MUTUAL FUND

Birla MF upbeat on auto, infra, IT, underweight on oil and gas

MUMBAI: Birla Sun Life Mutual Fund is upbeat on the auto, auto ancillaries, IT, consumer durables, construction and infrastructure sectors while being cautious on telecom and underweight on oil and gas, a senior company official said.

"The worst is over and the going ahead should be good. We feel the auto, IT, consumer durables, construction and infrastructure sectors should put up a good performance," Birla Sun Life MF's Co-head, Equity Investments , Ajay Argal, said here.

Auto and consumer durables are doing well and auto ancillaries have also witnessed a good pick-up. Similarly, the IT sector too has done well in the last 3-4-months and "we feel this sector still has some upside left," Argal said.

Though there was a slowdown earlier in the construction sector, now there were signs of a pick-up and the company was "very positive" about it, he said, adding that "we are bullish on the infrastructure sector over the long-term."

On telecom, the company would adopt a stock-specific view, Argal said, as there was intense competition in the sector. A healthy penetration-level already exists and hence the company feels it prudent to take a stock-specific view, he said.

On the manufacturing sector, Argal said that it has bottomed-out and signs of revival were visible. "The Index of Industrial Production (IIP) numbers are improving," he said.

However, the capital goods space would take some time to kick-off as companies had put off their capex because of the economic downturn. "Hence orders have not been flowing in and there has been no revenue growth in the last two-three quarters," the Birla MF official said.

While admitting that additional NPAs were possible out of restructured loans in the banking sector, Argal said, NPAs would, however, "not cause undue alarm."

During August, fixed income plans with assured returns annually, saw a maximum investment of only Rs 38,275 crore.

"Uncertain interest rate scenario in the country are making investors put in money in fixed income schemes. Also volatility in the equity market saw investors pulling out from such funds," Kotak Mutual Fund Head (Fixed Income and Product) Lakshmi Iyer said.

However, equity funds investing in stocks saw net outflows of Rs 142 crore and liquid or money market funds, with higher liquidity and short maturity period, saw outflows worth Rs 5,215 crore.

"Income funds were in demand in August. Banks and corporate houses have parked their surplus cash with the fund houses, thereby leading to an increase in the assets under management (AUMs)," Taurus MF Managing Director RK Gupta said.

Investors put Rs 32,600 cr in MFs in August

NEW DELHI: Investments in mutual funds slumped substantially in August, with the industry witnessing a net fund inflow of over Rs 32,600 crore, a 74 per cent decline on a month-on-month basis.

At the end of August, investors poured in funds worth Rs 32,673 crore, down from Rs 1,23,679 crore at the end of July, a monthly report by Association of Mutual Funds of India said.

Despite the slump in the volume of net investment, investors continued to prefer mutual funds as an investment option as inflows continued for the second straight month.

During August, fixed income plans with assured returns annually, saw a maximum investment of only Rs 38,275 crore.

"Uncertain interest rate scenario in the country are making investors put in money in fixed income schemes. Also volatility in the equity market saw investors pulling out from such funds," Kotak Mutual Fund Head (Fixed Income and Product) Lakshmi Iyer said.

However, equity funds investing in stocks saw net outflows of Rs 142 crore and liquid or money market funds, with higher liquidity and short maturity period, saw outflows worth Rs 5,215 crore.

"Income funds were in demand in August. Banks and corporate houses have parked their surplus cash with the fund houses, thereby leading to an increase in the assets under management (AUMs)," Taurus MF Managing Director RK Gupta said.

http://economictimes.indiatimes.com/Mutual-Funds/Investors-put-Rs-32600-cr-in-MFs-in-August-/articleshow/5005558.cms

