Religare MF announces Dividend for its PSU Equity Fund

Record Date Fixed on 26 November 2010 

Religare Mutual Fund has announced 26 November 2010 as the record date for the declaration of dividend on the face value of Rs 10 per unit under the dividend option of Religare PSU Equity Fund. 

Rs 1.20 per unit shall be declared as dividend as on the record date under the scheme. The NAV of the scheme as on 19 November 2010 stood at Rs 11.82 per unit. 

Religare PSU Equity Fund, an open ended equity scheme aims to generate capital appreciation by investing in equity and equity related instruments of companies where the central/state governments has majority shareholding or management control or has powers to appoint majority of directors.

Precious metals end higher

Prices add some glaze and European debt problems continue 

Precious metals ended higher on Monday, 22 November 2010 at Comex. Prices rose as European sovereign debt problems persisted increasing the appeal of bullion metals. Prices rose despite a strong dollar. 

Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies and also vice versa. But bullion metals have registered increase in prices despite strong dollar in recent times and vice versa. 

On Monday, gold for December delivery ended at $1,357.8 an ounce, higher by $5.5 (0.4%) on the New York Mercantile Exchange. During intra day trading, earlier it fell to a low of $1350.9. Last week, gold lost 1%. It was second consecutive weekly loss for gold in four weeks. 

Gold has surged to records since late August on expectations that Federal Reserve efforts at monetary stimulus will depress the dollar, making gold more valuable as an alternative store of wealth. 

Gold ended the month of October 2010 higher by 3.8%. Before this, it ended September 2010 and the third quarter higher by 5%. It was eighth consecutive quarterly gain for gold. For the second quarter, gold ended up by 12%. For the first quarter of this year, gold rose by 1.7%. On a year to date basis, gold is higher by 25.4%. 

On Monday, December Comex silver futures ended higher by $0.28 (1%) at $27.46. Prices gained 4.8% last week. 

For the month of October, silver gained 13%, its third consecutive monthly gain. In September, silver ended higher by 12%. For the third quarter, silver gained nearly 18%. For the second quarter, silver ended higher by 3.1%. For the first quarter of this year, silver rose by 3%. On a year to date basis, silver is higher by 59.6%. 

Officials from Ireland announced during the weekend a request for financial aid from the European Union as part of an effort to sturdy its tenuous financial state. Nothing official has been put forth, but most estimates point toward a plan that will feature something on the order of 100 billion euros. 

As per a latest report from a investment firm, silver is likely to average $19.94 in 2010, a 36% increase on the year and is to trade at more than $30 an ounce in 2011. 

The report also said that demand for silver is set to rise by 10% this year as a recovery in industrial uses, record coin demand and slight growth in jewelry offtake easily counter losses in photography and silverware fabrication. Global investment in silver is set to reach a record of $4 billion this year. 

The World Gold Council reported during last week that demand for gold continued to be strong in the third quarter. Demand hit 922 metric tons in the third quarter, a 12% increase from the year-ago period. Demand for gold jewelry increased 8% in the same period. Retail investment rose 25% to 243 metric tons, as investors snapped up gold bars. 

Gold had ended FY 2009 higher by 24%. Silver futures had ended 2009 up 50%. The dollar index had lost 4.2% against its counterparts last year. 

At the MCX, gold prices for December delivery closed higher by Rs 38 (0.19%) at Rs 20,140 per ten grams. Prices rose to a high of Rs 20,156 per 10 grams and fell to a low of Rs 20,015 per 10 grams during the day's trading. 

At the MCX, silver prices for December delivery closed Rs 293 (0.7%) higher at Rs 41,763/Kg. Prices opened at Rs 41,600/kg and rose to a high of Rs 42,078/Kg during the day's trading.

Crude stays low

Prices slip due to rising dollar 

Crude prices ended lower on Monday, 22 November 2010 at Nymex. Prices fell as the dollar rose and on demand concerns. 

On Monday, crude oil futures for light sweet crude for December delivery closed lower by $0.24 (0.3%) at $81.74/barrel. Last week, crude lost 4%. 

For the month of October, crude ended higher by 1.8%. In September, crude prices ended higher by 11.2%. For the third quarter, crude ended higher by 5.7%. Crude had ended second quarter of CY 2010 lower by 9.3%. For the first quarter of this year, crude rose by 5.5%. Year to date, crude is higher by 3.8%. 

In the currency market on Monday, the dollar index, which weighs the strength of the dollar against a basket of six other currencies rose by 0.4%. 

Also on Monday, December natural gas ended higher by 2.6% to $4.28 per MMBtu. Forecasts for colder-than- average temperatures pushed natural gas prices to their best levels since mid-August. Last week, the fuel vaulted 9.5% after two consecutive weeks of losses. 

Crude ended FY 2009 higher by 78%, the highest yearly gain since 1999. It reached a high of $82 earlier in October 2009 and hit a low of $33.98 on 12 February 2009. Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex. 

At the MCX, crude oil for November closed lower by Rs 37 (0.98%) at Rs 3,716/barrel. 

Natural gas for December delivery closed at Rs 201.9, higher by Rs 1.9 (0.9%).

FIIs continue buying

Inflow of Rs 525.90 crore on 22 November 2010 

Foreign institutional investors (FIIs) bought shares worth a net Rs 525.90 crore on Monday, 22 November 2010, on the top of an inflow of Rs 1443.40 crore on Friday, 19 November 2010. 

The net inflow of Rs 525.90 crore on 22 November 2010 was a result of gross purchases Rs 2913.10 crore and gross sales Rs 2387.20 crore. There was an inflow of Rs 521.60 crore into the secondary equity markets which was a result of gross purchases Rs 2908.50 crore and gross sales Rs 2386.90 crore. The BSE Sensex surged 372.15 points or 1.9% to 19,957.59 on that day. 

There was an inflow of Rs 4.30 crore into the category 'primary market & others', which was a result of gross purchases Rs 4.60 crore and gross sales Rs 0.30 crore. 

FII inflow in November 2010 totaled Rs 18,845.70 crore (till 22 November 2010). FIIs had bought equities worth Rs 28,562.90 crore in October 2010. FII inflow in the calendar year 2010 totaled Rs 1,31,768.80 crore (till 22 November 2010). In dollar terms, the net equity inflow in 2010 now stands at $29.03 billion, above last year's $17.45 billion. The annual inflows are at record levels this year. 

There are a total of 1,733 foreign funds registered with the Securities & Exchange Board of India (Sebi).

How to revive a lapsed insurance policy?

By Adhil Shetty

Some of us like our life laid back! That is fine if you are someone who is slow but steady in this fast paced era. However, if you add a heavy dose of procrastination to the mix, it could be lethal to your own best interests. Let us consider what happens to someone just like this who forgot to pay up his insurance premium after procrastinating on the dates for a while. 

