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What is FTF?
FTFs are debt schemes, where corpus is invested in fixed income securities, with different maturities ranging one month to five years. These are Close Ended Debt oriented mutual fund schemes.
What is the objective of FTF?
FTF seeks to generate regular income and / or capital appreciation by investing in wide range of debt and money market instruments. FTFs invest in a portfolio of securities normally having maturity duration in line with the maturity duration of the respective plan.
Why risk in FTFs is low?
There are two types of risk involved:
1. Credit Risk: It invests in AAA and AA debt securities. The risk is very low and diversified. Hence, the credit risk is very low.
2. Interest Rate Risk: The underlying debt instruments have the same maturity as the respective FTF. Hence, there is no buying and selling of the debt instruments which effectively mitigates the interest rate risk.
Why Invest in FTF?
• Less risky: Less risk of capital loss than equity funds as investment is in debt and money market instruments.
• Tax advantage: Being a debt-based scheme, dividend are tax free in the hands of investors, mutual fund has to pay Dividend Distribution Tax (DDT), while bank Fixed Deposits interest is fully taxable in investor's hands.
• Double indexation: Hold an investment for a little more than one year but get the benefit of the index multiple of two years.
• Low interest rate sensitivity: As securities are held till maturity, FTFs are not affected by interest rate volatility.
What is the tax liability on FTFs?
• The dividend from FTF is tax free in the hands of an individual investor.
• Redemption of investment held for less than a year will be short term gains and added to the investor's income and taxed at the investor's income tax slab rate.
• If investment is held for more than a year, investor has to pay either 10% capital gain tax without indexation or 20% with indexation.
How FTFs are better than Fixed Deposits?
• Fixed deposits are the closest and the most traditional investment avenue when it comes to comparison with FTFs.
• Since FTFs are mutual fund schemes, returns are not guaranteed.
• FTFs provide higher transparency and liquidity compare to Bank FD.
Investor Need At This Hour
• In the current market scenario wherein along with the country's growth, inflation is also moving northwards, a product that provides a hedge against inflation maintaining a prudent risk return balance is of paramount importance.
• Given that the current rise in short to medium tenor bond yields due to tight liquidity conditions and rate hikes by RBI, a product is required which captures these high yields with expectation of better bond scenario going forward on improving market conditions.
• Given the strong domestic growth environment, the medium term outlook is encouraging. In the near term, international events do create volatility, which could throw up opportunities to create high quality long term portfolios.
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Small Cap Funds
Small cap stocks, for the purpose of the fund are defined as stocks whose market capitalization is in between the highest & lowest market capitalization of companies on BSE Small Cap Index
Current Scenario
• In today's economic environment, individuals with entrepreneurial mindset are exploring new business opportunities that will not only survive in a recession but will also thrive
• Emerging India is offering various growth opportunities to entrepreneurs, be it first generation entrepreneur or otherwise
• In a developing economy like India, multiple sectors provide opportunities for growth.
• Emerging sectors are true reflection of entrepreneurial spirit, new opportunities and creation of global behemoths.
• These funds invest in the companies with high growth potential.
• Small cap companies have a consortium of educated and passionate management.
• Their niche focus and ability to attract talent in form of quasi entrepreneurs and stock options.
• Small caps are potential large caps of tomorrow because of their twin benefits of high growth prospects & relatively under valuation.
• Small caps are relatively under researched, under owned and undervalued as compared to large caps, thus providing an opportunity to be re-rated.
Small Cap Classification
• There is no scientific methodology to classify Large Caps, Mid Caps and Small Caps but there are pre-defined indices on BSE & NSE.
• Mentioned below is the categorization of the same on the basis of market capitalization as on August 2010.
The Indian Small Cap Opportunity
• 4300+ Cos. listed on Bombay Stock Exchange
• 1383 Cos. with Market Capitalization of over Rs 100 Cr
• 1065 Cos. with Market Capitalization of over Rs 200 Cr
• 664 Cos. with a Sales Turnover of over Rs. 200 Cr
• 613 Cos. with an Operating Profits over Rs 25 Cr
• 548 Cos. with net profits of over Rs 10 Cr
Risk Profile for Small Cap Funds
• Long Term Investment Horizon
• High Risk/High return
• These funds aim at creating alpha for the investors
·Fixed Maturity Plans (FMPs) are closed-ended debt funds with maturity of one month to five years.
