Funds favour private banks, infra, oil firms

Mutual funds, which were net buyers to the tune of Rs 1,412 crore in July, showed a preference for private banks, infrastructure and oil exploration companies. According to data compiled by Value Research, a mutual fund research company, among the most favoured stocks were HDFC Bank (Rs 339 crore), Cairn India (Rs 221.5 crore) and ONGC (Rs 212 crore).

Other stocks that were in demand include Axis Bank, Bharti Airtel, Larsen and Toubro, Reliance Infrastructure and ABB. “Some of the stocks like HDFC Bank and Larsen and Toubro are logical buys because they have been beaten down badly in the market,” said Shankar Sharma, director, First Global, a brokerage firm.

According to Amitabh Chakraborty, President (equities), Religare, during the last month, crude oil prices were beginning to moderate, but still closed the month at $126 a barrel, giving credence to beliefs that perhaps there was another rally in the offing.

This led to demand for oil exploration companies like ONGC and Cairn India. However, in the last ten days, crude oil prices have plummeted to $113 a barrel. And there are expectations that they will come down further after the Beijing Olympics because of a fall in demand for diesel, which is being used as fuel in place of coal for polluting reasons.

Besides, the US consumption of crude oil is already on the decline. On Tuesday, the US government data showed that the oil demand for the first half of 2008 has declined by an average of 800,000 barrels a day compared with that during the same period a year ago, the sharpest decline in 26 years. “There will be a rethinking about oil exploration companies like Cairn and ONGC in the next few months, depending on how sharply the prices fall,” said Charaborty.

Rate-sensitive sectors like banks have been in demand, mainly because any fall in oil prices means inflation will soften.

But private sector banks have got preference as they are insulated from the expenditure of Rs 60,000 crore on agricultural loan waivers, unlike the public sector banks. Gopal Agarwal, head of equity, Mirae Asset Global Investment India, said sectors like banks, infrastructure and even auto could be in demand, if the interest rates start easing.
Source: Business Standard

Provident Funds get more investment flexibility

New Delhi, August 15: The massive cash balances that provident funds sit on every December-January, in the absence of central government securities to park them in, will be history. The new investment pattern for non-government provident funds as well as superannuation and gratuity trusts, notified by the finance ministry on Thursday, allows the funds to invest those idle balances in gilt mutual funds. 

In 2007-08, the EPFO had kept more than Rs 10,000 crore idle, as per a recent audit report. Incidentally, EPF’s earnings for 2007-08 are, therefore, only enough to pay 8.25% interest compared to 8.5% paid in the year before. The finance ministry’s new investment guidelines, that will become operational from April 1, 2009, can rectify this, going forward. 

The guidelines leave no room for provident fund managers to cite investment restrictions put in by government for lack of returns on the money put in by the 40 million organised sector workers as their retirement savings. Significantly, the new guidelines have also raised the cap on equity investments from 5% to 15%, besides expanding the universe of eligible stocks where the money could be invested. 

Also included in the universe of investment options will be money market mutual funds, rupee bonds of multilateral institutions like the World Bank and term deposits of private sector banks. More importantly, for the first time, pension fund trusts have been given the freedom to actively trade their portfolios. This change from a regime where securities had to be held till maturity would usher in better returns as funds can react to market dynamics. 

Another major change is a move away from stipulating rigid caps for different investment instruments, which will impart greater flexibility in making investment choices. The new pattern simply specifies overarching investment limits, within which trustees can choose. 

While the bouquet of investment options has been expanded, trustees have been made more explicitly responsible for investment decisions. However, sections feel since India is yet to get professional trustee companies in place, the new options may remain unused as existing trustees may shy away from taking hard decisions. 

While welcoming some of the changes, Amit Gopal, India Life Asset Management, which consults several company-run PF trusts, points out that the stiff new accounting standards for retirement funds make companies liable to make good any losses in the same year that they occur. “Therefore, trustees may not be keen to take risks, as they will face flak from both the employees and the company,” he said. 

