MFs line up best global assets for investors

MUMBAI: The desire among India’s well-heeled investors to look beyond local equity markets has domestic mutual funds rushing to offer products that  reflect returns of overseas assets. In this financial year so far, asset management companies have launched five such schemes that route funds to overseas funds investing in Chinese shares to global real estate to commodities, as Indian investors seek to capitalise on assets that are not available in domestic markets.

Though the response to these schemes has been largely cold so far, domestic mutual funds — mostly with foreign parentage — plan to introduce more such schemes locally in the hope that the exclusivity of these products will lure Indian investors to test their fortune in them. A majority of investments of Indian investors in mutual fund schemes are in domestic equities and debt instruments.

“We want to launch a few other products that are not available in India and especially in the ones where our expertise has been proven globally,” said Ashu Suyash, MD and country head — India, Fidelity Investments, which recently launched its global real assets fund, which invests in a Luxembourg-incorporated global real asset securities fund that in turn puts money into global energy, materials and real estate assets among others.

Other such schemes, popularly known as feeder funds, launched this year include DSP BlackRock’s World Energy Fund, World Mining Fund, JP Morgan’s Greater China Fund and Mirae Asset’s China and Global Commodities funds. Benchmark Asset Management also recently launched India’s first international exchange traded fund that captures returns from Hang Seng. HSBC Mutual Fund has sought Sebi’s nod to introduce a scheme that invests in a Brazilian fund.

Industry officials said a large chunk of the investments in these funds is from relatively wealthy investors, mostly from metros.

“The fresh idea that these schemes bring is what attracts investors to them, as India is increasingly being linked to global market. Mutual funds are looking to capitalise on this curiosity factor,” said a top official with a private mutual fund.

According to Morningstar, assets of fund-of-funds that invest overseas stood at Rs 1,395 crore as on February 28, as against Rs 1,170 crore September-end. Mutual fund industry had assets worth about Rs 7.8 lakh crore as on February 28.

Wealth managers feel increased access to various commentaries about the outlook of asset classes has lured investors here to such funds.

“For Indian investors, it is the performance that matters rather than diverse asset allocation. That’s the reason why feeder funds that mirror commodity (including gold) and emerging market assets have been relatively popular,” said Ashish Kehair, head-products & strategy, global private clients, ICICI Securities.

Mr Kehair, however, added that the interest among investors is still far from satisfactory. This is because such schemes are yet to receive the status of an equity fund for favourable taxation purposes and there is lack of awareness about the prospects of these products.

Suresh Parthasarathy
BL Research Bureau
What a turnaround for mutual fund investors it has been in the past one year.
Since March 9, 2009, (when markets touched their lows), when all class of investors were pessimistic about the market movement owing to the continuous flow of negative information, the markets have rebounded spectacularly, more than doubling in the period.
The average return of diversified funds was 115 per cent. Of 290 diversified schemes, 89 of them have clocked return in excess of 115 per cent and 125 of them outpaced the BSE Sensex.
For the same period the bellwether BSE Sensex moved up by 105 per cent (index on March 9, 2009 was 8160) and S&P CNX Nifty by 95 per cent.
Returns
It has been a year of golden returns for equity and mutual fund investors.
Investors who preferred to route their cash through mutual funds were laughing all the way to the bank, with some of the schemes clocking a returns of between 150 and 200 per cent.
Those who had faith in the market and bought, when others were in fear, made merry. But the return divergence was wide between the best in the diversified funds category and the worst.
Principal Emerging Bluechip was the top performer with a return of 201 per cent over the last one year.
The fund was launched in October 2008 – close to bottom of the market – and its performance was aided by sheer selection of stocks and sectors.
Others who shared the honours were Magnum Emerging Business with 193 per cent, Taurus Infrastructure and ICICI Pru Discovery with 185 per cent returns.
Among those who missed the rally were JM HI FI, Religare AGILE and HSBC Dynamic. They have let down their investors with a poor return of 45-60 per cent.
What clicked
The most common theme among the performers was that they all stayed invested during the market correction and they all had sizable exposure to mid-cap stocks.
All the “outliers” held cash less than 15 per cent of the total assets in March 2009, the period when the market was undergoing a turnaround.
They had well diversified portfolios. Most of them also invested in sectors that witnessed and indeed led a tremendously rally.
Principal Emerging Bluechip was overweight on banking, Magnum Emerging had invested 22 per cent of the assets in construction and projects, while Taurus Infrastructure was over weight on construction and power. ICICI Pru Discovery, the value fund, was overweight on banking and pharma.
Surprisingly they all have invested less in the software sector. The BSE IT index clocked 155 per cent over a one year period.
Laggards
JM HI FI was overweight on cement and invested 20 per cent of its assets there. HSBC Dynamic has invested in banks, consumer nondurables, pharma and software but what made the difference was that it had invested predominantly in large-cap stocks that rallied less than mid-caps .