·Fixed Maturity Plan generates regular income and / or capital appreciation by investing in wide range of debt and money market instruments.
·In Fixed Maturity Plan, each plan under the scheme will invest in a portfolio of securities normally having maturity duration in line with the maturity duration of the respective plan.
·They invest in debt instruments such as certificate of deposits, commercial paper and corporate debentures with a maturity coinciding with that of the fund.
·They usually invest in credit worthy instruments (AAA or equivalent rated) which takes care of credit risk.
·The objective of fund managers is to lock into a certain rate of return on the assets at inception, thereby protecting the schemes against market fluctuations.
·FMPs can be described as the mutual fund industry's alternative to fixed deposits.
·FMPs are a good investment vehicle for investors who are targeting a return on their investments over a fixed period of time and are indifferent to market volatility within that period.
·Capital protection advantage: Less risk of capital loss than equity funds as investment is in debt and money market instruments.
·Tax advantage: Being a debt-based scheme, dividend are tax free in the hands of investors, mutual fund has to pay Dividend Distribution Tax (DDT), while bank Fixed Deposits interest is fully taxable in investor's hands.
·Double indexation: Hold an investment for a little more than one year but get the benefit of the index multiple of two years.
·Low interest rate sensitivity: As securities are held till maturity, FMPs are not affected by interest rate volatility.
Why Invest now in FMPs
·Uncertain interest rate scenarios, FMP are better investment option compared to Bank fixed deposits.
·Debt Funds are exposed to interest rate, liquidity & credit Risk while FMPs are exposed to credit risk only which is taken care by investing in high Quality Papers.
Scheme Snapshot
• Inception: 1st January 1995
• Type: Open Ended Scheme
• Corpus: 6734.63 crores (30th June 2010)
• Fund Manager: Mr. Prashant Jain / Mr. Anand Laddha
• Benchmark Index: CNX500
• Minimum Investment: Rs. 5000
• Entry / Exit Load: NIL / Max. 1%
• Latest NAV: 267.05 (4th August 2010)
• 52 Week High / Low: 267.07 (3rd August 2010) /179 (10th August 2009)
• Asset Allocation (% of Net Asset)
Equity Exposure: 99.47%
Cash & Equivalent Exposure: 0.53 %
• Market Capitalisation (% of Net Asset)
Large Cap Stocks:79.45%
Mid / Small Cap Stocks: 16.18% / 3.39%
• Key Ratios*
Expense Ratio: 1.81
Portfolio Turnover: 60.3%
Standard Deviation / Beta: 0.51 / 1.09
Correlation: 0.98
Sharpe / Jensen: 0.43 / 6.39
Key Fund Analysis
• Market Cap Focus: Over the past one year the fund manager has increased the exposure to large cap stocks (70.15%) & small cap stocks (2.98%) and reduced the exposure to mid caps stocks (23.9%).
• Sector Focus: Fund Manager has maintained high exposure as well as reduced the exposure in sectors like Banks 18.89%, Pharma 13.23% and Software & Consultancy Services 9.33% over past 1 year.
• Company Focus: Fund Manager has maintained exposure of 6.81% in ICICI Bank, 4.62% in SBI and 4.07% in ONGC over last 1 year.
• Cash & Cash Equivalent exposure has reduced considerably from 2.97% over last 1 year.
Fund Analysis
• The scheme has 99.47% Equity exposure and 0.53% Cash & Equivalent exposure.
• It has the highest exposure to sectors like Banks, Petroleum, Gas & Petrochemical products and Pharmaceuticals.
• The Top 3 holdings in sector, account for 43% of the total net assets.
• The Top 10 holdings account for 39.17% of the total net assets, with highest exposure to SBI and ONGC 7.52% and 6.67% respectively.
• The scheme has consistently outperformed its benchmark index since inception.
• Being a large cap scheme, it has the highest exposure in large cap but at the same time it has exposure to mid and small cap creating a good balance of risk and return.