Thankfully for him there were loopholes to make amends. Read on to figure how! 

Ajay, 32, has been going through an old bunch of documents, and comes across an insurance policy he had taken when he was 28, but had completely forgotten about. The first (and only) annual premium paid was Rs 8,000, and he's now feeling bad that the money paid has gone down the drain. Or, has it? 

Grace period

 

Generally, there is a grace period for paying your insurance premiums - a period of one month. During this period, the policy remains valid. However, beyond one month, the policy lapses, and no claims will be entertained by the insurance company. 

Revive an old policy

 

In Ajay's case, the policy ceased to be in force for three years, so he is not within the grace period. Yet, he can still revive his policy, since an insurace policy can be revived within five years from the date of the last unpaid premium. What Ajay needs to do is contact the insurance company, submit a declaration of health from a doctor recognized by the company, and pay the unpaid premiums along with a late payment penalty. 

Benefits

 

What benefit would Ajay get out of reviving an old policy? For one, he would get the benefit of having to pay regular premiums calculated when he was 28 - which would be less than the premium for a similar, new policy taken at the age of 32. He will enjoy all the benefits and guraranteed returns of the policy as was promised to him four years ago. Also, he benefits from tax deduction under Section 80C for the entire payment made towards arrears in premium payment, not counting the penalty. 

On the other hand, if Ajay decides not to revive the policy, he would lose the money he has paid as premium. If Ajay had paid his premiums for three years before discontinuing the policy, he would still have received the amount paid as premium along with pro-rata accrued bonuses at the end of the policy term. 

Doing it right!

 

Ajay's twin, Vijay, is more meticulous. He has a similar policy, issued at the same time as Ajay's, and his policy is still active. This, even though he has been out of the country for the last two years. How did he manage that? Well, being meticulous, the first thing Vijay did was set up an ECS facility with his bank in India and every year his premiums get paid directly, without his intervention. Knowing how careless his brother is, he has some advice for Ajay: 

- Ajay should update his correspondence address, contact numbers and email address with his insurance company when there is a change, so that they can send him reminders about due dates. 

- Ajay should also check with his insurance company if they have SMS alert facilities - this would ensure that he gets reminders by SMS. 

- Like Vijay, Ajay could set up an ECS facility with his bank (as long as he remembers to have the money in his account whenever his premium is due!). 

Author is CEO of a finance company.

NAV-guaranteed products under Irda scanner

After life insurance products, the sector's regulator is now turning its attention to unit-linked insurance products (Ulips) that guarantee the highest net asset value over its term. Two life insurance companies that have filed for Ulips guaranteeing such NAVs have been questioned by the Insurance Regulatory & Development Authority (Irda).

"The regulator has asked us why they should allow us to sell such a product,'' admitted a senior executive of alife insurance company. "It is not convinced about the idea of guaranteeing the highest NAV." Unlike regular Ulips that calculate payouts on the basis of NAV at the time of maturity, these policies guarantee the highest NAV over the first seven year term.

NAV is the current market value of a fund's net assets divided by the number of outstanding shares. Insurance companies have to maintain extra reserves to offer such guarantees. Most firms set aside 0.5-1 per cent of investments as reserves. This extra capital is maintained over and above the solvency requirement prescribed by the insurance regulator. These new products are also facing problems because of an additional layer of scrutiny. Products now have to go through actuarial, life and finance departments. Earlier, only actuarial and life departments use to approve products. "New products are facing trouble in getting clearance, since anew department has been added. If it is an investmentrelated product, then it goes to the finance department. The actuarial department use to go through the mechanism earlier," explained G N Agarwal, appointed actuary at Future Generali. Before the new department was added, a few insurers - including SBI Life and HDFC Life -launched Ulips guaranteeing the highest NAV. 

While SBI Life's product is called Smart Performer, HDFC's is branded HDFC Standard Life Crest. Life Insurance Corporation of India collected a record Rs. 15,000 crore from Wealth Plus, its guaranteed NAV product. The plan offers payment of fund value at the end of the policy term, based on highest NAV over the first seven years of the policy or NAV applicable at the end of the term.

Precious metals end marginally higher

India imports 43 tons of gold in October, 65% more than last year 

After dropping since the past couple of sessions, precious metal turned higher on Monday, 15 November 2010 at Comex. Prices rose as reports showed interest for physical demand for gold in recent times. 

Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies and also vice versa. But bullion metals have registered increase in prices despite strong dollar in recent times and vice versa. 

On Monday, gold for December delivery ended at $1,368.5 an ounce, higher by $3 (0.2%) on the New York Mercantile Exchange. During intra day trading, prices rose to a high of $1,378. It last steam going to the end of the session. Last week, the yellow metal lost 2.3%. It was first weekly loss for gold in three weeks. 

Gold has surged to records since late August on expectations that Federal Reserve efforts at monetary stimulus will depress the dollar, making gold more valuable as an alternative store of wealth. 

Gold ended the month of October 2010 higher by 3.8%. Before this, it ended September 2010 and the third quarter higher by 5%. It was eighth consecutive quarterly gain for gold. For the second quarter, gold ended up by 12%. For the first quarter of this year, gold rose by 1.7%. On a year to date basis, gold is higher by 26.5%. 

On Monday, December Comex silver futures ended marginally higher by a cent at $25.95. Silver's trading volume on Comex had hit a record level last week and prices reached thirty-year high figure. Prices then dropped after minimum maintenance margin requirements for silver reportedly went to $6,500 from $5,000 per contract. Prices shed 3.1% last week, the first loss in four weeks. 

For the month of October, silver gained 13%, its third consecutive monthly gain. In September, silver ended higher by 12%. For the third quarter, silver gained nearly 18%. For the second quarter, silver ended higher by 3.1%. For the first quarter of this year, silver rose by 3%. On a year to date basis, silver is higher by 59.5%.

Recent reports showed today that India imported 43 tons of gold in October, 65% more than last year. The market for physical gold has also benefitted from news last week that Vietnam, which is, along with China and India, a top gold consumer, lifted restrictions on importing gold.

The Commerce Department in US reported on Monday, 15 November 2010 that retail sales jumped 1.2% in October, the largest increase since March 2010. 

U.S. retail sales grew sharply in October, marking the fourth straight monthly gain, as consumers flocked to auto showrooms and made more purchases online. Sales for September and August were also revised higher. Excluding motor vehicles, however, retail sales rose a more modest 0.4%. 

The Federal Reserve Bank of New York's Empire State manufacturing survey reported on Monday, 15 November 2010 that conditions for New York area manufacturers deteriorated sharply in November, with a regional survey turning negative for the first time since July 2009. A steep drop in the new-orders components of the index, as well as a big drop in shipments, sent the reading into negative territory. 