“Increasing the stock investment limit from 5% to 15% will remain only on paper. Investors would benefit only if trustees take a risk, which is unlikely to happen in the present scenario,” said a senior government official.

INFLATION COOLS IN CHINA, NOW IT'S TURN OF INDIA !

BEIJING - China's politically volatile consumer inflation rate eased in July, but prices rose by a still-high 6.3 percent over the same month last year, a government news agency reported Tuesday. 
The figure was a decline from June's 7.1 percent but well above the government's target of 4.8 percent for the year.
The government has imposed price controls on basic food items and taken other steps to stave off rapid price rises that communist leaders worry could fuel public frustration and possible protests.
The rise in overall consumer inflation has been largely driven by double-digit increases in the price of food.

Beijing's efforts to cool price rises have been hampered by sharp increases in global prices for oil and grain, as well as winter storms in southern China that wrecked crops.

Yahoo.com

Inflation rises to 12.44 percent, finance ministry 'disappointed'

India's annual rate of inflation rose further to 12.44 percent for the week ended Aug 2, goading the finance ministry to say it was a "major disappointment".

Data on wholesale prices released by the commerce ministry Thursday showed that the inflation rate - the highest since May 1994 - has jumped to this level from 12.01 percent for the week ended July 26, and 11.98 percent the week before.

“After being nearly stable for four weeks, this rise has come as a major disappointment," the finance ministry said in a statement soon after the data was released.

"The annual rate of inflation calculated on point-to-point basis stood at 12.44 percent for the week ending August 2," stated the ministry of commerce and industry in the official data released Thursday for the wholesale price index (WPI) for all commodities.

The WPI, based on final data for the week ended June 7, stood at 236.5, as compared to 235.2 (provisional), taking the annual rate of inflation to 11.66 percent as compared to 11.05 percent (provisional).

The main reason for the increase in the inflation rate during the week was higher prices of food articles and fuel, both jumping 0.9 percent.

The index for food articles rose on account of higher prices of maize (which rose 4 percent), condiments and spices (3 percent), fruits and vegetables (2 percent). Non-food articles went up by 0.2 percent.

The index for fuel, power, light and lubricants rose due to higher prices of light diesel oil (16 percent), bitumen and furnace oil (8 percent each), and aviation fuel (3 percent).

The finance ministry said that in the primary articles group, the annual point-to-point inflation increased to 11.43 percent as compared to 10.32 percent for the week before.

"In the commodity group of fuel and power, the rate of inflation has risen to 17.99 from 17.12 percent."

C. Rangarajan, in an exclusive interview to IANS soon after stepping down as the Prime Minister's Economic Advisory Council (EAC) chairman Wednesday, said he did not rule out the possibility of inflation rate touching the 13 percent mark.

"Inflation may touch the 13 percent-mark," he said, even as the government projected inflationary trends to moderate to 8-9 percent by March 2009.

"The trends of moderation in inflation should begin in December," said Rangarajan, now nominated to the Rajya Sabha. He added: "Monetary tightening is needed to contain inflation."

The statement came a week after Planning Commission Deputy Chairman Montek Singh Ahluwalia said inflation would fall below the 10 percent mark by this fiscal-end.

"Inflation is expected to moderate below the double-digit mark by the end of the current fiscal," Ahluwalia said.

The latest increase in inflation rate comes on a day the central government revised the recommendations of the Sixth Pay Commission to grant substantial hikes to its five million employees.

However, Finance Minister P. Chidambaram said its impact on inflation was taken into account when the government cleared the recommendations.

“The payout is not a new development. It has been factored into when the Budget was prepared and the Prime Minister's EAC and the RBI (Reserve Bank of India) gave their estimates,” he said.

Government opens way to private provident fund to beat inflation

New Delhi, Aug 14 (IANS) Private provident and other retirement funds will be allowed to directly invest up to 15 percent of their investible funds in the capital market, giving fund managers a greater degree of flexibility.

