Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. [A note: The markets have not been kind to investors these past weeks, and this has been uppermost in the minds of our customers. I requested Vidya Bala, our head of mutual funds research, to provide her perspective on the situation and place the events in context. Please read her take in the editorial essay below. Also, please don’t miss out on reading her broader essay later in this issue as well – Srikanth Meenak- shi] Greetings from FundsIndia! Low single-digit GDP growth, poor production numbers, tight monetary policies, depreciating rupee and more fiscal pressure – that’s what we carry forward from August. And clearly, the pressure on the current account deficit and modest GDP numbers and earnings growth expected in the September quarter only says – it gets worse before it gets better. Now that might sound gloomy on the face of it, but look at it this way: it provides you with an oppor- tunity, perhaps one that you did not have in 2008, to strike it rich during a gloom. Yes, volatile equi- ty markets can be your best friend if you are a long term investor. SIPs continued in the whole of 2008 reaped rich harvest, just a quarter after the market bottomed out in March 2009. This was true of SIPs not stopped in the down market of 2011 and carried through the up-market of 2012. Our article ‘FAQs on investing in the current volatile market’ will provide you will some cues on what strategies you can use and when not to get swayed away by market-favourite investing strategies. Losing sight of the opportunity and moving away from equity would simply result in mismatch in your asset allocation. For those starting to invest, If you have set your eyes on long-term wealth building for your goals, now could be a good time to enter the equity markets using the mutual fund route. Yes, market valuations are cheap for a reason, no doubt. But there are always compa- nies that bounce back in style because their fundamentals are sound otherwise. So if you view the current market as a discount sale of some premium brand, then you know there is value in the offering. After all, as Warren Buffett’s saying goes “the time to get interested in stocks is when no one else is”. Happy Investing! 06—Sep—2013 Volume 6, Issue 09 Inside this issue: Markets—What’s happening and what to do—Vidya Bala 1 FAQs on investing in the current vola- tile market - Vidya Bala 2 Equity Recommen- dations - B. Krishna Kumar 4 Financial Planning Education Series 6 Equity investing – why it pays to go global—ICICI Pru- dential AMC 7 Markets – What’s happening, and what to do Vidya Bala
Transcript
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
[A note: The markets have not been kind to investors these past weeks, and this has
been uppermost in the minds of our customers. I requested Vidya Bala, our head of
mutual funds research, to provide her perspective on the situation and place the
events in context. Please read her take in the editorial essay below. Also, please don’t
miss out on reading her broader essay later in this issue as well – Srikanth Meenak-
shi]
Greetings from FundsIndia!
Low single-digit GDP growth, poor production numbers, tight monetary policies,
depreciating rupee and more fiscal pressure – that’s what we carry forward from
August. And clearly, the pressure on the current account deficit and modest GDP
numbers and earnings growth expected in the September quarter only says – it gets
worse before it gets better.
Now that might sound gloomy on the face of it, but look at it this way: it provides you with an oppor-
tunity, perhaps one that you did not have in 2008, to strike it rich during a gloom. Yes, volatile equi-
ty markets can be your best friend if you are a long term investor. SIPs continued in the whole of
2008 reaped rich harvest, just a quarter after the market bottomed out in March 2009. This was
true of SIPs not stopped in the down market of 2011 and carried through the up-market of 2012.
Our article ‘FAQs on investing in the current volatile market’ will provide you will some cues on what strategies you can use and when
not to get swayed away by market-favourite investing strategies.
Losing sight of the opportunity and moving away from equity would simply result in mismatch in your asset allocation.
For those starting to invest, If you have set your eyes on long-term wealth building for your goals, now could be a good time to enter
the equity markets using the mutual fund route. Yes, market valuations are cheap for a reason, no doubt. But there are always compa-
nies that bounce back in style because their fundamentals are sound otherwise. So if you view the current market as a discount sale of
some premium brand, then you know there is value in the offering. After all, as Warren Buffett’s saying goes “the time to get interested
in stocks is when no one else is”.
Happy Investing!
06—Sep—2013
Volume 6, Issue 09
Inside this issue:
Markets—What ’s happening and what to do—Vidya Bala
1
FAQs on invest ing in the current vola-t i le market - Vidya Bala
2
Equity Recommen-dations - B . Krishna Kumar
4
F inancial Planning Educat ion Ser ies
6
Equity invest ing – why it pays to go g lobal—ICICI Pru-dential AMC
7
Markets – What’s happening, and what to do
Vidya Bala
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
With equity markets in turmoil, you may have plenty of questions on what to do with your equity portfolio and whether you could look
at strategies to make your portfolio returns look better. In this article, we attempt to provide answers to some of your frequently asked
questions:
My SIPs are sporting terrible returns. Should I stop them?