• High risk adjusted returns which are indicated from the positive Sharpe Ratio
• Positive Jensen Ratio shows Superior Stock Instruments Selection by Fund Manager
What is Hybrid Fund?
Hybrid Fund is a mutual fund scheme that invests in a mix of equity and debt which can vary proportionally over time or remain fixed with the objective of conserving the principal, providing regular income, and achieving long-term growth.
Why Hybrid Fund in Current Market Scenario
Equity Side
• Hybrid funds invest 30-40% in equities.
• These funds invest in equities of those companies which have strong and sustainable growth potential.
• Equity provides capital appreciation and long term wealth creation.
• Equity exposure provides long term growth.
• In the current low interest rate regime, equity becomes an attractive investment avenue.
• These factors indicate the high returns potentials of Equity investments.
Debt Side
• These funds invest 30-40% in debt.
• Hybrid Funds invest in high credit quality debt instruments.
• They invest in corporate bonds, gilt and money market instruments.
• Debt provides capital protection and stable returns.
• Debt instruments carry low risk compared to stocks, thereby balancing the risk of the fund.
• These Factors show that the debt markets have the potential to provide stable returns.
Gold
• Exposure of these funds towards gold is 20-30%.
• Gold is purchased for jewellary and industrial uses.
• It is an investment as well as a substitute for currency.
• Gold demand has sustained due to risk averse investors and low interest rate.
• Gold acts as the best hedge at the time of bearish equity market due to negative correlation with stocks
• It is the best hedge during financial instability.
Hybrid Funds should form a vital part of Investor's MF Portfolio
• They have performed not only in short term, but also in long term despite the global turmoil in Equities Markets.
• The debt portion takes care of short term volatility as well provides stable returns to the portfolio.
• These funds seek the best of equity, debt and gold by investing in equities, fixed income instruments and gold.
• It includes the power of equities, stability of debt market instruments and hedging against market volatility via gold.
• Ideal for all sorts of investors as part of asset allocation.
• It's a power investment tool because of its inherent design, which allows maintaining an effective balance between debt, equity and gold.
• The best and worst performer changes year by year, but 2 out of 3 are positive in most of the years.
• Even 52% fall in stocks in 2008 was balanced by gains in bonds and gold.
An exchange-traded fund (ETF) is a type of fund whose investment objective is to achieve the same return as a particular market index. An ETF is similar to an index fund in the sense that it will primarily invest in the securities of companies that are included in a selected market index.
ETF Asset Classes
ETFs can be of the following underlying asset classes
1. Equity: ETFs investing in Equity Indices e.g. Nifty BeEs
2. Bonds : ETFs that invest in Debt e.g. Liquid BeEs
3. Commodities: ETFs that invest in Commodities e.g. Gold ETFs
Features of ETFs
• Immediate exposure to an entire or specific market.
• Correlation to the benchmark close to 1.
• Very low total expense ratio: 0.45% on average.
• No subscription/redemption fee.
• No maturity date.
• Equally accessible both to institutional and retail investors.
• Broad range of asset classes.
Advantages of ETFs
• Allows you to implement asset allocation or portfolio investment decision as Single Investment which is,
• Easier to track.
• Small Investment amount.
• Asset Classes are much simpler to track than individual stocks since you do not have to worry about,
• Quality of management.
• Accounting frauds.
• Off Balance sheet derivative losses.
• Individual Credit Quality.
• High quality and well diversified portfolio.
• Generates income from frozen account.
Gold Exchange Traded Funds-ETFs
• Open-ended MF schemes backed by units of physical gold.
• Follow a passive investment strategy.
• Buys & holds gold on behalf of investors without actively managing it.
• Aims to give returns as close as possible, post-expenses, to that given for gold as a commodity.
• Investor can buy & sell quickly at market price, making them highly liquid assets.
• Intra-day trading is possible with an ETF, but not with open-ended mutual funds.
Current Scenario - Diversification with Gold
• Hedge against inflation.
• Hedge against a declining dollar: Strong Negative Correlation.
• Safe haven in times of geopolitical and financial market instability.
• Commodity based on gold's supply and demand fundamentals.
• Store of value.
• Portfolio diversifier; gold can act as portfolio insurance.