Parking short-term money

I have some money that I plan to use after a month. Should I invest it in liquid funds instead of a bank Fixed Deposit for better returns?
- Rajesh Mendon
If safety of principal is of prime importance, stick to a bank FD. SBI currently pays interest at 3 per cent per annum on fixed deposits for a 30-day period. Although liquid funds have a tax advantage, their returns have subsided in the past two quarters. Their returns were much higher, more than 7 per cent, till last year, but they are unlikely to return more than 4.5–5 per cent per annum under the new norms that require them to invest in instruments with maturity of upto 91 days only.Liquid funds returned 1.05 per cent and 1.11 per cent in the first two quarters of this calendar year. The difference in returns of the two will be marginal.
I had invested in Reliance Vision Fund more than a year earlier. For a fund to qualify as an equity one, it has to keep at least 65 per cent of its assets in equities, but according to the offer document of this fund, it has to keep only 60 per cent of its assets in equities. Will the gains be tax-free if I redeem now?
- Suman Chatterjee
Yes, it has to invest a minimum of 65 per cent in equities to qualify as an equity fund. But this 65 per cent has to be arrived at by taking the opening and closing monthly equity allocation in the trailing one-year period.
Reliance Vision, according to its mandate, invests 60-100 per cent of its assets in equity. It is structured to behave like an equity fund and thus maintains the required allocation of 65 per cent. This fund is treated as an equity fund only and, hence, you need not worry on your long-term gains being tax-free.
Yearly review is suggested for funds' performances. What should be done when a fund’s grade is falling and over some period it has not been giving good returns? I have ongoing Systemetic Investment Plans (SIPs) in ICICI Prudential Emerging Star Fund. Should I cancel my SIP in this fund and continue them in ICICI Prudential Infrastructure Fund? Should I also switch my investments to the latter?
- Ramakant Deshpande
Selection of funds should be done on the basis of performance in the past three to five years. A fund should not be discarded if it performs badly for just a few months, or even a year.
However, if a fund has not been among the good performers for a considerable period of time, then you need to re-look at it. If you have SIPs going on, cancel and start these in other good funds. You may also consider redeeming existing investments to other good funds. For selecting new funds, do not restrict your choice to the same fund house. Look for other houses if good choices are not available in the same fund family. Switching will, in any case, be taxable within the same fund house as well.
ICICI Prudential Emerging Star is a mid-cap fund and, hence, is more volatile than an average diversified equity fund. The basic nature of the fund is such that it will outperform in booming markets and will fall harder during declines. While it has beaten the category from 2005 to 2007, when the going was good, it took a beating in the market crash last year.
If this is the only fund that you own, it is better that you shift to other diversified large-cap funds such as DSPBR Top 100, Reliance Regular Savings Equity, HDFC Top 200 and Sundaram BNP Paribas Select Focus.
Regarding ICICI Prudential Infrastructure, don’t make this fund a core holding, as it is a thematic fund. While its performance is good and it casts its lot with large-caps, you may allocate a small portion of your portfolio to this fund.
Value Research

http://www.business-standard.com/india/news/parking-short-term-money/369909/

Three funds worth noting

DSP BR EQUITY
Since 2003, this fund has beaten the category average every single year. Its charm lies in the fact that it has impressed during both favourable and unfavourable market conditions.
Its performance in 2007 was impressive, at 70 per cent (category average: 59 per cent)..
In the bear phase spanning January 8, 2008, to March 9, 2009, it shed 49.5 per cent (category average: 55 per cent). But when the market began to rise in March 2009, the fund was not quick in lowering his cash allocation and did so mainly in May. Neither was it heavy on construction, metals or financials, which boomed during that time. As a result, the fund delivered 79 per cent (category average: 89 per cent) between March 9 to August 31, 2009.
The number of stocks has gone up considerably, too, peaking at a high of 90 (August 2008), while it has averaged at 73 in the past one year.
The fund does take short-term bets and in the long-term holdings, intermittent profit booking does take place.
HDFC TOP 200
We like this fund for its solid long-term record and skilled management. Its historical performance has been impressive, but its performance in recent years has got investors worried. In 2006, it was a very average performer, due to a high exposure to defensives. In 2007, its category underperformance was a result of wrong sector moves.
But ever since Prashant Jain took over in early 2002, the fund shed less than the category average in all declining quarters, barring June 2004, when the fall was in line with the average. The fund’s success in standing upright in a bear market such as 2008, without resorting to debt or high cash levels, is a testimony to the fund manager’s proficiency and skill. In the recent rally (March 9, 2009 -- August 31, 2009), the fund gained a striking 102 per cent (category average: 89 per cent).
In the past three years no sector and stock has crossed the 27 per cent or 10 per cent threshold, respectively. The number of stocks also rose to touch a high of 65 (April 2009).
Those comfortable with a well-diversified, large-cap oriented portfolio that contains the downside should consider this fund.
RELIANCE GROWTH
Sunil Singhania has done an excellent job of managing a huge corpus and delivering admirably. In the 13 years of its existence, this fund has underperformed the annual category average just twice (1998 and 2000).
One would expect a fund with a preference for smaller companies to crash in the carnage of 2008. Not so. Its fall of 54 per cent was not too harsh in comparison with other funds and was in line with the specific category average. What came to the fund’s rescue were the aggressive cash calls, exposure to derivatives and a highly diversified portfolio. Apart from metals, none of the sectors accounted for more than 10 per cent of the portfolio (January 2008).
In the July portfolio, the fund manager was most concentrated on financials, with an 11 per cent exposure to the sector, up from 7 per cent in March 2009. Software followed at 7.41 per cent, with picks like HCL Technologies, Infosys and Financial Technologies India.
Investors looking for a mid-cap offering that delivers but does not compromise on risk should consider this option.