Stopping your SIPs in a market downturn could be the worst thing you can do to your portfolio. By not allowing your fund to average
during the falls, you cannot expect it to deliver returns when the bounce back happens.
Just to illustrate, take a look at the NAVs of Franklin India Bluechip in 2008. Had you simply continued the SIPs, in no time would
you have seen a bounce back in your portfolio (with an annualized return of 27%), the next year.
In the same example, had you stopped your SIPs say in June 2008, then your returns as of June 2009 would have been a sad -4.9%!
This is for a less volatile fund like Franklin India Bluechip. You would actually average much more in a fund that is more volatile.
So long as your fund choice is good, keep your SIPs chugging. But use the opportunity to sell some laggards too. Prolonged down mar-
kets will clearly differentiate the stable performers from the laggards.
Should I invest as lump sum now, as the market is falling?
If you have enough surplus and have a 5-year view then it may not be a bad idea to invest in lump sum in the equity market. But then
what if the markets fall another 10-15% from here? That’s where using triggers helps you invest in a staggered manner.
Franklin India Bluechip
NAV DATE NAV (Rs) SCHEME UNITS SIP (Rs 1000)
01-Jan-08 193.8282 5.1592 -1000
01-Feb-08 169.731 5.8917 -1000
03-Mar-08 156.1249 6.4051 -1000
01-Apr-08 145.8057 6.8584 -1000
02-May-08 160.7478 6.2209 -1000
02-Jun-08 150.3004 6.6533 -1000
01-Jul-08 121.1644 8.2532 -1000
01-Aug-08 136.1852 7.3429 -1000
01-Sep-08 138.1573 7.2381 -1000
01-Oct-08 129.6204 7.7148 -1000
03-Nov-08 105.1351 9.5116 -1000
01-Dec-08 92.7931 10.7767 -1000
01-Jan-09 102.4124 9.7644 -1000
02-Feb-09 94.8182 10.5465 -1000
02-Mar-09 91.0156 10.9871 -1000
01-Apr-09 103.0514 9.7039 -1000
04-May-09 123.4058 8.1033 -1000
01-Jun-09 148.2212 6.7467 -1000
30-Jun-09 151.4629 143.8778 21792.15
Yield 26.70%
Page 2 Volume 6, Issue 09
FAQs on investing in the current volatile market
Vidya Bala — Head, Mutual Fund Research at FundsIndia
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
Consider splitting your surplus into 3 parts and set your own triggers in your FundsIndia account to invest them. Read our article
Should you wait for the economy to bottom before you invest? to build yourself a strategy to invest.
But ensure you do not go on averaging indefinitely if the market fall is prolonged. Set aside a surplus and be done with the staggered
investment. With a 5-year view, it does not matter if you do not bottom fish, till the very bottom that is.
The markets are swinging every day. Will daily SIPs work better for me than monthly SIPs?
If you are a long-term investor, you really don’t need a daily SIP. Over longer periods of 5 years or so, IRR from daily SIPs in equity
funds have actually shown to be lower than monthly SIPs.
That said, if you have enough cash and wish to capitalise on every single fluctuation, then using daily SIPs for short spurts, say for 3-6
months, during volatile markets can be one strategy.
During 2008, daily SIPs done for about 6 months or so, actually delivered marginally higher returns than monthly SIPs. But the bene-
fit was lost if the daily SIP was continued for longer periods.
Also, you need enough cash (to be able to do the minimum investment every single day) for this and should also make sure that you
switch to monthly SIPs, once such volatile market is done with.
Otherwise, you will be better off simply using triggers to invest occasionally, along with regular monthly SIPs.
IT and pharma stocks are doing well despite the turbulence. Should I invest in these sector funds?
You may, only if you understand the sectors. IT and pharma sectors in India are export-oriented and have therefore benefitted from
the rupee depreciation. It is for this reason, these stocks and their sector funds have done well. Yes, with rupee continuing to be vola-
tile, these sectors may be treated as a hedge to your portfolio.
But then, they should simply be used as diversifiers (together up to 10% of your portfolio) and nothing more. Also, avoid long-term
SIPs in sector funds. There is no point averaging when a sector is in an uptrend.
When the market tide turns, chances are that the beaten down sectors will do well. By holding to much exposure to these defensive
spaces, you may miss the rest. Besides, diversified equity funds themselves have been upping their exposure to these sectors and you
are likely to get some exposure through your non-sector funds as well.
Indian economy and market is underperforming and US looks all green. Should I invest in international funds?
Just as theme funds cannot be your core portfolio, nor can international funds be. International funds offer flavours of different mar-
kets and economies and are therefore best used as diversifiers.