• Due to rise in demand of gold, gold prices have increased thus causing a rally in stocks of gold mining companies.
• Due to lower inflation & deflation the input costs have come down thereby providing operating cash flows.
• Share prices of gold mining companies appreciate at twice the gold price.
• Since there is a negative correlation between the equity markets and gold it can act as hedge against the down fall in equity markets.
Advantages Gold ETFs
• ETFs allow investment in gold in small denominations, which makes it easier for the retail investor to participate.
• Quick and convenient dealing through demat account.
• No storage and security issue for investors.
• Taxation of Mutual Fund.
• Can be traded on stock exchange like buying / selling a stock.
Index Funds
• An Index fund follows a passive investing strategy called indexing.
• It usually holds stock in the same proportion as that in the represented index.
• It doesn't aim to outperform the index but tries to replicate the performance of the benchmarked index.
Advantages of Index Funds
Low Risk
Index funds track a broad index, which is less volatile than specific stocks or sectors, thereby lessening the risk for investors.
Low Costs
Lower transaction costs and fewer expenses make index funds cheaper than the actively managed funds. Generally the expense ratio of index funds ranges from 0.5% to 1.5% compared with up to 2.5% in diversified funds.
Simplicity
The investment objectives of index funds are easy to understand. Once an investor knows the target index of an index fund, what securities the index fund will hold can be determined directly.
No change in investment style
Actively managed funds may drift from the style of investing described by them, which may increase the risk. With index funds this drift is not possible and accurate diversification of a portfolio is maintained.
Indexing is considered as Passive investment strategy, as it involves replicating the investment pattern and returns of a broad market index.
Index Funds-Passive Management style
Passive Management: A fund manager simply invests in the stocks constituted in an index, in the same proportion as they are present in the index. His goal is to ensure that the fund mirrors the performance of the index.
Active Management: A fund manager uses his knowledge and expertise to select a portfolio of stocks in lines with the investment objective of the scheme to get higher returns than the benchmark. He then regularly tracks the portfolio and churns stocks, if necessary.
Key Analysis
• An analysis of 5 year returns of various equity oriented schemes shows that, though the returns from actively managed schemes are higher, their downside risk is also high.
• Index funds on the other hand, though has given comparatively lower returns, their returns have been consistent and less volatile.
• Index funds should form a vital part of investor's portfolio. In India, index funds are generally open ended mutual fund schemes that aim to replicate / track the movement of the target index.
The following indices are generally replicated through index funds:
• BSE Sensex
• S&P CNX Nifty
• S&P CNX 500
ICICI Mutual Fund has Launched Nifty Junior Index Fund
• An open-ended index fund.
• Seeking to achieve the returns of the CNX Nifty Junior.
• CNX lNifty Junior is a higher risk, higher return index compared to S&P CNX Nifty.
In current market conditions where investors are worried about the erosion of their portfolio, they need an investment avenue which gives them Market Neutral returns (Returns which are not correlated to the markets). One such avenue is Arbitrage Funds.
Arbitrage is basically buying in one market and simultaneously selling in another, profiting from a temporary price difference.
Why Arbitrage Funds Now?
• There are enough arbitrage opportunities available in the market due to intra-day upswings and downswings in current volatile market.
• The outlook is quite good for these funds in the coming months as markets are expected to remain volatile.
USPs of Arbitrage Funds
• No Entry Load
• Target returns higher than Liquid funds
• Tax efficiency of an equity or debt oriented scheme
• Provides portfolio diversification & market neutral return
Inception: 27th May 1999
Type: Open Ended Balanced Fund
Corpus: Rs. 678.31Crs (30-Apr-10)
Fund Manager: Apoorva Shah
Benchmark: Crisil Balanced Fund Index
Minimum Investment: Rs. 5000
Entry Load: Nil
Exit Load: Max 1.00 %
Latest NAV: Rs. 60.44 (03-June-2010)
52 Week High: Rs. 61.61 (30-Apr-10)
52 Week Low: Rs. 45.71 (13-Jul-09)
Asset Allocation (% of Net Asset)
Equity : 72.66 %
Debt : 20.99 %
Cash & Cash Equivalents: 6.34 %
Key Ratios
Expense Ratio: 2.04 (30-Apr-10)
Standard Deviation: 1.28
Sharpe: 0.0307
Jensen: 0.0393
Average Maturity: 314 Days
Scheme Objective: Seeks to generate long term capital appreciation and current income from a portfolio constituted of equity and equity related securities as well as fixed income securities.