'Mindset differentiates the good fund manager'

We kick off a series of interviews for Smart Portfolios Season II with a discussion on the markets with Praveen Panjwani assistant vice president of Edelweiss.
In Smart Portfolios, Panjwani follows a diversified investment style with a view to capture either growth or value unlocking. Since the beginning of Smart Portfolios on September 1, Panjwani has invested mostly in small-caps and holds around 52 per cent from the total corpus in cash. He has a total of 11 stocks in his portfolio – VIP Industries with a scintillating gain of nearly 47 per cent is his top pick in the last two weeks. On the other hand, McNally Bharat down over 15 per cent from his cost price is the major drag on his portfolio. As of September 11, Panjwani’s networth stands at Rs 10.10 lakh, up a little over a per cent from the initial Rs 10 lakh corpus.
What is your approach to markets and investment style?
The markets are an exhilarating and rewarding place to be if one can control emotions and be disciplined in the investment process. Spend enough time in the market and one will realise that the market commands high respect amongst participants and most rightly so both for its short term volatility and long term efficiency. The investment style for the purpose of this initiative is a distinctly stock specific approach with an effort to capture relative outperformance.  
As a fund manager, explain the markets in short for the novice investor? And what would be your contribution to Smart Portfolios, as this is learning exercise for our readers.
Markets are a proxy to the Indian growth story and present a real way for an individual to transform into an investor. Putting it simply, a first time investor should start small and have patience. One thing the novice investor has on his/her side today is access to information about the markets – be it print, business television channels and internet. The critical aspect is filtering which information is relevant and which is not as well as keeping a clear style and process in the face of information overload. If the readers can use even one of the aspects mentioned over the course of this session and add a clearer structure to their own investing process or even if we get one new investor initiated into the equities fold, our job is done.
What are the qualities of a good fund manager?
The mindset is what differentiates the fund manager. This mindset would be a combination of courage, conviction and independent thinking aided by a sound disciplined process.  It would enable the fund manager to take objective decisions and cut out the noise of the market in influencing investment decisions.   
What are the stocks or sectors you would focus on going forward?
Presently the infrastructure and material handling space which is an infrastructure corollary look interesting. Also certain companies in the branded products, auto ancillary and government services arena which present value are on the radar. 
What are your targets or what kind of returns do you expect?
Since the portfolio is being constructed as a long only portfolio it would be simpler to outline the target as one of relative outperformance to the benchmark. Your advice for investors?
Have a plan. Most of us invest with a purpose or goal or an objective in mind. One must clearly know why one is buying a stock, and know what to look for on the trade. Somewhere along the way, one often gets swayed by stocks which may be presented as the next big thing or a flavour of the month which may take one off track. When there is clarity of the investment objective, then the choices become very clear as well.
 

The Insurance Regulatory and Development Authority (Irda) is working on initial public offer (IPO) and mergers and acquisitions (M&A) guidelines.
R Kannan, Member, Actuary said, “While the appointed actuary will carry out the valuation the independent actuary will certify it.” 
The independent actuaries will be appointed by the shareholders of the insurance companies. The appointed actuary works on pricing of the products, actuarial functions of the company and valuations of assets and liabilities. Moreover, he assures that the company complies with the regulatory guidelines.