While the short- to medium-term returns of markets such as the US do seem captivating, remember such developed markets have not
offered more than 5-6% returns annually over a decade. Growth markets like India are likely to surpass.
Also, the current rupee’s depreciation against the dollar and other major currencies has made international fund returns look more
attractive than their real performance-based returns.
Yes, use these funds, if you must, to hold stocks/sectors that you may never get in the Indian markets. But be judicious in your expo-
sure. Also, do not forget that there could be other emerging markets, which although equally volatile like India, can deliver superior
returns compared with U.S in the long term. Hence, decide where you should place your eggs.
Vidya Bala is the Head of Mutual Fund Research at FundsIndia. She writes for our monthly newsletter on topics including mutual fund, personal
finance and equity markets. Vidya Bala can be reached at [email protected]
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
August turned out to be a quite an eventful month for the stock as well as the currency market. While the stock markets continued to drift lower, much of the damage was visible in the currency market where the Rupee almost hit the 70-mark to the US Dollar. The Rupee depre-ciated by almost 10% in August before there was some semblance of recovery towards the fag end of the month.
The economic fundamentals in the meanwhile have deteriorated further. The first quarter GDP growth was below expectations and the IIP numbers did not portray a bright picture of the economy either. Consumer price inflation remains at lofty levels with the price of petrol being hiked again a few days ago, things can probably get worse from a consumer inflation front.
The government at the centre has been accused of inaction and policy paralysis. Ahead of the general elections, it remains to be seen how eager the government is in terms of implementing reforms and addressing the economic crisis that the country is stuck in. One can only hope or pray that the government does not come up with more populist measures that could worsen the country’s fiscal deficit.
The major hope for the stock market participants is the impending general elections scheduled next year. There is a widespread expecta-tion that the new government would usher in a slew of reforms to get the economy back on track. The Reserve Bank of India too has a new governor and the early indications are that the new governor means business.
As observed last month, we advise investors to tread with caution and avoid big ticket exposures to economy-related sectors. We remain cautious on the Nifty and the Sensex and advise long-term investors to use the SIP route to buy index funds or ETFs in a staggered fashion.
Technically, the Nifty has recovered from the key support level of 5,100-5,150 range and has seen a sharp recovery in the past few trading sessions. We sense that the recent recovery process could continue and expect a rally to 5,800-,5850 in the Nifty.
Sector wise, we are positive on the FMCG space. The likes of Hindustan Unilever and Dabur are our top picks, followed by ITC. The IT sector has seen buying interest on account of the Rupee depreciation and better-than-expected performance of IT companies. We believe that the IT stocks are overbought from a technical perspective and expect a healthy correction or consolidation in frontline names. We would not suggest accumulation of IT stocks at such lofty levels.
From the daily chart of the Nifty featured below, it is evident that the fall in the index was arrested right at the lower parallel of the down-ward sloping red pitchfork. The smart recovery off that line is a sign that there is buying interest at lower levels.
We expect the Nifty to rally to the immediate resistance at 5,800-5,850. A fall below 5,110 would invalidate this view. Price weakness may be used to buy high-beta names such as Reliance Capital, Tech Mahindra, Reliance Communications, IndusInd Bank and Reli-ance Industries.
The month, we discuss the outlook for Reliance Com-munications and Tech Mahinda. We are bullish on both the stocks and would recommend investors to buy accumulate them on weakness.
From the daily chart of the Reliance Communications featured, it is evident that the stock is in a strong up-trend. After a brief downward correction, the next leg of the rally seems underway.
Page 4 Volume 6, Issue 09
The Month Ahead - Equity Recommendations
B. Krishna Kumar
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
Investors may buy the stock at or below Rs.130, for an initial target of Rs.155. The stop loss for long positions may be placed below Rs.110. While the stop may be a little rich, investors may use a SIP kind of approach if the stock were to fall below Rs.130. Once the price moves 5% in your favor, move the stop then to breakeven. This is an effective way to control risk.
As far as Tech Mahindra is concerned, the stock is in a strong uptrend. After a brief consolidation, the next leg of the rally seems under-way in Tech Mahindra. Investors may buy this stock with a stop loss at Rs.1,330 and target of Rs.1,550. Investors may buy the stock on declines, in a staggered fashion,, so that the average cost of acquisition.
A breakout past Rs.1,550 would be a sign of strength and the stock could then rally to the major resistance at Rs.1,700. Always use a trailing stop loss when the pro-gresses towards the target. A major chunk of the unreal-ized profits can be protected by using the trailing stop loss.
Mr. B. Krishna Kumar also hosts a weekly webinar that discusses the mar-
ket outlook for the following week.
Just click on the link below and click on the ‘FOLLOW’ button to register:
