,00,000 is invested in equity funds (40%), Bond Funds (40%) and liquid funds (20%). In other words, Rs 40,000 will be invested in equity funds, Rs 40,000 will be invested in bond funds and Rs 20,000 will be invested in liquid funds. Let's assume that in Year 1, equity funds deliver 20% return, bond funds loose 2% and liquid funds give a modest 4% return. His portfolio, at the end of the year, will look like this:

 

Year 1	Returns	Opening	Closing
Equity Funds	20%	40000	48000
Bond Funds	-2%	40000	39200
Liquid Funds	4%	20000	20800
Total		100000	108000

 

Overall, the portfolio has returned 8%, but that's more due to the equities.

In year 2, assume the rise in the equity markets gets over and markets fall. So assume equity funds return -10%, bond funds on the other hand rebound and return 9%, while liquid funds continue with 4%.

Now assume two scenarios, viz. one where the above investor switches back to his original asset allocation, and the other where the investor doesn't reallocate his assets as per his original allocation and ignores the change.

		Rebalance portfolio		Ignored portfolio
YEAR 2	Returns	Opening	Closing	Opening	Closing
Equity Fund	-10%	43200	38880	48000	43200
Bond Funds	9%	43200	47088	39200	42728
Liquid Funds	4%	21600	22464	20800	21632
Total			108432		107560

As per the above example, while the rebalanced portfolio appreciates to Rs 1,08,432, the value of the ignored portfolio actually falls to Rs 1,07,560. As can be seen, the ignored portfolio got swayed by the equity return in Year 1 and therefore chose not to go back on the original asset allocation, not knowing that equities as an asset class can be quite volatile in the short run. A fall drop in the equities in Year 2 was enough to result in the ignored portfolio to under-perform the rebalanced portfolio.

Rebalancing strategy is, therefore, the optimal strategy.

Benefits of portfolio rebalancing

Disciplined investing

Rebalancing is a vital part of investment policy - there can be no asset allocation target without the discipline to preserve that target.

Reduces risk

A plan may incur higher risk if no rebalancing policy exists. This is true particularly for equity allocations, which can rapidly rise in a bull market. For instance, portfolio rebalancing ensures that in rising equity markets, the asset allocation doesn't get skewed towards equities and the portfolio correctly reflects the investor's risk profile. It also ensures that the portfolio is adequately diversified. 

Buy low, sell high Rebalancing is a mechanism for sensible timing - the process naturally buys low and sells high. This strategy ensures that the portfolio returns are enhanced. A clear rebalancing policy avoids the risks of ad-hoc and costly portfolio revisions. 

Balanced Funds - a better way to portfolio rebalancing

One way to rebalance the portfolio is to do it ourselves. In other words, investments can be made in equity and debt funds separately and then adequate rebalancing can be done depending on how the equity and debt markets perform.

A simple way to ensure portfolio rebalancing is to invest in Balanced Funds. Here, the fund manager does the rebalancing and not the investor. Usually, all balanced funds invest around 60-70% in equity markets and the rest in debt and money market instruments. They state their asset allocation, i.e. their allocation towards equity and debt instruments, in their offer documents for investors to refer to. Further, they are mandated by Sebi to stick by their stated allocation.

So when equity markets keep rising consistently, Balanced Funds are mandated to book profits and bring their equity allocation back to their stated levels. This way, balanced funds carry a low downside risk as when equity markets fall, balanced funds take a lesser hit than equity funds.

 

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Mutual Fund - Portfolio of ICICI Prudential Indo Asia Equity Fund

Portfolio of ICICI Prudential Indo Asia Equity Fund as on 31st March 2008
Total Assets : Rs.714.66 Crores

No	Name of the company	Sector	P/E Ratio	% of total Assets
1	Aditya Birla Nuvo Ltd	Diversify-Mega	0	2.44
2	Ahluwalia Contracts India Ltd	Construction	0	1.39
3	Bharat Electronics Ltd	Electronic-Comp.	0	2.39
4	Bharti Airtel Ltd	Telecom - Services	0	3.76
5	Bombay Dyeing & Manufacturing Company Ltd	Text-Composite	0	0.86
6	Cairn India Ltd	Oil Drill/Allied	0	4.99
7	Corporation Bank	Banks-Pub Sector	0	0.45
8	Cummins India Ltd	Engines	0	1.35
9	Debt	DEBT	0	1.87
10	Deccan Chronicle	Entertainment Content Provider	0	0.66
11	Dr Reddy s Laboratories Ltd	Pharm-Ind-BD&For	0	0.83
12	Federal Bank Ltd	Banks-Pvt Sector	0	2.12
13	Grasim Industries Ltd	Diversify-Mega	0	3.3
14	HCL Technologies Ltd	Computer-SW-Larg	0	1.06
15	Hindustan Petroleum Corporation Ltd	Refineries	0	0.89
16	ICICI Bank Ltd	Banks-Pvt Sector	0	2.96
17	Indian Oil Corporation Ltd	Refineries	0	0.34
18	IOF ASIAN EQUITY FUND	Industrial Conglomerates	0	32.52
19	ITC Ltd	Cigarettes	0	2.31
20	Karur Vysya Bank Ltd	Banks-Pvt Sector	0	0.93
21	Larsen & Toubro Ltd	Diversify-Mega	0	4.25
22	Mahindra & Mahindra Ltd	Auto-Tractors	0	2.44
23	NIIT TECHNOLOGIES LTD	Computer-SW-M/S	0	0.14
24	Oil & Natural Gas Corpn Ltd	Oil Drill/Allied	0	2.06
25	Reliance Industries Ltd	Diversify-Mega	0	8.72
26	Satyam Computer Services Ltd	Computer-SW-Larg	0	2.22
27	Steel Authority of India Ltd	Steel - Large	0	1.3
28	Sterlite Industries (India) Ltd	Mining/Miner/Met	0	3.49
29	Tata Consultancy Services Ltd	Computer-SW-Larg	0	1.13
30	Tata Tea Ltd	Tea	0	0.92
31	Texmaco Ltd	Engineering	0	0.46
32	Voltas Ltd	Diversify-Mega	0	1.32
33	Zee Entertainment Enterprises Ltd	Entertainment Content Provider	0	4.13
Total:				100