Irda Chairman J Harinarayan had recently said that the regulator will come up with the guidelines by October.
Kannan added that internationally when an insurance company goes for an IPO or an M&A it involves two actuaries. He added that the independent actuary will form an independent judgment on the quality of the work and the valuations carried out.
Globally, independent actuaries looks at the effects of investment management, new business strategy, administration, expense levels and valuation. “We want to ensure that if there is a shortfall, the acquirer should be able to serve till the last day of the policy,” added Kannan.
Paresh Parasnis, Principal Officer and Executive Director, HDFC Standard Life said, “This will be a peer review of the work carried out by the appointed actuary. He will look into the methodology of reaching to the valuation.”
HDFC Standard Life is expected to be the second insurer after Reliance Life to hit the market. Insurers are working on reaching to valuations. According to an India Infoline report, Reliance Life is valued at $2.13 billion, SBI Life at $2.62 billion, HDFC Standard Life at $ 1.62 billion, Bajaj Allianz Life insurance at $2.29 billion and ICICI Prudential at $ 3.87 billion.
A large private insurance company’s chief executive officer ruled out the need of an independent actuary.
Private sector insurer Reliance life has already applied for an IPO. The company plans to divest 26 per cent stake through public offering.
The regulator is, however, working on the guidelines and the ambiguity over the 10 years of listing clause is expected to resolve once the insurance bill is passed, which includes raising foreign direct investment in insurance sector to 49 per cent during the winter session.

http://www.business-standard.com/india/news/independent-actuary-must-for-insurers-going-public/370001/

BANK

ICICI Bank to seek probe into 'sabotage' acts by rivals

Stung by reports that it sold dud home loans, ICICI Bank has decided to approach the government agencies and market regulator Sebi for a thorough probe into what it called an attempt to ‘sabotage’ the bank by some corporate rivals.
The Bank is not going to take it lying low. We apprehend that some corporate entity with interests in financial sector is behind the attempts of sabotage. We will ask for a probe by the Economic Offences Wing, Securities and Exchange Board of India (Sebi) and other agencies,” an official of ICICI Bank said today on condition of anonymity, but declined to name the rival.
Even last year, ICICI Bank had approached Sebi, the Reserve Bank and government agencies for a probe into hammering down of prices of its shares by what it called “vested interest”, who started the rumour that there was a run on the bank.

She said that even out of the total loans sold to ARCIL, fraud was detected in just five cases involving less that Rs one crore. “And that too, we had reported to police and sought investigation way back in 2007,” she said.
Stating that the total home loan portfolio of the bank was around Rs 55,000 crore, she quipped: “You could count how much of fraud amount works out as a percentage of our total loan portfolio.”
Even The Institute of Chartered Accountants of India (ICAI) has denied having made any recommendations for a fresh audit by the RBI into the home loan accounts of ICICI Bank. “ICAI has not asked for any central bank audit of assets sold to ARCIL,” the accounting regulator said in a statement today.

http://www.business-standard.com/india/news/icici-bank-to-seek-probe-into-/sabotage/-acts-by-rivals/370004/

