Monetary and fiscal steps may boost investment
The domestic equity market was caught in the clutches of global financial crisis and tight liquidity situation domestically in year 2008. The BSE Sensex plunged from a high of 21,000 mark in January 2008 to a low of 7600 mark in November 2008.
Since September 2008 RBI took series of measures including cut in Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), repo rate to inject more liquidity into the system. These steps were taken to improve liquidity and boost economic activity. Government has cut three major rate slabs of central excise duty. The package includes benefits for exporters, infrastructure sector. In order to boost corporate bond market, Government has increased FII investment limit in rupee denominated corporate bonds in India from US $6 billion to US $15 billion. These measures reflected their positive impact in the form rising benchmark indices.
The BSE Sensex rose by 6.10% to 9647.31 in December 2008 from 9092.72 in November 2008. The growth in indices shows improvement in stocks value on account of rise in inflow from Foreign Institutional Investors (FII) investment, impact of first stimulus package announced on 7 December 2008, cut in interest rates, fall in commodity prices, cooling down inflation rate .
In December 2008, the FIIs were net buyers at Rs 1034.86 crore from net seller of Rs 5458.96 in November 2008. In addition, monetary and fiscal stimulus package announced in December 2008 and January 2009 helped to improve market situation. The cut in key policy rates released liquidity the markets, made credit offtake cheap. Real estate stocks rose on a note of stimulus package and fall in interest rates.
Performance of funds in different sectors
Auto sector
There are two open-ended equity funds in the auto sector segment at end of December 2008- JM Auto Sector Fund and UTI-Transportation & Logistics Fund. Total corpus of the sector increased to Rs 28.93 crore in December 2008 from Rs 27.44 crore in November 2008- a rise of Rs 1.49 crore. JM Auto Sector Fund and UTI-Transportation & Logistics Fund posted negative returns of 52.93% and 43.33%, respectively for year ended 16 January 2009. For a month period ended 16 January 2009, JM Auto Sector Fund and UTI-Transportation & Logistics Fund recorded negative returns of 2.19% and 1.69%, respectively.
The auto funds posted negative category average returns of 48.13% over a year ended 16 January 2009. This downfall in the sector was on account of increased interest rates regime till September 2008, high commodity prices including steel, leather, and related products, less availability of liquidity in market in year 2008, etc. Due to rise in steel, leather, metals, and other raw materials which are used for auto productions, year 2008 had seen drop in output. These factors led investors to postpone their purchases of vehicles. Thus, BSE Auto index fell down to nearly 50.42% during a year ended 16 January 2009. As per recent data, production slumped to 662667 units in December 2008 from 849188 units in December 2007- a fall of 21.96%. Domestic sales of automobiles declined 18.20% to 597622 units in December 2008 from 730603 units in November 2008. It resulted into fall in net asset value of the auto sector related mutual funds in year 2008.
But, in December 2008, we have seen growth in total assets of auto related mutual funds due to availability of loans at low interest rates which is a result of easy monetary actions of RBI to boost liquidity, fall in commodity prices, fall in oil prices, etc. 2nd stimulus package announced by Government, cut in fuel prices are likely to boost demand for automobiles and thus to rise in production. Thus, auto funds may gain in near future.
Banking sector
There are seven open-ended banking funds as on 31 December 2008. Total corpus of the banking funds increased to Rs 1045.95 crore in December 2008 from Rs 822.03 crore in November 2008 - a growth of 27.24%. Banking funds shared only 0.25% in total AUM of mutual fund industry.
As per market value, the sector including both public sector banks and private sector banks had market value of Rs 12815.32 crore in December 2008. The sector held the highest proportion in equity diversified funds category with18.78% in December 2008. In the current shallow market, banking sector specially public sector banks is likely to gain as they are getting more money in hand to lend on account of cut in CRR, (the percentage at which banks have to keep of their deposit in the form of cash with RBI)and repo rate (the rate at which banks borrows from RBI) since September 2008 to January 2009.
Arun Khurana, Fund Manager of UTI MF, says, "It is right time to invest in banking funds particularly PSU banks. It depends on time horizon of investment; if some one is looking for long-term investment it should be good. Valuation of banking stocks is attractive. Future for banking funds is bright. I do believe in investment in banking funds specially funds related to public sector banks."
If we look at the performance of banking funds, the category posted negative average of 49.93% over a year ended 16 January 2009. Reliance Banking Fund (-41.49%), UTI-Banking Sector Fund (-49.11%) and JM Financial Services Sector Fund (-59.20%)
BSE Bankex index posted negative returns of 55.70% outperforming Sensex that recorded negative returns of 50.96% during the period of 1 year, ended 16 January 2009. Bankex had seen jump with rocking 17.4% growth in December 2008 over returns of (-22.65%) in October 2008 & (-7.30%) in November 2008. But, the index has underperformed the Sensex in a year period from ended 16 January 2009.
However, now banking stocks are rising on account of cut in CRR and repo rate, indicating banks have more money to lend and reduction in cost of deposits. Thus, mutual funds investing in banking stocks are likely to boom. It creates good investment opportunity for the mutual fund houses to get invested in with a long term view..
Information Technology Funds
There are six funds that have high exposure in information technology sector. Total corpus of the funds invested in this sector declined to Rs 263.71 crore in December 2008 from Rs 271.81 crore in November 2008- a fall of 2.89%. Franklin Infotech Fund has the highest net asset value of Rs 68.61 and DSP BR Technology.com at Rs 59.37 in December 2008.