Fund Analysis: Currently the scheme has 72% Equity exposure and 20% in Debt and holds 6.34% in cash & cash equivalents. It has highest exposure to sectors like Petroleum & Gas 10%, Banks 12% and Pharma 6%.Its current exposure to companies is high in SBI, Infosys & LIC Housing. The Scheme has outperformed its benchmark index. Currently fund has 43% exposure to large cap, 27% to midcap and minimal exposure in small cap stocks. On Equity side fund manager has maintained a good mix of Large & Mid stocks and Debt side focused on high credit quality and low to medium maturity papers to balance risk and returns.
• High risk adjusted returns which are indicated from a positive Sharpe Ratio.
• Positive Jensen Ratio shows Superior Stock, Debt and Money market Instruments selection by Fund Manager.
• Investment analysis indicates that the scheme has created wealth for investors.
Ideal for Investors
With volatility in debt market expected and equity market also trading at fair value, exposure to balanced funds is a better option. Balanced funds have more than 65% invested into equities. Hence, they offer tax savings as any capital gain over a one year period becomes tax free.
• Investment Horizon - Long Term
• Risk Appetite - Medium
Key Fund Analysis
• Market Cap Focus: Over the past one year the fund manager has maintained average holding of 42% in large cap, 26% in mid cap and 1.87% in small cap stocks.
• Sector Focus: Over past one year, fund manager has maintained high average exposure to sectors like Petroleum & Gas 12%, Banks 8% and HFC 7.37%
• Company Focus: Fund manager has maintained average exposure to companies like LIC Housing Finance 4.98%, 2.66% in Reliance Industries Ltd and 2.47% in SBI Ltd. over the past one year.
• Debt Focus: It has maintained average debt exposure of around 14.95% in last one year and focused on high credit quality papers with rating of AAA, AA+ and Sovereign.
• Cash & Cash Equivalent: The average exposure over the past one year has been around 13.23%.
It is an open-end debt scheme having a primary objective to generate income from a portfolio constituted of debt & money market securities along with investments in Gold ETFs.
Type of Scheme:
Open-end debt scheme
Bench Mark Index:
CRISIL Short Term Bond Fund Index + Price of Gold (neutral allocation: 65:35)
Minimum Investment:
Minimum of Rs. 5,000/- and in multiples of Rs. 1/- thereafter
Entry load/Exit Load
Entry Load: Nil
Exit Load: 1% if redeemed / switched - out within 1 year from the date of allotment
Plans: Growth, Quarterly Dividend Payout
Options: Quarterly Dividend Re-investment
Fund Manager: Mr. Ritesh Jain
Indian Fixed Income Market
·Rising Short Term Rates: The recent rate hikes and CRR hikes has led to short term rates climbing 50 bps on an average in the last 2 months. Further rate action would lead to yields climbing up going forward.
·Accrual Strategy: Given the current market volatility, a rising interest rate scenario makes accrual income, an ideal investment strategy. Rising Interest rate scenario and uncertain market conditions make accrual strategy as the best investment philosophy in current market scenario.
Gold as an Investment Asset Class
Rising Demand
·Accelerating Investment Demand: Increase in monetary base globally leading to robust growth in Investment Demand.
·Global Currency Diversification: Weakness in US Dollar & Concerns on the Euro front has made countries shift to Gold as an alternative currency. Economic uncertainty has led to central banks world over increasing their Gold Reserves
Declining Supply
·Declining Mine Production: This leading to increment in Gold prices. Further, dearth of newer discoveries is further adding up to the Demand-Supply gap.
·Central Banks have turned net buyers of Gold: The signatories under CBGA (Central Bank Gold Agreement) have turned net buyers since the last 3 years to the tune of ~300 tonnes (as on Dec 2009)
Investment Strategy
·Investing in gold aimed at generating enhanced yield without taking additional duration risk or credit risk.
·By effectively capturing the seasonal patterns in Gold, the fund aims to generate alpha.