A finance ministry notification Thursday also announced easing of other existing norms. These investment pattern norms were last revised Jan 24, 2005.

The new norms will come into force from the next fiscal starting April 1, 2009, it said.

The new norms have been finalized after taking into account feedback received on proposed norms that had been put up at the finance ministry website last September.

The notification said that provident funds, superannuation funds and gratuity funds can now "directly invest up to 15 percent of their investible funds in shares of companies on which derivatives are available on the Bombay Stock Exchange and the National Stock Exchange."

"This is a very healthy sign because in inflationary times, when the rate of interest is below the rate of inflation, then provident funds which are guaranteed return funds become guaranteed risk funds," Naresh Pachisia, managing director of leading securities manager and mutual funds distributor SKP Securities Ltd, told IANS.

"So if these funds can invest in equities which can provide a high rate of return then the overall returns on the funds can be maintained at a rate higher than the inflation rate," he explained.

"The 15 percent ceiling also seems just right because even if the equities investment goes wrong, the total capital is still protected," Pachisia said.

“If the fund loses, say, at the most by 50 percent, then 7.5 percent of the total funds will be lost. But it will earn at least 9 percent on the 85 percent that it will be forced to invest on debt instruments.

“Since 9 percent of 85 percent is 7.65 percent of the amount invested, it will cover the possible loss of 7.5 percent,” Pachisia explained.

The other norms announced are aimed at giving the fund managers "greater flexibility in terms of a wider variety of financial instruments as well as greater freedom to actively manage the portfolio," the notification said.

Highlight of the new norms:

* Central and state government securities and units of gilt mutual funds have been merged into a single category and trustees can invest up to 55 percent of the investible funds in them. Earlier, they had to invest 40 percent in central and state government securities only, and at least 15 percent in state government securities;

* A flexible ceiling has been provided for various instruments instead of fixed investment ceiling as at present;

* Providing new instruments, such as rupee bonds of multilateral funding agencies and money market instruments;

* Permitting investment in term deposit receipts of not less than one-year duration issued by commercial banks subject to specified criteria.

* Fund trustees can exit from a rated financial instrument when their rating falls below investment grade, as confirmed by one credit rating agency;

* The trustees can indulge in trading of securities provided the turnover ratio - the value of securities traded during the year, divided by the average value of the portfolio at the beginning and end of the year - does not exceed two;

* Trustees will be required to conform to the investment pattern norms only by the end of the financial year, although they are expected to do so throughout the year.

* Trustees can exceed the investment ceiling up to 10 percent of the limit prescribed during the year.

IANS
 
Printed from www.mangalorean.com

Private PFs don't invest even 5% in equities

The finance ministry’s proposal to allow private provident funds (PFs), superannuation funds and gratuity funds a greater exposure to equity and market-linked instruments has been cheered on by market participants. However, the ground reality is completely different. 

Interestingly, very few of the funds allowed to invest in equities have even utilised their cap of 5%. According to various industry experts, even those funds, which do invest in equities, have an exposure of only 1-2%. Further, with the recent spike in bond yields, government securities as well as corporate bonds have been giving returns of over 9%. This is well above the returns of 8.5% which these funds are supposed to guarantee. 

In a proposal made in September last year, the finance ministry had suggested a greater exposure for these funds, which manage the savings of employees of various corporates. It was mandated that these funds double their capital market exposure from 5% to 10% while reducing their exposure to government securities from 40% to 35%. A number of other changes in the investment pattern, including more exposure to money-market mutual funds and bonds or securities of PSU companies. 

While market participants have welcomed this proposal, the general perception is that a number of other regulations need to change to make equity investments viable. The main bone of contention is that of the guaranteed returns of 8.5%. In case the fund fails to throw up an 8.5% return, the employers are expected to provide for the rest. 

“The fact that these funds have to guarantee fixed returns while investing in instruments with variable returns did not find flavour with them,” said Amit Gopal, vice-president, India Life Capital, which manages funds for over 150 companies. 