Gold had ended FY 2009 higher by 24%. Silver futures had ended 2009 up 50%. The dollar index had lost 4.2% against its counterparts last year. 

At the MCX, gold prices for December delivery closed higher by Rs 89 (0.44%) at Rs 20,223 per ten grams. Prices rose to a high of Rs 20,282 per 10 grams and fell to a low of Rs 20,066 per 10 grams during the day's trading. 

At the MCX, silver prices for December delivery closed Rs 199 (0.5%) higher at Rs 39,610/Kg. Prices opened at Rs 39,307/kg and rose to a high of Rs 39,970/Kg during the day's trading.

Crude ends marginally lower

Prices drop due to mixed economic data

 

Crude prices ended marginally lower on Monday, 15 November 2010 at Nymex. Prices fell due to mixed set of economic reports and the dollar staying strong. 

On Monday, crude oil futures for light sweet crude for December delivery closed lower by 2 cents at $84.86/barrel. Last week, crude lost 2.3%. 

For the month of October, crude ended higher by 1.8%. In September, crude prices ended higher by 11.2%. For the third quarter, crude ended higher by 5.7%. Crude had ended second quarter of CY 2010 lower by 9.3%. For the first quarter of this year, crude rose by 5.5%. Year to date, crude is higher by 8%. 

The Commerce Department in US reported on Monday, 15 November 2010 that retail sales jumped 1.2% in October, the largest increase since March 2010. 

U.S. retail sales grew sharply in October, marking the fourth straight monthly gain, as consumers flocked to auto showrooms and made more purchases online. Sales for September and August were also revised higher. Excluding motor vehicles, however, retail sales rose a more modest 0.4%. 

Sales between August and October have growth 6.3% compared to the same period of 2009. Retail sales were revised to 0.7% growth in September, compared to an original reading of 0.6% growth, while August sales growth were revised up to 0.9% from 0.7%. 

The Federal Reserve Bank of New York's Empire State manufacturing survey reported on Monday, 15 November 2010 that conditions for New York area manufacturers deteriorated sharply in November, with a regional survey turning negative for the first time since July 2009. A steep drop in the new-orders components of the index, as well as a big drop in shipments, sent the reading into negative territory. 

The Federal Reserve Bank of New York's Empire State manufacturing survey fell to a reading of negative 11.1, from the 15.7 seen in October. The release was far worse than market expectations for a 15 reading and marks the first negative level since July 2009. 

On last Friday, the International Energy Agency revised higher its global demand forecast for oil products this year, by 200,000 barrels a day to 2.3 million barrels a day, or 2.8% growth on-year. As per the report, global oil demand is now expected to average 87.3 million barrels a day in 2010. For 2011, the IEA kept its growth forecast broadly unchanged at 1.2 million barrels a day, or 1.4% growth year on year, with demand seen averaging 88.5 million barrels a day. 

Earlier, Energy Information Administration increased its expectations for U.S. fuel consumption this year. The agency released its monthly outlook on Tuesday, also increasing its expectations for domestic oil production. As per the agency, global oil demand will be 2 million barrels per day. The EIA revised upward its estimate of global oil demand due to stronger-than-expected growth in European oil demand as well as continued strong growth in China. 

Among other energy products on Monday, December delivery for gasoline retreated 1 cent, or 0.7%, to 2.20 a gallon. Gasoline also had traded on the black for most of the session.

Also on Monday, December natural gas kept its gains intact. The contract added 5 cents, 1.2%, to $3.85 per million British thermal units. 

Crude ended FY 2009 higher by 78%, the highest yearly gain since 1999. It reached a high of $82 earlier in October 2009 and hit a low of $33.98 on 12 February 2009. Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex. 

At the MCX, crude oil for November closed higher by Rs 24 (0.6%) at Rs 3,854/barrel. 

Natural gas for November delivery closed at Rs 172.2, lower by Rs 1.3 (0.7%).

FIIs resume buying

Inflow of Rs 526.40 crore on 15 November 2010 

Foreign institutional investors (FIIs) bought shares worth a net Rs 526.40 crore on Monday, 15 November 2010 as against an outflow of Rs 683.20 crore on Friday, 12 November 2010.

The net inflow of Rs 526.40 crore on 15 November 2010 was a result of gross purchases Rs 2628.40 crore and gross sales Rs 2102 crore. There was an inflow of Rs 503.20 crore into secondary equity markets which was a result of gross purchases Rs 2605.10 crore and gross sales Rs 2101.90 crore. The BSE Sensex rose 152.80 points or 0.76%, to 20,309.69 on that day. 

There was an inflow of Rs 23.20 crore into the category 'primary market & others', which was a result of gross purchases Rs 23.30 crore and gross sales Rs 0.10 crore. 

FII inflow in November 2010 totaled Rs 17,112 crore (till 15 November 2010). FIIs had bought equities worth Rs 28,562.90 crore in October 2010. FII inflow in the calendar year 2010 totaled Rs 1,30,035.10 crore (till 15 November 2010). In dollar terms, the net equity inflow in 2010 now stands at $28.64 billion, above last year's $17.45 billion. The annual inflows are at record levels this year. 

There are a total of 1,737 foreign funds registered with the Securities & Exchange Board of India (Sebi).

Weekly Scenario: Pharma Fund Gains

The aftermath of the festive season proved costly for investors as global cues, weak domestic industrial growth numbers for September and mixed earnings reports trashed the indices this week. Pullout by foreign institutional investors also weighed on the markets. The IIP growth for the month of September 2010 was at 4.4% (yoy), was quite below the market expectation of 6.4%. The main reason for the slowdown in the growth in industrial production is fall in capital goods index. Sentiments were dampened further by fears that China would increase interest rates to further cool inflation, sparkling a rally in the dollar. 

The fall in equity markets had lead to the fall in NAV of all major equity fund categories while pharma funds gained 1.12%. In the major equity fund category, NAV of Index Funds declined the most by 3.37%, Tax Savings Funds by 2.61% and Equity Diversified Funds by 2.42% during the one week period ended 12 November 2010. Among the sub categories in debt fund, Ultra Short Term Funds surged up 0.14%, Floating Rate Income Funds – Short Term and Liquid Funds surged up 0.13% each. In the ETF category, Gold ETFs gained 2.57% while Other ETFs declined 3.89%. 

Among the sub categories in the hybrid funds, NAV of Debt Oriented Balanced Fund surged by 1.35%, followed by Arbitrage Funds (0.15%). While Equity Oriented Balanced Fund and Monthly Income Plans declined 1.73% and 0.38% respectively. 

