Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. Marching on into a new financial year Greetings from FundsIndia! Two events happened during the course of the last month of the past financial year that merit mention. Let me bri efly touch upon each. Budget – I thought this y ear’s budget was an insipid exercise. Much was expected, but little was delivered. From a retail inves- tor’s point of view, it was a mixed bag. The tax exemption for upto Rs. 10,000 in savings bank interest was possibly the best news of the lot. The income tax slab changes were too minor to be material, and the DTC was postponed allowing ELSS funds a reprieve for another year. It was distressing to note that tax-exempt infra bonds will probably become a thing of past now. The raise in indirect taxation (a relic of ‘80s style of budgets) will mean inflationary pressure on the economy and that will likely make RBI wary in terms of bringing down rates. However, all said, we are talking about the Indian economy and we’ll find a way to march on, hopefully. Fidelity’s exit – The financial year ended with the news about the decision by Fidelity mutual fund to sell their AMC business to L&T finance. Fidel- ity have been good stewards of funds under their management, and it would be sad to see them go. There have been quite a few queries from inves- tors regarding what to do with their Fidelity investments. At this time we are counselling patience, but we are well aware that such a move – where fund management as well as institutions change hands – is cause for reviewing your investments in the schemes. I think Uma Shashikant summed it up best i n her Economic Times column, where she wrote, “The communication from L&T Mutual Fund to investors will specifically indicate which fund will be merged into which one, what the new names will be, and which funds may be closed . Investors in the Fidelity's sc hemes should ideally await for th at communication before deciding on th e exit option. Most errors in fund selection are made when investors exit and enter funds in haste and with limited information. Sale of an AMC i s a major event, but it should trigger caution, not panic.” In other news, in this issue of the news letter, we are debuting two new features: A regular equity advisory column by B. Krishnakumar – Krishn a is an equity analysis pro who has had long and proficient stints in Busines s Line, Dow Jones, and Bloomberg prior to joining Team FundsIndia. Every month, his column will review a particular market sector and recommend stocks that are worth looking at for investing. Investors will do well, hopefully, by reading and following-up on his advisory. A regular section on list of recommended mutu al funds across categories – We h ave taken a fresh approach t o identifying consistent performance funds across different fund categories and laid out our picks in this regard. We intend to publish this every month, but given our methodology, we do not expect much changes in this list on a monthly basis. This list should give a handy guide in terms of selecting funds that have stood the test of time. Happy investing! Srikanth Meenakshi CAPITAL LETTER Volume 5 April 09, 2012 Issue 03 CAPIT AL LETTER
Transcript
8/10/2019 Capital Letter April 2012 - Fundsindia.com
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
Marching on into a new financial year
Greetings from FundsIndia!
Two events happened during the course of the last month of the past financial year that merit mention. Let me briefly touchupon each.
Budget – I thought this year’s budget was an insipid exercise. Much was expected, but little was delivered. From a retail inves-tor’s point of view, it was a mixed bag. The tax exemption for upto Rs. 10,000 in savings bank interest was possibly the bestnews of the lot. The income tax slab changes were too minor to be material, and the DTC was postponed allowing ELSS funds a
reprieve for another year. It was distressing to note that tax-exempt infra bonds will probably become a thing of past now. The raise in indirecttaxation (a relic of ‘80s style of budgets) will mean inflationary pressure on the economy and that will likely make RBI wary in terms of bringingdown rates.
However, all said, we are talking about the Indian economy and we’ll find a way to march on, hopefully.
Fidelity’s exit – The financial year ended with the news about the decision by Fidelity mutual fund to sell their AMC business to L&T finance. Fidel-ity have been good stewards of funds under their management, and it would be sad to see them go. There have been quite a few queries from inves-tors regarding what to do with their Fidelity investments. At this time we are counselling patience, but we are well aware that such a move – wherefund management as well as institutions change hands – is cause for reviewing your investments in the schemes. I think Uma Shashikant summedit up best in her Economic Times column, where she wrote,
“The communication from L&T Mutual Fund to investors will specifically indicate which fund will be merged into which one, what the new names will be, and which funds may be closed. Investors in the Fidelity's schemes should ideally await for that communication before deciding on the exitoption. Most errors in fund selection are made when investors exit and enter funds in haste and with limited information. Sale of an AMC is a majorevent, but it should trigger caution, not panic.”