 

 

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Mutual Fund - Portfolio of ICICI Prudential Infrastructure Fund

Portfolio of ICICI Prudential Infrastructure Fund as on 31st March 2008
Total Assets : Rs.5390.59 Crores

No	Name of the company	Sector	P/E Ratio	% of total Assets
1	Aban Loyd Chiles Offshore Ltd	Diversify-Med/Sm	0	0.56
2	ABG Infralogistics Ltd	Engg-Tunkey Serv	0	0.14
3	Adhunik Metaliks Ltd	Steel -Med/Small	0	0.18
4	Aditya Birla Nuvo Ltd	Diversify-Mega	0	0.52
5	Axis Bank Ltd	Banks-Pub Sector	0	0.47
6	B L Kashyap and Sons Ltd	Construction - Civil /Turnkey-Medium	0	1.31
7	Bank of Baroda	Banks-Pub Sector	0	0.37
8	Bharat Heavy Electricals Ltd	Electric Equip	0	2.83
9	Bharti Airtel Ltd	Telecom - Services	0	5.67
10	Birla Corporation Ltd	Cement-North Ind	0	0.26
11	Cairn India Ltd	Oil Drill/Allied	0	1.25
12	Century Textiles & Industries Ltd	Diversify-Mega	0	0.27
13	Crompton Greaves Ltd	Electric Equip	0	0.64
14	Cummins India Ltd	Engines	0	1.34
15	Debt	DEBT	0	13.18
16	Dredging Corporation of India Ltd	Oil Drill/Allied	0	0.06
17	Electrosteel Castings Ltd	Casting &Forging	0	0.63
18	Federal Bank Ltd	Banks-Pvt Sector	0	0.07
19	Finolex Cables Ltd	Cables-Telephone	0	0.1
20	Futures and Options	Futures and Options	0	18.24
21	Gammon India Ltd	Construction	0	0.36
22	Gas Authority Of India Ltd	Gas	0	0.64
23	Grasim Industries Ltd	Diversify-Mega	0	2.75
24	Gujarat Industries Power Co Ltd	Power Generation	0	0.24
25	Hindustan Petroleum Corporation Ltd	Refineries	0	0.48
26	Housing Development Finance Corporation Ltd	Finance-Housing	0	1.5
27	ICICI Bank Ltd	Banks-Pvt Sector	0	4.5
28	Indian Hotels Co Ltd	Hotels	0	0.91
29	JAIPRAKASH ASSOCIATES LTD	Construction	0	2.82
30	Jindal Steel & Power Ltd	Steel -Spong Iro	0	5.4
31	Kalpataru Power Transmission Ltd	TranLineTow/Eqpt	0	0.43
32	Kesoram Industries Ltd	Diversify-Large	0	1.46
33	Kirloskar Oil Engines Ltd	Engines	0	0.21
34	Kotak Mahindra Bank Ltd	Finance	0	0.35
35	Larsen & Toubro Ltd	Diversify-Mega	0	5.07
36	Mundra Port & SEZ Ltd	Miscellaneous	0	0.62
37	Nagarjuna Construction Company Ltd	Construction	0	0.88
38	National Thermal Power Corporation Ltd	Power Generation	0	0.86
39	Patel Engineering Ltd	Construction	0	1.89
40	Reliance Industries Ltd	Diversify-Mega	0	7.61
41	Siemens Ltd	Electronic-Comp.	0	0.37
42	State Bank of India	Banks-Pub Sector	0	0.05
43	Steel Authority of India Ltd	Steel - Large	0	3.27
44	Sterlite Industries (India) Ltd	Mining/Miner/Met	0	2.45
45	Tata Communications Ltd.	Telecom - Services	0	0.74
46	Tata Power Company Ltd	Power Generation	0	2.04
47	Techno Electric & Engineering Company Ltd	Electric Equip	0	0.46
48	UN LISTED	Un Listed Scripts	0	1.7
49	Usha Martin Ltd	Cables-Telephone	0	1.02
50	Voltas Ltd	Diversify-Mega	0	0.67
51	Welspun Gujarat Stahl Rohren Ltd	Steel -Med/Small	0	0.16
Total:				100

 

 

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