Sector Funds

 

Pharma Fund was the lone gainer among the sectoral fund categories. NAV of Pharma Funds category advanced 1.12%, with UTI Pharma & Healthcare Fund ending the week as the biggest gainer with an increase in NAV by 1.92%; it was followed by SBI Magnum SFU – Pharma Fund which gained 1.41%. 

Debt Funds

 

Among the Debt funds, Canara Robeco InDiGo Fund gained 0.68%, HSBC Ultra Short Term Bond Fund added 0.18%, L&T Gilt Investment Plan and Escorts Floating Rate Fund surged 0.17% each. On the flipside Axis Income Saver and SBI Magnum Gilt Fun – Long Term ended at the bottom of the category declining 0.75% and 0.44% respectively. 

Equity Diversified Funds

 

Among the schemes in the equity diversified category, Tata Life Science & Technology Fund, SBI Magnum SFU – Emerging Businesses Fund, Tata Growing Economies Infrastructure – Plan A, Reliance Long Term Equity Fund were the gainers while the rest ended as losers. Their NAV advanced by 0.67%, 0.51%, 0.27% and 0.13% respectively over one week time period. Bharti AXA Focused Infrastructure Fund and SBI PSU Fund ended at the bottom this category declining 4.07% and 4.01% respectively. 

Tax Savings Funds 

 

Escorts Tax Plan and ICICI Pru Tax Plan were able to limit their loss to 0.56% and 1.72% respectively over one week time period. On the other hand Baroda Pioneer ELSS '96 and Bharti AXA Tax Advantage Fund were the worst hit in the tax savings fund category declining 3.86% and 3.51% respectively. 

Index Funds

 

The NAV of Index Fund category declined by 3.37% over one week period with Reliance Index Fund – Sensex, LICMF Index Fund – Sensex Plan being the top losers in this category. Their returns declined 3.65% and 3.57% respectively over one week time period. 

Hybrid Funds

 

Escorts Income Bond was the highest gainer in debt oriented balanced fund category as its NAV appreciated by 29.62%. DWS Money Plus Advantage Fund was the next highest gainer by 0.59%. Templeton India Pension Plan and Tata Young Citizens Fund were the worst performers in this category with a decline in NAV by 1.23% and 1.19% respectively.

HDFC Arbitrage Fund and Reliance Arbitrage Advantage Fund were the highest gainers in arbitrage fund category as their NAV appreciated by 0.23% and 0.21% respectively.

HSBC MF Declares Dividend Under Four Schemes

Record date for dividend is 19 November 2010 

HSBC Mutual Fund has announced 19 November 2010 as the record date for the declaration of dividend on the face value of Rs 10 per unit under the dividend options of following schemes: 

1. HSBC Equity Fund: Dividend – Rs 2.00 per unit, subject to the availability of distributable surplus. The scheme recorded NAV of Rs 30.8391 per unit as on 11 November 2010. 

2. HSBC Midcap Equity Fund: Dividend – Rs 2.00 per unit, subject to the availability of distributable surplus. The scheme recorded NAV of Rs 17.2954 per unit as on 11 November 2010. 

3. HSBC India Opportunities Fund: Dividend – Rs 1.00 per unit, subject to the availability of distributable surplus. The scheme recorded NAV of Rs 19.1764 per unit as on 11 November 2010. 

4. HSBC Small Cap Fund: Dividend – Rs 1.00 per unit, subject to the availability of distributable surplus. The scheme recorded NAV of Rs 15.9015 per unit as on 10 November 2010.

Sundaram MF Declares Dividend For Select Small Cap Fund

Record date for dividend is 19 November 2010 

Sundaram Mutual Fund has approved the declaration of dividend on the face value of Rs 10 per unit under dividend option of Sundaram Select Small Cap Fund. The record date for dividend has been fixed as 19 November 2010. 

The quantum of dividend will be 10% (Rs 1.00 per unit) as on the record date. The scheme recorded NAV of Rs 14.9943 per unit as on 14 November 2010. 

Sundaram Select Small Cap Fund is a closed-ended equity scheme which has the investment objective to generate consistent long term return by investing predominantly in equity/equity related instruments of companies that can be termed as Small Cap.

DSP BlackRock MF Declares Dividend For World Gold Fund

Record date for dividend is 19 November 2010 

DSP BlackRock Mutual Fund has approved the declaration of dividend on the face value of Rs 10 per unit under dividend option of DSP BlackRock World Gold Fund. The record date for dividend has been fixed as 19 November 2010. 

The quantum of dividend will be Rs 0.878421 per unit for individual and Rs 0.818699 per unit for others. The scheme recorded NAV of Rs 16.5803 per unit as on 11 November 2010. 

DSP BlackRock World Gold Fund is an open ended Fund of Funds scheme which has the investment objective to generate capital appreciation by investing predominantly in units of BlackRock Global Funds – World Gold Fund.

Franklin Templeton MF Declares Dividend For FT India Dynamic PE Ratio Fund of Funds

Record date for dividend is 19 November 2010 

Franklin Templeton Mutual Fund has approved the declaration of dividend on the face value of Rs 10 per unit under dividend option of FT India Dynamic PE Ratio Fund of Funds. The record date for dividend has been fixed as 19 November 2010. 

The quantum of dividend will be Rs 2.635 per unit for Individuals & HUF and Rs 2.456 per unit for Others. The scheme recorded NAV of Rs 36.6582 per unit as on 12 November 2010. 

FT India Dynamic PE Ratio Fund of Funds has the investment objective to provide long term capital appreciation with relatively lower volatility through a dynamically balanced portfolio of equity and income funds.

Franklin Templeton Announces Key Organizational Change

With effect from 12 November 2010 

Franklin Templeton Investments (India), the largest foreign fund house in the country, today announced a key organizational change. 

KN Sivasubramanian has been named Chief Investment Officer – Franklin Equity - India effective 12 November 2010. In this expanded role, Sivasubramanian will be responsible for overseeing all the local India equity funds. He will be based in Chennai and will continue to report to Sukumar Rajah. Prior to taking on this new role, Sivasubramanian served as Head of Franklin Equity Portfolio Management. Mr. Sivasubramanian has been in the investment industry since 1993 and since then has been a key portfolio manager for Franklin Templeton funds through the ups and downs of the Indian equity markets. Earlier he was Industrial Finance Officer of Industrial Development Bank of India. Sivasubramanian holds an engineering degree from REC - Jaipur and an MBA from IIM Kolkata. 