Did you know | How to fill a mutual fund form?

Where to get the form?
You can get it from your mutual fund (MF) office or its registrar and transfer agents, such as Computer Age Management Systems and Karvy. You can also download it from the fund’s website. Make sure you also get the offer document or the key information document for more scheme details.
Best way to invest:
Existing investors should ideally put money in the same folio, if the first and second name combination of the existing folio is the same as the one in whose names you aim to invest. This helps consolidate account statements within the same fund house.
Exercise your choice:
Make sure you choose a plan, such as dividend, growth or dividend reinvestment. If you don’t, your fund house will allot you a default option. For instance, you may want to enjoy appreciation over a period of time, for which you need the growth option. But if you do not choose anything, your MF will allot you its default option, which could well be the dividend option and that may upset your plans.
Look out for:
While filling a systematic investment plan (SIP) form, check if the fund has a minimum investment amount (usually Rs5,000). Some funds allow you to start an SIP straightaway. Incorrect entries result in rejection of forms and delay.

Life Insurance Corporation’s (LIC) plans to float a bank has hit a hurdle after the insurance regulator IRDA refused it permission to use  policyholders’ funds for setting up a subsidiary. The LIC Act allows the corporation to have a paid up capital of only Rs 5 crore. Surplus funds have to be mandatorily distributed among policyholders and the government.

There are only two ways that LIC can float its banking arm. One, the government gives LIC additional funds to set up a bank; and two, after the LIC Act is amended, the corporation ploughs back its surplus funds and floats a banking arm from its net worth. But there is also a third option. LIC could indirectly own a bank if RBI permits LIC HF to promote a bank.

Going live soon

The fourth national-level exchange that’s awaiting SEBI’s nod to launch currency futures trading is expected to be given the regulatory nod for going live shortly, said a person familiar with the process. There were talks that the approval has been late in coming as the regulator was not comfortable with Jaypee, a Delhi-based broker, holding a sizeable stake in the bourse.

The exchange also has to have a minimum of 50 brokers enrolled as its members whereas it has around 40 and some documentation regarding brokers is pending. But, the person said that all relevant information associated with the approval procedure had been submitted to the regulator, and getting the approval was only “a matter of time.”

Second thought

A host of realty developers were planning to hit the market and get themselves listed. This would have paved the way for further fund raising in future. However, uncertain market conditions is making them think twice. According to sources, Mumbai-based real estate developer Lodha has postponed its initial public offering for now.

Tight market conditions

The Power Finance Corporation (PFC) recently raised Rs 550 crore from the bond market. While the issue itself is a modestly sized one, what makes it exceptional is that it had as many as 18 banks acting as managers to the issue — an indication of how the bond markets have tightened.

PFC had set a target of raising Rs 21,000 crore during the current fiscal. So far, its has raised over Rs 16,000 crore. The corporation also plans to raise another $300 million through an external commercial borrowing in the coming weeks.