SEBI

Pratip Kar: A game change for mutual funds

Sebi’s decision to abolish entry loads has given mutual funds a chance to relook their model which hasn’t caught the fancy of retail investors in a big way.
In the olden days (by that I mean the early 1990’s) when the financial markets in India were preserving their pristine purity, and life in such markets was simple, conventional wisdom was that mutual funds were the appropriate investment vehicles suitable for the small investors. But then times changed. Our markets became modern. The word ‘small’ was replaced by ‘retail’. It was, therefore, very interesting to note that Association of Mutual Funds in India (AMFI) that claims ‘developing the Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain standards in all areas with a view to protecting and promoting interests of mutual funds and their unit holders’ as one its lofty goals, still faintly echoes the remnants of the yesteryears when it describes in its web site ‘…thus a Mutual Fund is the most suitable investment for the common man…’ This calls for an ‘Aha’, because the data which the same web site has tells us a different story.
The table shows that that as of March 31, 2009, liquid and money market schemes, equity and debt-oriented schemes account for 95 per cent of the Assets Under Management (AUM) of all the mutual funds. Corporate, banks and financial institutions, and High Net-Worth Individuals (HNIs) accounted for nearly 80 per cent of AUMs, retail accounted for around 20 per cent of AUMs. In the liquid and money market funds and in the debt-oriented funds, companies and banks and financial institutions accounted for more than 80 per cent of the AUMs. The number of such investors is much less, and it is always more economical to service them. So logic would dictate that the fund houses would be more diligent and attentive to the 80 per cent group than to the 20 per cent group. But where does that leave AMFI’s ‘common man’?
The proliferation of the folios has another story to tell. The folios are not even a remote substitute for the exact number of investors, because of duplication. The portfolio numbers swelled in the last two years because of the multiplicity in the number of new schemes. The logic for floating more and more new open-ended schemes was simple and not a great work of innovative financing. Retail investors were advised by the distributors (their agents) that there was no point in entering an open-ended mutual fund scheme when the Net Asset Value (NAV) was more than Rs 10. She would be better off waiting till the next scheme was launched. The fund house was advised that it was relatively easy to sell a new scheme, rather than induce retail investors to buy existing schemes. So one fund house or another launched a new scheme at regular intervals, each semantically different from the old one. For example, a scheme could be named ‘Strong opportunities fund’ and the other could be called ‘Elevated and strong opportunities fund’ and one would be a fool to not choose something which was at once strong and elevated. This churning of funds did not matter to the distributors or the fund houses because both were digging into the entry load charged by the funds to the investors. In other words, it was the retail investor who was paying the distributor as well as the fund.
 

For example, in 2005, new equity schemes (NFOs) brought in an inflow of Rs 25,225 crore, while the existing schemes had a redemption of Rs 3,274 crore. Similarly, in 2006, NFOs brought in Rs 36,741 crore while the existing schemes lost around Rs 3,100 crore, taking the net inflow figure to Rs 33,665 crore. In 2007, new schemes inflows were at Rs 29,287 crore while the net inflows were far lower at Rs 21,071 crore. Thus it was the equity NFOs which were bringing in the funds, rather than the inflows into the existing open-ended schemes. More NFOs meant more business for the distributors. It also accounts for the proliferation in the portfolios in the equity-oriented schemes for the retail segment (see table). No wonder everyone but the retail investor was happy. Does that mean that the equity schemes did not do well? Of course they did well, but often not because of the astuteness of the fund managers, but more because of the market in general.
The fundamental purpose of regulation is not to prevent fools but to prevent people from being made fools of. This is where Sebi stepped in, by first abolishing entry loads for all mutual fund schemes; empowering the investors in deciding the commission paid to distributors in accordance with the level of service received and then ensuring that there was parity among all classes of unit holders in terms of charging exit load — that no distinction be made among unit holders should be made on the basis of the amount of subscription while charging exit loads. Besides, there would have to be full disclosures about payment of commissions. All that Sebi did was to bring the focus back on the ‘investor’ — the same ‘common man’ which AMFI refers to in its web site. But surprisingly, it created such an upheaval. Loss of cozy arrangements generally evokes such extreme reactions such as whining.
But Sebi has given the mutual funds an opportunity for a game change and the strategy would lie in using this as an opportunity and breaking existing markets and creating new ones. The Charles Schwab Corporation showed the way when it adopted a disruptive innovation model to take advantage of US Securities and Exchange Commission’s deregulation of brokerage fees on the Wall Street and became the largest discount brokerages in the world.
RBI’s latest Report on Currency and Finance says that the net financial savings of the household sector in 2008-09 were 10.9 per cent of GDP, lower than 11.5 per cent in 2007-08 and the household investment in shares and debentures fell to Rs 19,349 crore from Rs 89,134 crore. As a percentage of GDP, it fell to 0.4 per cent from 1.9 per cent. This is great market which the mutual funds in India have not taken advantage of. They can and have to learn to innovate and usher in a ‘retail revolution’ in mutual funds, instead of whining away over the loss of cosy and lazy way of making money. To do this, fund houses will have to revitalise their business model, use technology and reach outside the familiar markets. They must understand why the investors are comfortable with fixed deposits, post office schemes, NSCs, KVPs, LICs, precious metals and property in the second- and third- tiered cities and rural areas. They have to tap these markets, integrate innovation into the mainstream of their business strategy, and manage risks and create new markets and customers. Whoever said that becoming a leader in sustainable innovation was easy? But anyone who has the will to do so will surely find fortune at the bottom of the pyramid.
http://www.business-standard.com/india/news/pratip-kargame-change-for-mutual-funds/369957/