Commenting on the appointment, Sukumar Rajah, Managing Director & Chief Investment Officer of Franklin Asian Equities, said, “Siva has successfully managed some of the flagship funds over the last 16 years and was also responsible for overseeing the portfolio management of all the local funds, in the last year or so. Siva has contributed immensely to the development of the India equity funds and has been an excellent investment professional. I believe that he will be able to take the Indian equity funds to greater heights by leveraging the talent base we have built over the years.” 

Harshendu Bindal, President, Franklin Templeton Investments (India) added “Franklin Templeton has built a strong franchise in India over the years with a clear focus on delivering consistent performance to our investors. The product range consists of some of the oldest equity funds in the country with a track record across market cycles for over 17 years, many of them managed by Siva. We believe that this change will strengthen our investment management team and help us in building on the excellent track record of our flagship equity funds.”

Precious metals turn pale

Silver sheds most of its prior day's gains as margin requirements tighten 

Precious metal prices dropped from their recent historic highs on Wednesday, 10 November 2010. Strong dollar and reports of tighter margin requirement for silver pricing acted as the dampener for the recent upsurge in bullion metal prices. Precious metals have been striking new records since past few days trended following last week's confirmation of a new round of quantitative easing. 

Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies and also vice versa. But bullion metals have registered increase in prices despite strong dollar in recent times and vice versa. 

On Wednesday, gold for December delivery ended at $1,399.3 an ounce, lower by $10.8 (0.8%) on the New York Mercantile Exchange. It traded to its session lows, at $1383.40, in mid-morning trade and spent the remainder of the day bouncing off those lows. 

Gold has surged to records since late August on expectations that Federal Reserve efforts at monetary stimulus will depress the dollar, making gold more valuable as an alternative store of wealth. Precious metals are also benefiting from safe-haven appeal as worries about European debt, particularly Irish bonds, have resurfaced. 

Gold ended the month of October 2010 higher by 3.8%. Before this, it ended September 2010 and the third quarter higher by 5%. It was eighth consecutive quarterly gain for gold. For the second quarter, gold ended up by 12%. For the first quarter of this year, gold rose by 1.7%. On a year to date basis, gold is higher by 29.2%. 

On Wednesday, December Comex silver futures ended lower by $2.02 (7.1%) at $26.89. 

Silver's trading volume on Comex hit a record level on Tuesday. Margins are the money investors put up to be able to trade a futures contract. Minimum maintenance margin requirements for silver reportedly went to $6,500 from $5,000 per contract. 

For the month of October, silver gained 13%, its third consecutive monthly gain. In September, silver ended higher by 12%. For the third quarter, silver gained nearly 18%. For the second quarter, silver ended higher by 3.1%. For the first quarter of this year, silver rose by 3%. On a year to date basis, silver is higher by 62.9%. 

In the currency market on Wednesday, the dollar index, which measures the strength of the dollar against a basket of six other currencies, erased most of its initial gains and ended higher by 0.2%. 

The Labor Department in US reported on Wednesday, 10 November 2010 that the number of workers who filed new claims for unemployment benefits fell 24,000 last week to 435,000 for the week that ended on 6 November. Market had expected initial claims to fall to a seasonally adjusted 450,000. The four-week average of initial claims, however, sank to its lowest level in two years, down 10,000 to 446,500. 

The Commerce Department in US reported on Wednesday, 10 November 2010 that the U.S. trade deficit narrowed in September as exports rose to their highest level in more than two years. As per the report, the nation's trade deficit contracted 5.3% in September to $44.0 billion from $46.5 billion in August. The government initially pegged August's deficit at $46.3 billion. 

Additionally, the Labor Department in US reported on Wednesday, 10 November 2010 that due to rise in fuel costs, prices of goods imported into the United States rose 0.9% in October 2010. Prices for imports excluding fuels increased a smaller 0.3%. 

Gold had ended FY 2009 higher by 24%. Silver futures had ended 2009 up 50%. The dollar index had lost 4.2% against its counterparts last year. 

At the MCX, gold prices for December delivery closed lower by Rs 294 (1.4%) at Rs 20,233 per ten grams. Prices rose to a high of Rs 20,463 per 10 grams and fell to a low of Rs 20,090 per 10 grams during the day's trading. 

At the MCX, silver prices for December delivery closed Rs 2,753 (6.4%) lower at Rs 39,899/Kg. Prices opened at Rs 42,476/kg and fell to a low of Rs 39,626/Kg during the day's trading.

Crude ends strongly higher

Prices rise to two years high levels as crude stockpiles drop last week 

Crude prices shot up on Wednesday, 10 November 2010 at Nymex. Reports of drop in crude stockpiles last week pushed crude prices higher to its highest levels in almost two years. Prices rose despite a strong dollar. Positive economic data also impacted prices. 

On Wednesday, crude oil futures for light sweet crude for December delivery closed at $87.81/barrel (higher by $1.09 or 1.3%). It was the highest closing for crude since October 2008. 

For the month of October, crude ended higher by 1.8%. In September, crude prices ended higher by 11.2%. For the third quarter, crude ended higher by 5.7%. Crude had ended second quarter of CY 2010 lower by 9.3%. For the first quarter of this year, crude rose by 5.5%. Year to date, crude is higher by 11.3%. 

In the latest weekly inventory report, EIA reported a decline of 3.3 million barrels in the nation's crude-oil supplies in the week ended 5 November. Market was expecting a buildup in crude inventories. Gasoline stockpiles fell 1.9 million barrels and distillates dropped by 5 million barrels. 

A day before, Energy Information Administration increased its expectations for U.S. fuel consumption this year. The agency released its monthly outlook on Tuesday, also increasing its expectations for domestic oil production. As per the agency, global oil demand will be 2 million barrels per day. The EIA revised upward its estimate of global oil demand due to stronger-than-expected growth in European oil demand as well as continued strong growth in China. 

EIA also said on Tuesday that it expects the price of West Texas Intermediate crude oil to average about $83 a barrel during the winter season running from 1 October through 31 March. That outlook is an increase of $5.50 a barrel over last winter, and $3 a barrel more than the outlook it released last month. 

In the currency market on Wednesday, the dollar index, which measures the strength of the dollar against a basket of six other currencies, erased most of its initial gains and ended higher by 0.2%. 

The Labor Department in US reported on Wednesday, 10 November 2010 that the number of workers who filed new claims for unemployment benefits fell 24,000 last week to 435,000 for the week that ended on 6 November. Market had expected initial claims to fall to a seasonally adjusted 450,000. The four-week average of initial claims, however, sank to its lowest level in two years, down 10,000 to 446,500. 

The Commerce Department in US reported on Wednesday, 10 November 2010 that the U.S. trade deficit narrowed in September as exports rose to their highest level in more than two years. As per the report, the nation's trade deficit contracted 5.3% in September to $44.0 billion from $46.5 billion in August. The government initially pegged August's deficit at $46.3 billion. 