In other news, in this issue of the news letter, we are debuting two new features:
A regular equity advisory column by B. Krishnakumar – Krishna is an equity analysis pro who has had long and proficient stints in Business Line,Dow Jones, and Bloomberg prior to joining Team FundsIndia. Every month, his column will review a particular market sector and recommendstocks that are worth looking at for investing. Investors will do well, hopefully, by reading and following-up on his advisory. A regular section on list of recommended mutual funds across categories – We have taken a fresh approach to identifying consistent performancefunds across different fund categories and laid out our picks in this regard. We intend to publish this every month, but given our methodology, wedo not expect much changes in this list on a monthly basis. This list should give a handy guide in terms of selecting funds that have stood the test oftime.Happy investing!
Srikanth Meenakshi
CAPITAL LETTER
Volume 5 April 09, 2012 Issue 03
CAPITAL LETTER
8/10/2019 Capital Letter April 2012 - Fundsindia.com
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
The week ahead - Equity recommendationsBY B. KRISHNAKUMAR
The stock market has been largely range-bound amidst mounting concerns on the economic fundamentals. The corporate earnings season getsunderway with the dawn of April. The Reserve Bank of India’s credit policy is scheduled later this month.
Given this backdrop, there is a lot of reason to expect increased volatility in the weeks ahead. Hence, it would be advisable to trade light and avoid big bets. From a technical perspective, we maintain our stance that the Nifty is in a downward correction and could test the support at 5,050 oreven 4,900 in a worst case scenario.
Nifty has to move past the resistance at 5,500 to make us believe that the downward correction is over. Else, the path of least resistance would beon the way down.
This week, we take a look at the automotive tyre sector which has attracted market interest in the recent months. While the market leader MRFhas been a top gainer since January, others such as Apollo Tyres , Ceat and JK Tyres are also evincing buying interest recently.
Let’s take a look at the technical outlook for these stocks. Apollo Tyres gets interesting from a technical perspective once it moves above the resis-tance at Rs.87. The stock could target Rs.105 on a breakout past Rs.87. We will update the trading strategy on Apollo once it moves past Rs.87.
We turn our focus on Ceat and JK Tyres this week. A look at the daily chart of Ceat featured below indicates that the stock has registered a break-out past the down-sloping red trendline, which is a sign of strength.
The next resistance-cum-target isat Rs.120. The stock may be pur-chased with a stop loss at Rs.82, fora target of Rs.120. The uptrend would gather momentum on amove past Rs.120 and the stockcould then target the major resis-tance at Rs.130.
As far as JK Tyres is con-cerned, the stock appears tohave the potential to hit thetarget of Rs.96. A cursoryglance at the daily chart indi-cates that the price is at asupport level, which acted as
a resistance earlier.
The stock may be bought on weakness, with a stop loss at Rs.72, for a target of Rs.96. Once the resistance at Rs.96 is overhauled, the stock couldthen rally to the significant resistance at Rs.110.
Mr. B.Krishnakumar is the Head of Equity Research at FundsIndia. With extensive experience in tracking the stock market ( over 15 years) he has worked withcompanies such as ’The Hindu , Business Line’ and ’Dow Jones Newswires. He will be contributing to our monthly newsletter with his stock market outlook
which shall hold good for a month. Mr.B.Krishnakumar can be reached at [email protected]
8/10/2019 Capital Letter April 2012 - Fundsindia.com
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
Consistent PerformersBY SRIKANTH MEENAKSHI
In this page, we feature mutual fund schemes in popular categories that have stood the test of time and delivered performance consistently. Theseschemes have consistently featured in the top quartile of their category in terms of performance over multiple time periods in the past. For equityfunds and income funds, we have chosen three, five and seven year time periods for such ranking. For short term and ultra-short term funds, wehave chosen shorter time frames. Please note that in some cases, we have pruned the list for length - we have removed institutional schemes andthose that have very high initial investment amounts (in the debt side) from this list.
This list will be updated every month, although we do not anticipate significant changes on a month-on-month basis. Rankings data for this reporthas been sourced from Value Research Online.