Long memory

Some of the foreign banks in India still seem to be feeling the ripple effects of the subprime crisis. One of the larger European banks have been in the market for the past several months to hire people in treasury and corporate banking. However, the bank seems to be finding it difficult to attract talent even from the subprime crisis hit Western banks. The reason: during the height of financial crisis, many banks had cut back on their Indian operations. Seems bankers have a long memory too.

Good old days

A do organised by the head-hunting firm Transearch on Monday saw a large number of bankers from HSBC in attendance, leading us to speculate if they’re all in the market for new jobs. As it turned out, they were mostly there on account of Anjali Forbes, the Mumbai head of Transearch and the head of its financial services practice.

Formerly with ANZ Grinday Bank, Ms Forbes obviously works hard at keeping her network going strong. Not surprisingly, the buzz over cocktails was the re-entry of ANZ Bank to India. When it does, ANZ’s top management will surely be drawn from the ex-Grindlays talent pool, who remain nostalgic about their good old days in the bank.

MUMBAI: In a bid to crackdown on pyramid schemes, the insurance regulator has barred companies that do not have a substantial customer base of their own from becoming corporate agents. The regulator has also said apart from RBI-regulated finance companies, any entity seeking a corporate agency licence should have a turnover, assets or income of at least Rs 15 crore.

Speaking to ET, IRDA member S Kannan confirmed that the regulations were being introduced to prevent pyramid schemes. “Without the restrictions, it becomes open-ended and the agent has no idea of the risk in terms of the proposals brought in and the income may not be enough to cover the risk.”

The present corporate agency norms have been abused by some fly-by-night operators to float pyramid schemes where prospective customers in addition to being sold a policy are enrolled as agents. These customer-agents are then encouraged to enrol more agents with the lure that they will get a portion of the commission paid to the new agents. Such operators do not have customers of their own but build a network by marketing a scheme. A typical scheme being marketed through SMS messages offers the opportunity to increase a monthly investment of Rs 6,005-4,46,000 in two years.

In a recent circular, IRDA said henceforth, only those persons who are part of a group having Indian Insurance Company or a scheduled commercial Bank within the group shall be eligible for a corporate agency licence to do insurance distribution as the principle business. However, this is subject to the condition that there shall be only one corporate agency amongst all the entities in the group.

Any individual who is a part of a group, which has a insurance broking arm cannot seek a corporate agency licence. However, any of the persons which are regulated by RBI within the group may apply and obtain a corporate agency license provided they have “substantial client base of their own or access to data which would facilitate identification of prospects.”

Those who are not licensed by RBI will not be eligible for corporate agency license, unless they have “a substantial client base of their own or access to data to identify the prospective policyholders” and have a turnover, assets or income of at least Rs 15 crore.

Liquidity may come under strain
Tax payment, bank credit, NMDC issue to suck out cash over next three weeks.
The banking system is flush with liquidity, but the next three weeks will test the market with large amounts expected to flow out towards the payment of advance tax and lending by banks.
While the situation may not be different from the last fortnight of any financial year, there is a third factor at play this year — the NMDC public issue. The issue can mop up over Rs 11,600 crore from the system, though a higher amount could be pre-empted if the offer is over-subscribed. The issue opens for subscription tomorrow.
The last large issue — Reliance Power’s Rs 10,260-crore initial public offer (IPO) two years ago — had resulted in a cash crunch, as the issue was subscribed 72 times. Bankers said the problem was accentuated by the problems faced by foreign institutional investors in their home markets.
Apart from the NMDC issue, there are qualified institutional placements (QIPs) underway or in the pipeline by companies such as Exide Industries, India Cements and Alok Industries. Further, IL&FS Transportation and DQ Entertainment are raising funds through IPOs.
Advance tax payment is estimated to be in the range of Rs 40,000-50,000 crore, though companies will get the benefit of adjusting the amount they had paid on account of fringe benefit tax before it was abolished.
But, fund managers are not nervous, saying the system has ample liquidity. For instance, banks today parked Rs 80,100 crore through the Reserve Bank of India’s reverse repo window (see table).
Further, they had parked over Rs 120,000 crore with mutual funds in the absence of any lending. Typically, at the end of a quarter, banks withdraw this money to reduce their holdings. Ashish Kumar, fund manager with LIC Mutual Fund, said this quarter would be no different, as banks would try to avoid attracting capital charge. In addition, they have the option to tap the repo route, in case they need to meet their liquidity needs.
The call money market is another place to raise funds. Call rates have remained close to the reverse repo rate of 3.25 per cent. Any rise in demand for funds will be reflected in the rise in interest rate in this market. There was enough money with players, hence the rates were expected to remain at current levels in near future, dealers said.
A senior State Bank of India executive said there would be enough resources in the system. His bank was complaining about fewer