Additionally, the Labor Department in US reported on Wednesday, 10 November 2010 that due to rise in fuel costs, prices of goods imported into the United States rose 0.9% in October 2010. Prices for imports excluding fuels increased a smaller 0.3%. 

Among other energy products on Wednesday, gasoline for December delivery added 5 cents, or 2.3%, to $2.24 a gallon. 

Also on Wednesday, December natural gas contract lost 16 cents, or 3.9%, to $4.05 per million British thermal units. It sold off through out the session to end near its lows at $4.02. 

Crude ended FY 2009 higher by 78%, the highest yearly gain since 1999. It reached a high of $82 earlier in October 2009 and hit a low of $33.98 on 12 February 2009. Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex. 

At the MCX, crude oil for November closed higher by Rs 29 (0.74%) at Rs 3,901/barrel. 

Natural gas for November delivery closed at Rs 182.2, lower by Rs 3.4 (1.8%).

MF Industry Witness Net Outflow of Rs 5742 crore in October

Mutual Fund (MF) industry witnessed net outflow for the second consecutive month in October. The net outflow stood at Rs 5742 crore in October compared with net outflow of Rs 71838 crore in September. Heavy outflows were seen in income funds (Rs 5305 crore) and equity funds (Rs 2869 crore). Tight liquidity situation went high during October due to Coal India IPO and demand for money during festival season. This made mutual fund industry to face outflows during October. 

Funds mobilized from 32 newly launched schemes in October stood at Rs 9460 crore, out of which Rs 9354 crore came from 30 income funds. 

Total Assets Under Management (AUM) of mutual fund industry declined 1.66% or Rs 10918 crore to Rs 6.46 lakh crore in October. AUM of Gold ETF surged the highest by 8.70%, followed by Other ETFs by 4.97% and Gilt Funds by 2.85% among others. On the other hand liquid funds witnessed highest fall in AUM by 6.06%.

Reliance MF Launches 369 Days FMP

NFO Period from 11 November to 16 November 2010 

Reliance Mutual Fund has launched a new fund named as Reliance Fixed Horizon Fund – XVI – Series 3, a close ended income scheme with the duration of 369 days from the date of allotment. During the New Fund Offer (NFO) the scheme will offer units at Rs 10 per unit.

The new issue is open for subscription from 11 November 2010 and closes on 16 November 2010. 

The primary investment objective of the scheme is to generate regular returns and growth of capital by investing in a diversified portfolio of Central, State Government securities and other fixed income/ debt securities normally maturing in line with the time profile of the scheme with the objective of limiting interest rate volatility. 

The scheme offers two options viz. growth and dividend payout option. 

The scheme will allocate up-to 70% of assets in money market instruments and it would allocate 30% to 100% of assets in Government Securities issued by Central & or State Government & other fixed income/ debt securities including but not limited to Corporate bonds and securitized debt with low to medium risk profile. Debt Securities will also include securitised debt, which may go up to 50% of the portfolio. 

The minimum application amount is Rs 5000 and in multiples of Re 1 thereafter. 

The fund seeks to collect a minimum subscription (minimum target) amount of Rs 20 crore under the scheme during the NFO period. 

Entry and exit load charge will be nil for the scheme. 

Benchmark Index for the scheme is CRISIL Short Term Bond Fund Index. 

The fund manager of the scheme will be Amit Tripathi.

Sundaram MF Announces Change in Key Personnel

Resignation of Director – Trustee Company

 

Mr. K.V. Krishnamurthy has relinquished his directorship from Board of Sundaram Trustee Company Ltd with effect from 29 October 2010. 

Change in designation of the Key Personnel of the AMC

 

Mr. Satish Ramanathan, Head Equity has been promoted as Director and Head of the Equity and Mr. Sunil Subramaniam, Executive Director Sales & Marketing has been promoted as Director Sales & Marketing of the AMC with effect from 20 October 2010. 

Other Changes in Key Personnel of the AMC

 

Mr. Sandeep Agarwal joined in the Fixed Income Division as a Dealer. 

Mr. Nalinakanthi has been transferred to investment Department, designated as Equity Analyst. 

Mr. Madanagopal Ramu and Mr. P S Subramaniam joined in the Investment Department as Equity Analysts. 

Mrs. J. Esther Priya, Head Investor Relations has been designated as Investor Relations Manager in the place of Ms. Shalini Mohan Rao who has been transferred to the Marketing Department as Manager Marketing Communication.

MFs continue selling

Outflow of Rs 99.30 crore on 10 November 2010 

Mutual funds (MFs) sold shares worth a net Rs 99.30 crore on Wednesday, 10 November 2010 lower than Rs 390.60 crore on Tuesday, 9 October 2010. 

The net outflow of Rs 99.30 crore on 10 November 2010 was a result of gross purchases Rs 347.70 crore and gross sales Rs 447 crore. The BSE Sensex declined 56.77 points or 0.27%, to 20,875.71 on that day. 

MFs bought shares worth net Rs 685.60 crore in November 2010 (till 10 November 2010). Mutual funds had sold equities worth a net Rs 5800.60 crore in October 2010.

Precious metals strike historic highs

Prices show no sign of easing despite a strong dollar 

Precious metal prices finished at historic highs on Monday, 08 November 2010. Despite a strengthening dollar, precious metals trended higher on momentum following last week's confirmation of a new round of quantitative easing. 

Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies and also vice versa. But bullion metals have registered increase in prices despite strong dollar in recent times and vice versa. 

On Monday, gold for December delivery ended at $1,405 an ounce, higher by $15 (1%) on the New York Mercantile Exchange. During intra day trading, gold rose to a high of $1,409.5. 

Gold ended the month of October 2010 higher by 3.8%. Before this, it ended September 2010 and the third quarter higher by 5%. It was eighth consecutive quarterly gain for gold. For the second quarter, gold ended up by 12%. For the first quarter of this year, gold rose by 1.7%. On a year to date basis, gold is higher by 28%. 

The metal hit its recent string of record highs in October amid quantitative-easing expectations and related inflation fears, as well as on the back of the dollar's trend of weakness. 

On Wednesday, December Comex silver futures ended higher by 45 cents (2.9%) at $27.43. During intra day trading, prices rose to a high of $27.64. With today's close, silver returned to its thirty-month high figure. For the month of October, silver gained 13%, its third consecutive monthly gain. In September, silver ended higher by 12%. For the third quarter, silver gained nearly 18%. For the second quarter, silver ended higher by 3.1%. For the first quarter of this year, silver rose by 3%. On a year to date basis, silver is higher by 49%. 

In the currency market on Monday, the dollar index, at its high for the day, was up 0.8% against competing currencies, but it has since eased back to trade with a 0.5% gain.