·Fixed Income to provide accrual income and Gold to provide capital appreciation.
Unique characteristics of the Fund
·Fund provides investors with the option of investing in Gold and Fixed Income instrument in a single portfolio.
·Unique combination of Fixed Income and Gold providing accrual income and capital appreciation in one fund.
·The Fund aims to provide enhanced yield without additional Duration / Credit risk.
·Capturing the seasonal patterns in Gold by active asset management.
·Ideal for investors without demat a/c to invest in a Gold based fund.
·A gold based fund which aims to provide regular flow of income to its investors via a quarterly dividend option.
Please note that declaration of dividend is subject to availability of distributable surplus and there is no assurance of dividend being declared every quarter.
Ideal for investors
·Investors looking for diversification in their Debt portfolio through Gold as an Asset Class.
NFO Date: 17th May to 14th June 2010
Fund Features
Scheme Objective: To provide investors with opportunities for long-term growth in capital along with the liquidity of an open-ended scheme through an active management of investments in a diversified basket of equity stocks of domestic Public Sector Undertakings and in debt and money market instruments issued by PSUs and others.
Type of Scheme: An Open ended Equity Scheme
Bench Mark Index: BSE PSU index
Minimum Investment: Minimum of Rs. 5,000/- and in multiples of Rs. 1/- thereafter
Entry load/Exit Load: Entry Load- Nil
Exit Load-Exit within 3 years from the date of allotment - 1 %, Exit after 3 years - Nil
Plans/Options
Plans: Dividend and Growth Plan
Options: Dividend Payout and Reinvestment option
Fund Manager: Mr.Rama Iyer Srinivasan
Why invest in PSU Theme Now?
A Riskier World
• Substantial Increase in Public Debt
• The Euro Crisis
• Financial Sector Deleveraging
The India Story
• Strong Domestic Economy
• Demographics
• Incremental Flows
PSUs offer Better Risk-Return Trade Off
• PSUs are wealth creators of the nation, with strong fundamentals and are available at attractive valuations compared to broader markets.
• There may arise several disinvestment opportunities too which shall lead to unlocking of value in these companies.
Key Analysis:
• The BSE PSU index has consistently outperformed the other broad market indices by substantial margin.
• In phases of economic downturn while other indices have given negative returns BSE PSU index has given positive returns to the extent of 8% CAGR.
• The primary strategy would be to invest in the stocks of PSU companies.
• Endeavors to identify market opportunities & achieve sufficient diversification.
• Control liquidity risks and non-systematic risks by selecting well researched stocks with long & mid-term growth prospects for stability and possibility of returns.
• Investment in equities would be through primary & secondary market, private placement / QIP, preferential/firm allotments or any other mode as may be prescribed/ available.
Fund Manager Profile
NAME: Rama Iyer Srinivasan
EDUCATIONAL QUALIFICATION: M.Com, MFM
EXPERIENCE: Future Capital Holding - Head - Portfolio Management
Ideal for investors
• Interested in long term value unlocking in PSUs.
• Looking for diversification in their portfolio.
• Investment Horizon:- Long Term
• Risk Appetite:- High
Sectors which have been focus of Government Reforms
The government focused on some key areas of the economy and started reforms to benefit the overall economy.
·Telecommunication: New Telecom Policy was introduced, opening the sector to private participants transforming India's telecom sector as one of the largest and the fastest growing telecom markets in the world.
·Roads: Road projects have improved connectivity, in turn opening up various business opportunities, simulating consumption, production and need for more better infrastructure.
·Power: Reforms like FDI in power generation, 5 year tax holiday and assured returns on investment, opening up for private, Electricity ACT 2003 etc, led to improved efficiency and opportunities.
·Banking & Financial Service: Opening up for private players, allowing nationalized banks to offer up to 49% of equity to public, introduction of Prime lending Rates & removal lending rate controls, raising of FDI Limits of Private banks to 74%, led to an increased competition thus increasing penetration and efficiency.
·Tax reforms: Introduction of VAT simplified taxes, increased Tax revenues and compliance. Further if GST (Goods and Services Tax) is introduced it will lead to increased output and productivity, and also contribute significantly to national income and GDP leading to higher tax compliance and ultimately lower effective tax rates.