avenues to deploy the excess Rs 75,000 crore it had till a few weeks ago.
The effect of money moving out of the system due to advance tax payments would be felt next week around March 18, bankers said.
M Sarraf, treasury head at Dhanlaxmi Bank, said the way the market has seen aggressive fund-raising activity in last few weeks, there was an impression that there could be tight liquidity conditions ahead. “But, it is just a surface level trend. There is enough resources within the system to cope with events like advance tax payments and public offerings,” he added.
http://www.business-standard.com/india/news/liquidity-may-come-under-strain/388034/
 
Public sector insurers to rationalise TPAs

The four public sector general insurance companies — New India Assurance, National, United India and Oriental Insurance — have decided to work with only a handful of third-party administrators (TPAs) to manage claims in the health segment more efficiently.
TPA is an intermediary between hospitals and insurance companies and helps cashless claim settlement. Insurance companies blame TPAs for fraudulent claims in the health space, where the claim ratio is 130 per cent.
Senior executives of the four insurers said working with lesser number of TPAs would help insurers monitor their work better and work on reducing fraudulent claims. These four account for 60 per cent of the market share and 70-80 per cent of the business of TPAs.
“The intention behind rationalisation is to have better control over management of claims. The outgo in the health segment is high compared to the premium income, and the only way to be present in this segment will be increasing the premium rate, if not controlling TPAs. We have been working with 10 TPAs for some time and it has yielded good results,” said S Gopalakrishnan, general manager of New India Assurance.
“We are reviewing the performance of TPAs. We will work with those who deliver good results and get us better business. We will reallocate business after that,” said a senior executive of United Insurance Company. For one of the four insurers, the total inflow into health insurance was around Rs 1,400 crore while the outflow was around Rs 1,800 crore.
On the other hand, TPAs see this as a threat to the industry, especially the smaller players. A senior executive of Paramount TPA said, “If PSUs cannot accommodate the TPAs, it will be difficult for everyone to survive.”
Insurers say the regulator is also issuing any number of licences, and since the capital requirement is low, more and more players are getting into the business. TPAs expect the rationalisation process to lead to consolidation among smaller players. At present, there are 27 players in this space. Last year, the Insurance Regulatory & Development Authority had increased the minimum capital requirement for TPAs from Rs 1 crore to Rs 5 crore. At the time of the inception of TPAs in 2002-03, the government had suggested that an insurance company could appoint two TPAs per region. According to TPAs, the number of players was less at that time and the limit should be revised. In the last eight years, business volume has grown six times.
Public sector insurers are working on an in-house network of TPAs so that they can monitor the process better to bring down the high loss ratio in this segment. They have submitted a report to KPMG, which will come up with the final report within 16 months of receiving the mandate.
http://www.business-standard.com/india/news/public-sector-insurers-to-rationalise-tpas/388036/
SEBI