Gold had ended FY 2009 higher by 24%. Silver futures had ended 2009 up 50%. The dollar index had lost 4.2% against its counterparts last year. 

At the MCX, gold prices for December delivery closed higher by Rs 365 (1.8%) at Rs 20,336 per ten grams. Prices rose to a high of Rs 20,375 per 10 grams and fell to a low of Rs 19,996 per 10 grams during the day's trading. 

At the MCX, silver prices for December delivery closed Rs 1,364 (3.5%) higher at Rs 40,730/Kg. Prices opened at Rs 39,489/kg and rose to a high of Rs 40,866/Kg during the day's trading.

Crude ends marginally higher

Natural gas witnesses the best rally among all energy products 

Crude prices ended marginally higher on Monday, 08 November 2010 at Nymex. Despite a strengthening dollar, commodities trended higher on momentum following last week's confirmation of a new round of quantitative easing. 

On Monday, crude oil futures for light sweet crude for December delivery closed at $87.06/barrel (higher by $0.21 or 0.2%). It juggled around between an intraday low of $85.96 and an intraday high of $87.59 during the session. 

For the month of October, crude ended higher by 1.8%. In September, crude prices ended higher by 11.2%. For the third quarter, crude ended higher by 5.7%. Crude had ended second quarter of CY 2010 lower by 9.3%. For the first quarter of this year, crude rose by 5.5%. Year to date, crude is higher by 14%. 

In the currency market on Monday, the dollar index, at its high for the day, was up 0.8% against competing currencies, but it has since eased back to trade with a 0.5% gain.

Among other energy products on Monday, gasoline for December delivery settled down less than 0.1% at just under $2.18 a gallon. Heating oil for December delivery also saw a slight rise, settling up a penny to $2.40 a gallon. 

Also on Monday, December natural gas gained 2.4% to finish at $4.09, helped higher by forecasts for colder-than-usual temperatures. Session highs in natural gas, at $4.097, were its best levels in a week. 

Crude ended FY 2009 higher by 78%, the highest yearly gain since 1999. It reached a high of $82 earlier in October 2009 and hit a low of $33.98 on 12 February 2009. Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex. 

At the MCX, crude oil for November closed higher by Rs 20 (0.5%) at Rs 3,866/barrel. Natural gas for November delivery closed at Rs 181.7, higher by Rs 8.5 (4.9%).

FIIs continue buying

Inflow of Rs 748.60 crore on 8 November 2010 

Foreign institutional investors (FIIs) bought shares worth a net Rs 748.60 crore on Monday, 8 November 2010 on the top of a massive inflow of Rs 6906.90 crore on Thursday, 4 November 2010. 

The net inflow of Rs 748.60 crore on 8 November 2010 was a result of gross purchases Rs 4235.80 crore and gross sales Rs 3487.20 crore. There was an inflow of Rs 719 crore into secondary equity markets which was a result of gross purchases Rs 4203.40 crore and gross sales Rs 3484.40 crore. The BSE Sensex fell 152.58 points or 0.73% to 20,852.38 on that day. 

There was an inflow of Rs 29.60 crore in the category 'primary market & others', which was a result of gross purchases Rs 32.30 crore and gross sales Rs 2.70 crore. 

FII inflow in November 2010 totaled Rs 16,362.70 crore (till 8 November 2010). FIIs had bought equities worth Rs 28,562.90 crore in October 2010. FII inflow in the calendar year 2010 totaled Rs 1,29,285.90 crore (till 8 November 2010). In dollar terms, the net equity inflows in 2010 now stands at a record $28.48 billion, above last year's $17.45 billion. 

There are a total of 1,737 foreign funds registered with the Securities & Exchange Board of India (Sebi).

Sundaram MF announces Dividend for its Select Mid Cap Fund

Record Date Fixed on 12 November 2010 

Sundaram Mutual Fund has announced 12 November 2010 as the record date for the declaration of dividend on the face value of Rs 10 per unit under the dividend option of Sundaram Select Mid Cap Fund. 

Rs 2.00 per unit (20%) shall be declared as dividend as on the record date under the scheme. The NAV was Rs 21.9085 per unit under retail plan and Rs 20.4607 per unit under institutional plan. 

Sundaram Select Mid Cap Fund is an open ended equity scheme which seeks capital appreciation by investing in diversified stocks that are generally termed as mid –caps.

Religare MF Announces Change in Fund Management Team

With effect from close of business hours on 8 November 2010 

Religare Mutual Fund has announced that Mr. Pradeep Kumar – Fund Manager – Equity has resigned from the service and shall cease to be key personnel of Religare AMC with effect from close of business hours on 8 November 2010. 

Consequently, Religare Banking Fund and Religare Infrastructure Fund will be managed by Mr. Amit Ganatra. Religare Growth Fund will be jointly managed by Mr. Vetri Subramaniam and Mr. Vinay Paharia. Religare PSU Equity Fund will be jointly managed by Mr. Vetri Subramaniam and Mr. Amit Ganatra. 

Further, Religare Arbitrage Fund, Religare AGILE Fund and Religare AGILE Tax Fund which are presently managed by Mr. Vetri Subramaniam will now be managed by Mr. Abbas Ratnani.

DSP BlackRock Launches FMP - 12M - Series 9

NFO Opens on 08 November and closes on 09 November 

DSP BlackRock Mutual Fund has unveiled a new scheme named as DSP BlackRock FMP – 12M – Series 9, a close-ended income scheme, with a maturity profile of 12 months from the date of allotment. The New Fund Offer (NFO) price for the scheme is Rs 10 per unit. The new issue will be open for subscription from 08 November and close on 09 November 2010. 

The primary investment objective of the scheme is to seek capital appreciation by investing in a portfolio of debt and money market securities. It is envisaged that the scheme will invest only in such securities which mature on or before the date of maturity of the scheme. The scheme may also use fixed income derivatives for hedging and portfolio balancing. 

The scheme offers a choice of two options, growth option and dividend payout option.

The minimum investment amount is Rs 10000 and in multiples of Rs 10 thereafter. 

Entry and exit load charge will be nil for the scheme. Units of scheme are proposed to be listed on the National Stock Exchange of India. 

The scheme would allocate up to 100% of assets in debt securities and money market securities with low to medium risk profile. Debt securities may include fixed income derivatives (only for hedging and portfolio re-balancing) upto 50% of the net assets. 

The schemes performance will be benchmarked against CRISIL Short Term Bond Fund Index.