SEBI legal aid riddled with hurdles

The Securities and Exchange Board of India (“SEBI”) published the SEBI (Aid for Legal Proceedings) Guidelines, 2009 (“Legal Aid Guidelines”) last month – available at http://www.sebi.gov.in/acts/legalaid.pdf. 
Conventionally, legal aid is given by a government to people who need legal representation but cannot afford it. Case in point –Ajmal Kasab, the terrorist who has confessed to last November’s terrorist attacks has to undergo a trial, but is obviously a pauper. The State would have to provide him with legal aid and finance his legal representation.Typically, legal aid flows from the State to help indigent and underprivileged persons defend themselves against the State.
SEBI’s Legal Aid Guidelines provide for SEBI funding expenses from its Investor Protection Fund, for “legal proceedings” not involving SEBI.  The term “legal proceedings” for this purpose is defined in the SEBI (Investor Protection and Education Fund) Regulations, 2009 (“Fund Regulations”) – available at http://www.sebi.gov.in/acts/Investorpro2009.pdf. 
This term means any proceedings in any court or tribunal, where at least a thousand investors are affected or likely to be affected by mis-statement, misrepresentation or omission in connection with securities transactions, non-receipt of securities allotted, refund amounts or dividend, default in redemption or servicing of securities, fraudulent and unfair trade practices in securities dealings, and market manipulation. SEBI has given itself the discretion to expand the scope of “legal proceedings” to such other types of misconduct that SEBI deems appropriate to cover. 
Curiously, any proceedings in which SEBI is a party would not constitute “legal proceedings”. Therefore, if SEBI were to have acted against someone, or if a person were to have a grouse against SEBI for failing to act, legal aid would not be available to him, regardless of whether such a person has the means to afford legal representation. This is a central feature that deviates from the conventional concept of legal aid provided by an arm of the State. Moreover, if SEBI were to have itself initiated an enforcement action, the Legal Aid Guidelines would not enable reimbursement of expenses for legal proceedings. 
However, the Legal Aid Guidelines raise far more serious issues. If the legal proceedings relate to mis-statement, misrepresentation or omission in relation to securities transactions, the Legal Aid Guidelines require the applicant seeking legal aid to “establish” that he relied upon such misstatement, misrepresentation or omission and that such incidence caused monetary loss. If such facts are capable of being “established”, surely it would follow that SEBI ought to initiate enforcement action, establish the facts in its orders and bring the offenders to book. 
If SEBI were to choose not to act, and to instead fund private legal proceedings, the provision of legal aid would itself lead to a representation to the relevant court that an expert regulator already has a clear view in the matter. Such a position would place those proceedings on an uneven footing on substantial merits in the attempt to place parties on an even footing in relation to financial means, and needs to be rectified. 
Besides, two clear provisions of the SEBI Act, 1992 (SEBI Act) expressly oust the jurisdiction of civil courts in securities actions. Amendments to the SEBI Act in 1995 (SEBI had been faced with dealing with suits against it across the country – courts would invariably issue notice to SEBI to make its views known, or litigants would make SEBI a party) ousted the jurisdiction of civil courts “in respect of any matter which the Board (SEBI) is empowered to pass any order… under this Act”. An identical ouster of jurisdiction of courts is also contained in the Securities Contracts (Regulation) Act, 1956 and in the Depositories Act, 1996 – all securities legislation administered by SEBI.
Per se, mis-statement, misrepresentation, fraudulent and unfair practices and market manipulation are matters where SEBI is not only empowered to act under regulations made by it, but also obliged to act under the SEBI Act within the confines of its jurisdiction. SEBI’s own long-standing position is that the provisions of Sections 11 and 11B of the SEBI Act clothe SEBI with the widest jurisdiction to issue directions and take action of any and every nature against any and every wrong in connection with the securities market, and against any and every person. Therefore, there can be no question of providing legal aid for sheer want of jurisdiction of civil courts for any violation of securities laws.
Besides, every violation of the SEBI Act, and rules and regulations made under it is a criminal offence, and a criminal court can be moved only upon a complaint made by SEBI. Therefore, SEBI would necessarily be a party and therefore would not be able to fund any criminal proceedings. Writ petitions, which are not barred by the ouster of jurisdiction, too would always have SEBI as a party to the proceedings, and therefore SEBI would not fund them.
http://www.business-standard.com/india/news/sebi-legal-aid-riddledhurdles/369992/