Indian Economic Growth Trend
·The Healthy growth rate of the economy in the terms of GDP over the years shows that the Government reforms in the important areas of the economy have helped it to maintain its resilience.
·In order to maintain its growth potential the economy will require support from its key sectors, thus reforms and increased spending in these key sectors will be of high importance.
·Thus there will be a large number of companies that will benefit from the government's significant outlay.
Reforms and increased Government spending presents Long Term Investment Opportunities.
Sectors in Focus for Reforms
·Banking & Financial Services.
·Physical Infrastructure
·Power
·Education
·PSU Divestment
·Oil & Gas
·Fertilizer Sector
·Retail
·Telecom
·These sectors are of prime importance for the growth of any country's economy and currently Indian Government is taking progressive measures for their development.
·Thus these sectors currently present long term investment opportunities.
Favorable environment for Reforms
·The environment for the reforms is conducive with a strong pro-reform Government at the center and little dependence on allies, the stage is set for some major reforms to be carried out.
·Better capital availability: More foreign and private capital with higher political visibility and better prospects of long-term growth
·Strong infra focus: Higher spend on physical infra to achieve sustained 9% growth
·Containment of deficit: Disinvestment, free pricing mechanism, alternate sources, of finance, eg. 3G spectrum
·Better governance: Better execution, appointment of technocrats to head initiatives (e.g., Nandan Nilekani for UIN)
·Inclusive growth: Continued focus on rural and human infra to make growth more inclusive.
Invest in companies likely to benefit from India's Economic Reforms
·Governments' Focus on the sectors for reforms changes according to the need of the economy.
·Thus you should invest in those sectors which are fully supported by the government, for long term growth potential.
·Ideally an investment theme which concentrates on such sectors which have growth potential supported by government will be a good avenue for portfolio diversification.
The healthy growth rate of the economy which is maintained over the years shows its resilience and its great long term potential.
Equity Market Scenario
·The Indian economy is expected to grow at 7.2% in FY10 and 8% plus levels in FY11.
·Recent Growth driven by higher government spending, increased private consumption and investment.
·From close to 0.6% in April'09, industrial production has grown to 15% in Feb'10 due domestic recovery, inventory restocking and fiscal stimulus.
·In coming months good IIP numbers are expected on lower base and revival of domestic demand.
Debt Market Scenario
·The government has begun withdrawing most of the policy measures announced during the global credit crisis. This can be reflected in the following,
-Hike in SLR by 100 bps in Oct 2009 and CRR ratio by 75 bps in Jan 2010.
-RBI raised key policy rates - repo and reverse repo by 50bps since March.
·It is expected that the process of monetary normalization will continue in coming months to contain inflation.
·Credit growth which was at 10% in Oct'09 has now improved to 17% by March'10 end.
·Deposit growth has been coming down and is now presently at 17% by Mar 10 from 22% in Apr 09.
·Money Supply is also down to 17% from 20% at the start of financial year.
Opportunity in both the Markets
Debt Market:
·The short to medium tenor of the yield curve is still steep and offers value in terms of roll down effect and higher accrual in rising interest rate scenario.
·Inflation is expected to remain high in coming months and thereafter come down slowly on base effect.
·Government is slowly withdrawing the stimulus to contain inflation.
·This gives an excellent opportunity to enter the debt markets to lock-in long term gains.
·India is among the few economies globally which continues to deliver strong broad based growth on a large scale.
·Industrial production, which was major growth-driver in FY10, is likely to grow at close to double-digit in FY11.
·Markets are currently in the phase of consolidation after a sharp rise in the last 12 months.
·Thus this will present an opportunity to enter the equity markets to create a strong portfolio.
What should be the Investment strategy?
·Ideal strategy in the current scenario will be a proper asset allocation that will provide both steady returns and capital appreciation.
·Investors need an investment strategy which keeps in mind both the country's growth as well as its inflationary conditions.
·On the debt side the product should take advantage of the current high bond yields and steepness of short to medium tenor of the yield curve.
·On the equity side the product should take advantage of temporary volatility created by the international events which will give an excellent opportunity to create a good quality portfolio.