Whether these funds will actually take to the proposed relaxation in exposure norms remains to be seen. “It is highly unlikely that private provident funds or superannuation funds would actually take advantage of the relaxation in investment pattern, if and when it happens. 

The basic risk appetite of these funds is completely different, even the bonds they invest in are top class bonds,” said a fund manager. In spite of having the expertise of huge treasury departments, banks and insurance companies that manage private provident funds have not invested heavily in the capital market, he added. At the moment, PF returns have been above the 8.5%-mark. Investments done in 2007-08, in particular, have given returns of over 9% while those of 30-year old trusts, which have been managed effectively, have consistently given returns of 8.5-8.8%.

Reliance MF buys engg & cap goods, banking, oil

Reliance Mutual Fund has enhanced its exposure to the engineering & capital goods, banking & financial services, oil & gas and utilities sector. However, it cut its holdings in the information technology, metals & mining and automotive pack. 

Unitech, BGR Energy Systems and Kotak Mahindra Bank were the top buys while Escorts, Dabur Pharma and Emco were the top sells.

A study of the equity portfolios managed by Reliance Mutual Fund as on July 31 shows that in the engineering & capital goods pack, BGR Energy Systems, Thermax, Alstom Projects and ABB topped the list of buys while Crompton Greaves, Suzlon Energy and Siemens topped the list of sells.(View - All Bulk Deals by Mutual Funds)

In the banking & financial services, the fund house purchased Kotak Mahindra Bank, IDFC and HDFC Bank while decreased its holding in Rural Electrification, ICICI Bank and HDFC.

In the oil & gas pack, Cairn India and ONGC were in the list of top buys whereas Reliance Industries and Shiv Vani Oil & Gas were in the list of top sells.(Check out - Which sectors are attracting Fund Managers?)  

In the utilities space, Torrent Power, Tata Power Company and NTPC topped the list of sells.

Reliance Mutual Fund slashed its exposure to information technology, metals & mining and automotive stocks. In the information technology pack, HCL Technologies, Infosys Technologies and Patni Computer Systems were in the list of top sells while Satyam Computer Services and Tata Consultancy Services were in the list of top buys.

In the metals & mining pack, SAIL, Tata Steel, Hindalco Industries and Jindal Stainless topped the list of sells. Maruti Suzuki India, Tata Motors and Escorts were in the list of top sells in the auto space.

Templeton MF bets on banking, oil, cap goods

Templeton Mutual Fund has increased its holding in the banking & financial services, oil & gas and engineering & capital goods sectors. However, the fund house has reduced its exposure to information technology, metals & mining and chemicals sectors.

A study of the equity portfolios managed by the Templeton Mutual Fund as on July 31 shows that in the banking & financial services space, Federal Bank, HDFC Bank and ING Vysya Bank topped the list of buys while Yes Bank, India Infoline and Kotak Mahindra Bank topped the list of sells. Bank of India, LIC Housing Finance, Reliance Capital and Bajaj Holdings were newly introduced stocks.

Among the oil & gas stocks, HPCL, BPCL and Cairn India were top buys while Reliance Industries was top sold stock. It has made fresh investment in Indian Oil Corporation. (View - All Bulk Deals by Mutual Funds)

In the engineering & capital goods sector, Cummins India, ABB, Thermax topped the list of buys while Larsen and Toubro, Greaves Cotton and Suzlon Energy topped the list of sells. The fund house has exited Gremach Infrastructure and Shanthi Gears.

Templeton Mutual Fund slashed its exposure to information technology, metals & mining and chemicals. In the information technology pack, TCS and Infosys Technologies were in the list of top sells. It has exited Redington (India). (Check out - Which sectors are attracting Fund Managers?)  

In the metal & mining space, Tata Steel, Sterlite Industries (India) and Sesa Goa were top sells. 

In the chemical sector, it has sold over 26.55 lakh shares of Reliance Petroleum and over 14 lakh shares of Tata Chemicals.