Fund valuations head south

Entry load ban prompts many buyers to look at near-zero or pay-to-buy models.
Weighed down by a ban on charging investors entry load, mutual funds, specially those with low assets, have seen valuations nosedive.
Industry experts said valuations were down almost 50 per cent, from 5 to 6 per cent of assets under management (AUM) to 3 per cent after the October 2008 crisis because buyers were looking at asset quality rather than size.
 

In fact, unlike earlier years, asset size no longer warrants great valuations. “I don’t see why anyone should pay on sheer asset size anymore because it does not ensure income,” the chief of a leading fund house said.  
In the heydays, asset management companies attracted high valuations. For example, Infrastructure Development Finance Corporation (IDFC) bought Standard Chartered Mutual Fund for around Rs 830 crore, or a whopping 5.7 per cent of its assets in April 2008.
But buyers can now expect to snap up funds at near-zero, or even be paid to buy a fund house. For example, last November, Lotus Mutual Fund had to pay Religare Rs 50-100 crore to take over its liabilities.
Things have worsened since then because of the entry loan ban by the Securities and Exchange Board of India (Sebi) on August 1. Experts said going forward, more such deals could take place, if not at pay-to-buy, but at 100 to 150 basis points of the AUM.
Already, there are talks that DBS Chola and Bharti Axa could be looking for buyers. And industry experts said there could be more players looking to exit. “Six to seven fund houses are looking for buyers, but valuation is the main issue,” said the chief investment officer (CIO) of a leading fund house.
After the entry load ban, Asset Management Companies (AMCs) face a catch-22 situation. To ensure fresh inflows and compete with big guns such as Reliance Mutual Fund and HDFC Mutual Fund, they need to pay distributors upfront fees plus a higher trail commission.
At the same time, the extra cost to ensure inflows will mean their already-strained balance sheets will continue to bleed. Sanjoy Banerjee, executive director, ICRA Online, said, “The industry's profitability was already extremely poor, according to the 2007-08 numbers. Things could get worse now.”
And although AMCs have only 25 per cent of their money in equities, it was their main source of income.
Earlier, the cost of garnering new clients was borne by the investor, in the form of the 2.25 per cent entry load on equity funds. As a result, fund houses were able to retain the 90 basis point to 1 per cent annual fund management fees in an equity scheme.
This income will be under severe pressure because the upfront payment of 50 to 75 basis points to distributors will have to be paid out of this.
Also, fund houses paying higher trail commission than the 0.50 to 0.75 per cent may have to bear the burden from management fees or the AMC’s capital. 
In liquid and short-term debt schemes, in which most of the money lies, the average fund management fees range from 10 basis points to 50 basis points, depending on the type of fund.
And medium- and long-term debt schemes earn 75 basis points to 1 per cent.
Importantly, the upfront fees will have to be paid regularly by AMCs because of the high churn. “The average investor stays for only two or three years in equity and even less in debt.
The industry will have to continue incurring these high costs to acquire clients. Many AMCs may not be able to continue taking this hit,” said an industry expert.
Further, a large part of the assets is with a few top funds. At present, there are 36 AMCs. Out of the total Rs 7.48 lakh crore of AUM in August, 15 funds control Rs 6.72 lakh crore. 
That means 21 AMCs have only Rs 75,000 crore, of which Rs 53,000 crore is in debt or debt-oriented schemes.
Industry experts blamed some fund houses for this mess. “Many fund houses went into the business with a ‘build-to-sell’ intention instead of a ‘build-to-operate’ motive. So assets were built using the wholesale route in debt funds where large-scale inflows and outflows take place making AMCs very unstable,” said a CIO.
Consolidation, thus, is on the cards. Banerjee felt that since small doesn’t make sense anymore, the industry could ultimately have 20 or 25 good players with staying power.
In fact, experts believed that the players waiting in the wings would have to do some serious rethinking because the timeline for becoming profitable would become much longer than the five or seven years which was the earlier target.
As Banerjee put it, “Sebi’s measures will means AMCs would have to work towards profitability. This, as a natural progression, would mean a healthier industry.