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
No Cause for Concern
BY DHIRENDRA KUMAR
Fidelity, one of the world’ largest mutual funds, is selling its business in India and moving out of the country. Byitself, this news is not a surprise. Looking at the list of mutual funds operating in India, I can’t help notice that prac-tically every one of them has had some sort of a major upheaval in its ownership structure, the exceptions being thefew that are too young. Mergers, acquisitions, major stake sales and other restructuring are the norm rather thanthe exception. Exits out of India are also hardly uncommon. Offhand, I can recall Alliance, Threadneedle, Zurich,Sun F&C, AIG, Shinsei, Aegon, Lotus, Merril Lynch, Newton, ABN Amro, Fortis, Wellington, and Cazenove; theremay be a few more too. All these global outfits were running mutual funds in India but decided to quit at somepoint. Logically, one would expect that investors should be equanimous about such business events, but that’s notthe case. It’s hard to take a detached view when one’s money is on the line. Fidelity’s exit has produced cries of worry and protest from investors who have been tracking the news. At Value Research, we have received a flurry ofemails from investors, worried about what this means for their investments in Fidelity’s funds.
Fidelity is exiting India by selling off i ts operations to L&T Mutual Fund. L&T Mutual Fund itself is a very young name in the Indian fund industry,having been setup through L&T Finance’s acquisition of DBS Cholamandalam Mutual Fund just two years back.Mergers, acquisitions and other restructuring of asset management companies will continue. It would be good for a fund investor to understand what exactly this means for their money. There are two types of concerns that investors have regarding an AMC’s exit. One is the somewhat naive worry that arises out of hearing that an AMC is quitting India because it’s making too many losses. Some investors assume that it’s possible thattheir own money is somehow involved in these losses. Such worries crop up whenever any news of any AMC’s business problems comes up. Theanswer is straightforward—investors’ money has nothing to with the AMC’s business. The country’s mutual fund regulations take complete care ofthe fact the AMC’s finances and business is completely isolated from investors’ funds. They are held in a separate account.
The AMC manages the money and gets a fee for doing so out of the funds. This fee is deducted out of investors’ funds but its quantum is strictlyregulated. Its usage too is strictly regulated. For example, not only is there complete isolation between the AMC’s money and investors’ money in amutual fund, there’s complete isolation between different mutual funds run by the same AMC. Whether it makes profits or losses out of that fee isthe AMC’s own problem, not the investor’s. It’s entirely possible for an AMC to invest a lot of money in its business, manage the funds well so thatinvestors make money and yet not be able to make a profit itself. In fact, this is exactly what went wrong with Fidelity. It has a number of fundsthat investors have done well by but has never made a profit itself. In fact, in seven years of operations, Fidelity has accumulated over Rs 300 croreof losses.
Having said that, these are just the legal basics of how the fund management business is organised. There’s a second source of investors’ concernsthat are much more real. These pertain to the possible change of the quality of fund management once the funds shift to a different company. Peo-ple have invested in Fidelity’s funds because of their investment track record. And that track record is the result of investments done by Fidelity’sinvestment managers, following processes that may be characteristic to the AMC. Will that change? Will L&T be as good? These are legitimateconcerns that L&T Mutual Fund has to address. One big positive for Fidelity investors is that Fidelity’s fund management team will stay on for a while. L&T has said that till it’s own equity fund management team builds up to manage the newly acquired funds, Fidelity’s managers will keepmanaging the funds. There’s no schedule stated for this although I’m sure that there must be one internally. While this is true even when just thefund manager changes within the same A MC, it’s all the more crucial when the AMC itself changes.
Which means that eventually, the fund’s investment management will change. In any kind of a management change, there’s always room for cau-tion. After the change happens, investors have to watch out for a decline in the fund’s performance.
However, this does not mean that there’s any reason for panic. At this point in time, investors should continue with their investments. If they haveany SIPs going in Fidelity, there’s no reason to discontinue those either. Disruptions can mean paying L&T Finance has paid about Rs 600 crore toacquire Fidelity’s business. This investment makes sense only if it can build upon the performance and existing investor base of these funds togrow its business. The current revenue stream from the Rs 8,000 crore of assets that L&T gets as part of the deal is certainly not enough to justifythe price tag. For L&T, this is a high stakes investment. It leapfrogs the company from the also-ran status that it inherited from DBS Chola to apotentially serious player in the industry. While L&T is a big business, it’s a brand only in business circles. It has no consumer product and is notknown to a large mass of people. The only way it can leverage the money i t’s spending is to ensure that investors have a profitable experience fromkeeping the faith and continuing with their Fidelity investments under the new L&T name.
-Syndicated from Value Research Online Article is available online at: http://www.valueresearchonline.com/story/h2_storyview.asp?str=19601
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