We expect measures focused on sectoral basis to gain more headlines in the next policy

Vijai Mantri, MD & CEO, Pramerica Mutual Fund 

Commenting on the Second Quarter Review of Monetary Policy 2010-11, Vijai Mantri, MD & CEO, Pramerica Mutual Fund, said “RBI has indicated a switch to targeted policy action stance from now on, having successfully addressed the aspect of high inflation. Clearly, expectation from RBI is of moderation in general levels of inflation going forward in response to policy action already taken. Attention will now be on sectors which are assessed as overheated. As in case of housing sector, RBI has increased the risk weightage and has capped the loan to value ratio T 80%. We expect measures focused on sectoral basis to gain more headlines in the next policy”.

Fiscal Situation Appears To Be Comfortable

RBI's Second Quarter Review Of Annual Policy (FY 11) – A Perspective, Santosh Kamath, CIO - Fixed Income, Franklin Templeton Investments 

The following are his comments. 

The second quarter review of the monetary policy was along expected lines, with the sixth straight hike in rates and RBI signaling a pause in monetary tightening in the immediate future. Policy statements indicate inflation remains a top concern, given rising demand side pressures, structural factors in food price inflation and the uptick in global commodity prices. The central bank has expressed confidence in the strength in domestic economic growth and its resilience to global growth slowdown. Measures on the mortgage finance front and steps to enhance the corporate governance mechanism for banks are steps in the positive direction and should boost financial sector health. 

On the economic front, industrial and export data has softened in recent months, and there are some signs of easing in headline inflation levels, but there hasn't been a meaningful dip. Overall, robust economic growth, growing income levels and rising global commodity prices is expected to feed into further rise in prices of consumables as well as assets/ property. As a result, RBI has hiked provisioning rules for teaser home loan rates to 2% (from 1% earlier) and also introduced a cap on loan-to-value (LTV) ratio of 80%. This alongside increase in risk weightages for high value housing loans reflects RBI's cautious stance towards possible asset bubbles. 

Policy statements indicate that the central bank is comfortable with the strong capital flows that are helping in funding the widening current account deficit. However, it is likely to intervene if the flows are beyond the absorptive capacity of the economy. As part of its efforts to strengthen the financial sector, the bank has said that it is looking to prescribe limits on investments of banks in companies engaged in forms of business other than financial services alongside guidelines on compensation practices and corporate governance. It has tightened capital adequacy norms for financial conglomerates. 

Markets

Indian treasury yields eased after comments from the central bank suggested that it is likely to be on hold in the near future as it studies the impact from recent measures and on possible downside risks to growth from the global situation. The rise in short-term rates over the last couple of weeks has been mainly due to the tightness in systemic liquidity. RBI has extended liquidity support measures and announced another round of bond buybacks, which helped ease liquidity pressures and boost market sentiment. 

There was little impact from RBI measures on the equity markets – frontline indices were marginally changed over yesterday levels. Realty stocks were however impacted by concerns the tightening measures could weigh on demand for residential property. 

Outlook

RBI has indicated that it is likely to keep policy rates on hold in the near term as it studies global developments and evaluates the impact of its tightening so far. Given that the trends in food inflation are being increasingly driven by structural factors, the government needs to address the bottlenecks for a longer term solution. RBI measures may have limited effect on this front. Capital flows are likely to continue due to flows into the equity markets, higher FII limits in the debt markets and increased overseas borrowings by Indian entities. 

The fiscal situation appears to be comfortable due to strong tax collections and higher-than-expected non tax revenues and renewed confidence in meeting disinvestment targets. The large equity issuance pipeline and higher demand for credit in the second half of the fiscal, short-term rates could remain firm. At the same time, RBI has also indicated that it will actively manage systemic liquidity to alleviate excessive deficit pressures. Given the spike in short term yields and the central bank indicating a ‘pause', investors can take exposure to fixed income funds focused at the short-end of the curve to benefit from the higher accruals.

The Current Steps Taken By the RBI Is Also Expected To Make the Corporate Bond Market More Liquid

Mr. Ramesh Rachuri, Sr. Fund Manager - Fixed Income, Bharti AXA Investment Managers 

Fixed Income Market Update & Strategy

Commenting on the second quarter review of the monetary policy for 2010 -11, Mr. Ramesh Rachuri, Sr. Fund Manager - Fixed Income, Bharti AXA Investment Managers, said “The Reserve Bank of India raised the Repo Rate by 25bps to 6.25%, and the Reverse Repo Rate by 25bps to 5.25%. It also continued with its liquidity infusing measures by announcing a buyback of Rs. 12000 crore of G-Secs on the 4th of November. It also increased the provisioning for banks' real estate loans. In addition, from the bond market perspective, it has also decided to “permit settlement of repo in corporate bonds' effective December 1st 2010 for which detailed guidelines will be issued. Further, RBI has also stated – “Based purely on current growth and inflation trends, the Reserve Bank believes that the likelihood of further rate actions in the immediate future is relatively low.” 

“Stubbornly high protein led food inflation, possible quantitative easing in developed economies which would drive up commodity prices, attenuating domestic demand to rein in the growing current account deficit were some of the factors considered in taking this stance. The immediate impact of the policy and the liquidity infusion measure caused the 10 year G-Sec bond to rally from a yield of 8.11% to 7.97% currently. Short term CD rates also softened as a result of pent up demand in waiting for the policy stance. 

Monetary authorities also try to target a ‘neutral' policy rate at which there is no slack in the economy in terms of potential output. RBI has also implied that after the present hike, the monetary situation is close to normal or neutral and further action would depend on evolving circumstances. So, unless inflation goes out of hand, or there is a ‘shock' to the system, RBI would prefer to wait and watch in the mid-quarter review on the 16th of December. What would then be a market mover in the bond and money markets would be liquidity. The current illiquidity in the market is also structural with the government of India parking its surplus of around Rs. 77,000 crores with the RBI. Essentially, the current buyback is being financed by using this surplus parked with the RBI. Unless the government starts spending, the current lack of liquidity (roughly to the extent of the above mentioned account) in the market would persist. The current steps taken by the RBI is also expected to make the corporate bond market more liquid. 

In light of the above, and given the expected pause in rate hikes in December (and possibly till the end of the current financial year), we would judiciously extend duration in our Bharti AXA Treasury Advantage Fund, and Bharti AXA Short Term Income Fund. In Bharti AXA Short Term Income Fund, we would endeavour to do this through a combination of buying PSU short tenor corporate bonds as liquidity in these securities would be higher than 1 year CPs (even though CPs would give slightly higher yields), and shorter tenor active and liquid G-Secs. This would enable us to exploit the high carry once the rates' settle down. On further external inflows in the bond market, these bonds would gain. We believe that our investments in higher yielding, longer duration securities, and an active trading and management of G-Secs and credit spread trading would substantially enhance returns over a one to three month period, in both the above mentioned schemes”.