http://www.business-standard.com/india/news/fund-valuations-head-south/370011/

Need to ensure ethics says SEBI

Mumbai: There is a need to ensure ethics among market participants for efficient and transparent functioning of the system, a SEBI official said on Thursday.
"There has not been much emphasis on ethics (among market participants) as there should have been," SEBI Whole-Time Member Prashant Saran said at a FICCI-IBA seminar here.
The market regulator is in constant discussions with other regulators and market participants to bring in development in the corporate bond market, Saran said.
"There is a constant discussion among regulators and market participants (on issues related to the development of the corporate bond market)," Saran said.
Also, the regulator's endeavour has been to bring down the cost of transactions in the market, he said
http://www.financialexpress.com/news/need-to-ensure-ethics-says-sebi/515469/

ECONOMY

Industrial recovery may offset fall in farm output

Economists and policy makers have been pleasantly surprised by the sharp industrial recovery in India, which will nullify the impact of lower farm output due to deficit rains and enable the economy to grow at 6 per cent or more in 2009-10.
The recovery seems to be gaining momentum. Auto, cement and steel despatches are up, sales of medium and heavy commercial vehicles have turned positive for the first time in 14 months, prices of construction steel are up and so are property prices in key markets like Mumbai and the national capital region (NCR), and banks are again willing to lend.
Samiran Chakraborty, head of research, Standard Chartered Bank, says the industrial momentum is very strong, adding that the growth rate sequentially month-on-month is as high as what it used to be at the peak of the industrial cycle.
This is borne out by the sales of two-wheelers. “Typically, in a drought year, sales of two-wheelers begin to get impacted from August-September, which hasn’t happened this year,” says Manishi Roychaudhury, India head of equity research, UBS Securities. Two-wheeler major Hero Honda’s sales grew 36 per cent in August to over 400,000 bikes, more than 50 per cent of which are sold in rural and semi-urban areas.
The stimulus packages have done the trick. While waiver of loans improved rural incomes and spurred the sales of two-wheelers, increased pay of government employees improved the sales of compact cars in smaller towns. “If you look at the corresponding income profile, in smaller towns, the share of government employees in the pool of higher income growth is high,” says Abheek Barua, chief economist, HDFC Bank.
Crisil chief economist DK Joshi says that despite an errant monsoon, industrial growth will be better than last year. He expects the industry to grow at 6 per cent this year against 3.9 per cent last year. “Growth has not been broad-based but limited to sectors where the stimulus has been effective. But a lot of export-intensive sectors like textiles and jewellery are in dire straits,” says Joshi.
Industrial growth will partly offset the decline in agriculture, which is likely to shrink 2.6 per cent this year. That’s also because industry accounts for 26 per cent of the gross domestic product (GDP), while agriculture accounts for 16-19 per cent and services for the rest (55 per cent). So, higher growth in industry would compensate for a drop in agricultural production.

In 2002-03, an industrial growth of 6.8 per cent had partly offset a 7.1 per cent decline in agricultural growth, and there’s a growing disconnect between agricultural and industrial growth.
“It’s a weak and nascent recovery, given the industry grew at 9-10 per cent between 2003 and 2008,” adds an economist.
The current traction is driven by consumption demand, led by pay hikes to government employees and waiver of farm loans, investment demand is very tentative and patchy though companies are showing interest. Credit is growing at 15 per cent, while it was growing at 29-30 per cent a year ago. While the economy may continue to grow at 6-7 per cent, for a faster growth, the demand for investment has to pick up. Typically, when growth picks up sharply, investment demand grows at 20-25 per cent.
http://www.business-standard.com/india/news/industrial-recovery-may-offset-fall-in-farm-output/369670/