Share prices of Bank of Rajasthan and Tayal group’s other listed companies fell 4-6.7 per cent today after the Securities and Exchange Board of India (Sebi) order debarring 100 entities, including the promoter of the bank, Pravin Kumar Tayal. The entities have been debarred from accessing the securities market and dealing in the securities market for wrongly reporting the bank’s promoter shareholding.
Besides promoter Pravin Kumar Tayal, the other entities of the Tayal group that have been suspended include listed firms Jaybharat Textile & Real Estate, Eskay K’n’it India Limited and KSL & Industries.
BoR was the major loser today with a 6.7 per cent fall to Rs 62.35. Other companies whose shares fell were KSL & Industries (down 4.3 per cent) and Eskay K’ni’t (down 4.9 per cent). However, JayBharat Textiles and Real Estate remained flat.
On the Sebi order, Tayal said, “We will have to take up the matter with Sebi. I am yet to see the order.”
The market regulator, in a late-night order yesterday, said that claims by BoR promoters, by way of public disclosures, that their stake had dropped from 44.18 per cent at the end of June 2007 to 28.61 per cent by December 2009, were false. “This evidently conveyed a misleading picture to investors, stock exchanges and to Sebi,” board member K M Abraham said in a 24-page order.
The group, in filings to the stock exchanges, said it had reduced its stake but in reality, the holding of the promoters and their front entities had increased, said Sebi. A Sebi investigation found that the promoters’ stake rose from 44.71 per cent in the quarter ended June 2007 to 60 per cent by March 2008 and stood at 55 per cent in December 2009.
Disclosures related to acquisition were not made to the stock exchanges by any of the acquiring groups or by BoR over this extended period, providing misleading information to investors, the statement said.
BoR Chief Executive G Padmanabhan said, “Legal opinion has been obtained it has been established that they (Tayal and entities) are not the promoters. The bank doesn’t consider them its promoters...they are just dominant shareholders in the bank”.
Last year, Tayal had said that promoters of the bank had submitted a road map to the Reserve Bank of India to bring down their stake to meet the norms by 2013. “Every year we were to sell 5 per cent stake.
The bank has plans for a qualified institutional placement (QIP) that will bring down the stake of promoters. The bank is seeking shareholders’ nod for a QIP at the extra-ordinary general meeting slated for March 11, 2010.”
“There is sufficient evidence prima facie to indicate fraud in the dealings of shares by the promoters of Bank of Rajasthan, a company in the sensitive banking sector of the economy” said the Sebi order.
Sebi has also asked the National Stock Exchange and the Bombay Stock Exchange to square off all open positions of the 100 entities in the futures and options segment.
BoR eyes QIP in April-June 2010
Bank of Rajasthan expects hit the market with a qualified institutional placement (QIP) of equity shares to raise up to Rs 250 crore in April-June 2010 to strengthen its capital adequacy ratio. Its capital adequacy ratio was 11.29 per cent (under Basel-II norms) at the end of December 2009.
The bank expects to visit the market in the first quarter after shareholders’ nod. The expanded Tier-I capital (after the QIP) would give additional room for issuing Tier-II bonds (debt capital), said BoR Chief Executive G Padmanabhan said.

“With better food production inflation will die down. Food inflation is high; it’s a concern. My own expectation is by April-May the base effect would have gone,” Mr Basu said. The government has taken action and that is why we are witnessing some decline in food prices, Mr Basu said, adding that the overall average inflation will be around 4% for 2009-10.

Earlier, he had said though fuel prices would lead to a marginal rise in the wholesale price infaltion, however, a lower fiscal deficit in the long-run will dampen the average inflation. Changes in the tax structure announced in the Budget 2011 have caused fuel prices to go up. The WPI will rise by 0.4 percentage points due to the fuel hike.

The government had hiked customs duty on petrol and diesel to 7.5 % from 2.5% while excise duty was raised by Re 1 on non-branded (normal) petrol and diesel.

Meanwhile, Minister of State for Finance Namo Narain Meena in a reply to query in the Rajya Sabha said the hike in prices of items could be attributed to expectations of supply-side constraints of food items, especially due to unfavourable Southwest monsoon.

The government has taken several measures to check infaltion in food items, including reducing import duties to zero for rice, wheat, pulses, edible oils and sugar, Mr Meena said.

Besides, the government allowed import of raw sugar at zero duty under open general licence, he said. Two million tonne of wheat and one million tonne of rice have been allocated to states for distribution to retail consumers over and above normal public distribution system allocation, he added.

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