BSE Infotech index fell down to nearly 42.36% during a year ended 16 January 2009. The index slumped to 6.90% in a month period ended 16 January 2009. Birla Sun Life New Millennium Fund & DSP BR Technology.com posted negative returns of 9.23% and 8.80%, respectively for a month ended 16 January 2009.
The Information technology related funds posted negative category average returns of 56.32% over a year ended 16 January 2009. This downfall was due to bad performance of the sector on account of global turmoil. IT sector especially software is most affected sector. Indian IT sector is mainly dependent upon export for its revenue. But as US economy slowed down, demand for Indian IT products and skilled workers has declined. In addition, the volatility of the dollar against other currencies has made matters worst for the sector. The sector has seen the Satyam Computer scam, which is likely to drag out investments in IT industry.
Pharma funds
Pharma funds invested in stocks related to pharmaceutical sector have posted negative category average of 31.24% over a year period ended 16 January 2009. While in a month ended 16 January 2009, the category posted negative average of 1.02%. The sector has increased its total net asset value of Rs 195.83 crore in December 2008 from 180.53 crore in November 2008- a rise of Rs 8.48%. It contributed in total AUM only with 0.05%. Reliance Pharma Fund has the highest corpus of Rs 87.72 crore followed by UTI-Pharma & Healthcare Fund at Rs 45.29 crore in December 2008.
Only five funds exist in this sector as on 31 December 2008. Franklin Pharma Fund – was the topper with returns of 1.06% followed by JM Healthcare Sector fund at 0.25% returns over a month ended 16 January 2009.UTI-Pharma & Healthcare Fund, Magnum SFU - Pharma Fund and Reliance Pharma Fund were loosers during a month.
The sector saw heavy excise duty cuts, foreign firms acquiring domestic companies, legal conflict against the US Food and Drug Administration (FDA), ban on import of some drugs by the US FDA. These factors and general slowdown in the domestic market has led to fall in returns on pharma funds over a year.
FMCG Funds
Fast Moving Consumer Goods (FMCG) sector related funds posted negative category average of 30.70% over a year period ended 16 January 2009. While in a month ended 16 January 2009, the category posted average of 1.18%. FMCG funds total net asset value increased to Rs 71.80 crore in December 2008 from Rs 68.92 crore in November 2008- a rise of Rs 4.2%. ICICI Pru FMCG Fund has the highest corpus of Rs 44.19 crore followed by Franklin FMCG Fund at Rs 21.27 crore in December 2008.
Only 3 funds have major holding in this sector. Magnum SFU - FMCG Fund was topper with returns of 2.61% followed by Franklin FMCG Fund at 2.05% returns over a month ended 16 January 2009, while, ICICI Pru FMCG Fund was a looser in this category during a month period.
The rising interest rate, high commodity prices, slowdown in the economy in general has resulted in a downturn in this sector over year 2008.
However, recent fall in prices of agricultural products and crude oil, declining interest rate scenario in the economy and the crash in global commodity prices will shift consumer preference towards FMCG. In the recent market scenario FMCG stocks play the role of defensive investment instrument.
Infrastructure funds
Infrastructure Funds are gaining investors' confidence. As interest rates are falling, inflation is moving downward, these funds look attractive to the investors. Thus rising investment in this sector will improve corpus of the infrastructure funds.
The category posted negative returns of 58.36% underperforming the negative returns of 50.96% of Sensex for 1-year period ended 16 January 2009. However, during 1-month period ended 16 January 2009 Infrastructure funds outperformed the Sensex by posting negative category average of 5.69% compared with negative returns of 7.47% of Sensex
The infra funds recorded net asset value of Rs 18264.54 crore in December 2008 from Rs 16708.37 crore in November 2008- a rise of 9.31%. It contributed 4.34% in total AUM of Rs 421116.48 crore in December 2008.
Tata Growing Economies Infrastructure - Plan A with returns of –2.60%, AIG Infrastructure & Economic Reform with returns of –3.10% and Lotus India Infrastructure Fund having –3.21% returns, were top three funds among others that posted 1-month returns. While ICICI Pru Infrastructure Fund (returns of -49.92%), Reliance Diversified Power Sector (-50.86%) and Sahara Infrastructure - Variable Pricing (-52.95%) were the top three funds that posted 1 year period ended 16 January 2009
The New Year 2009 has come up with fiscal stimulus package. India Infrastructure Finance Company Limited (IIFCL) has been authorized to raise Rs.10,000 crore through tax free bonds by 31 March 2009 for refinancing bank lending of longer maturity to eligible infrastructure bid based PPP (public private partnership) projects. Construction and infrastructure stocks are thus likely to be major beneficiaries with the economy that shows signs of recovery now in the form of falling inflation rate, interest rate cuts by banks and cooling of commodity prices, increased industrial production data revealed for the month of November 2008 compared with October 2008.
Infrastructure funds are likely to gain on account of recent fiscal and monetary stimulus package and cut in interest rates. Fiscal and monetary stimulus package will enhance credit availability and boost infrastructure that in turn improve Indian economy at macro level. Thus, in the recent shallow market, infrastructure funds are looking attractive for investments that have long-term prospect. Infrastructure companies are likely to get money at low interest rates so that they can start up with new projects, or restart their awaited projects, constructions, etc. It will be beneficial for infra fund.
source: Nav India
