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Pravin Palande
Pravin Palande
I look at markets as numbers because numbers don't lie
Photo: Shailesh Andrade / Reuters

Photo: Shailesh Andrade / Reuters

What if there was a cricket match between the distributors of mutual funds (MF) and insurance sales agents? I happened to ask this question to an experienced veteran CEO from the MF industry. He smiled and said, “It is an uneven playing field. On one side, you have a team of players from a relatively younger industry (mutual funds) who are eager to showcase what they can do, but their playing actions and strategies have already been dissected (Read: Transparency) by the opposition. On the other side, you have a bunch of experienced and seasoned professionals (insurance) about whom very little is known. The fate of the match will be decided even before the first ball is bowled!”

Now with the Securities and Exchange Board of India (Sebi) trying to bring in more transparency for the mutual fund investor by making it mandatory for distributors to declare their commission income to the buyer of the fund, the MF agent is not at all happy. Mint, a newspaper, has reported that some distributor associations have launched a protest drive against this proposal.

While most agree that making the mutual fund business more transparent will serve well for the mutual fund buyer, the distributors feel that this is not a level-playing field. Insurance agents and mutual fund agents go for the same pie of savings of the investor and with insurance agents not disclosing their high commissions and having a one line sales pitch always end up getting the customers savings.

Let us look at the communication part. Says Vikaas M Sachdeva, CEO, Edelweiss MF, “It is the ability to simplify and communicate ‘a benefit’ which leads to the growth of the industry. Any other information usually adds to the clutter.”

To take that a little further, let us see some financial products which have attracted a lot of money. For example, a fixed rate of return is the USP for a fixed deposit. The entire communication is built around this piece, not unnecessary information like how strong the banks financials are.

If one looks at the insurance industry, an insurance agent simply goes, “What if you are not around in the next few years or you die in an accident? Who will take care of the family?” Here the sales agent is using negative terminology to conclude the sale and this ‘scare tactic’ has worked well over the last 20 years. (A friend of mine became an insurance agent at the age of 20 and asked all of us to buy a policy because life was uncertain. “Tu kabhi bhi mar sakta hai” worked.)

The emotive pull from this one statement supersedes the necessity of any further details like distributor commissions. Incidentally, he is a senior development officer today handling around 500 agents and has done very well in life!

Now can the MF agent use the same line to sell funds? He can. But probably he will fail. What can he say? “Sir, in case of death, this mutual fund will help your family and generate regular income when you are not there.” The negative sales pitch has not worked when selling mutual funds. In fact, as far as mutual fund products go, there is no single line definition for the product category. This one product has communication clutter because it claims to do too many things. Also, the communication is restrictive which is why it is usually considered to be a product endorsed by the “head” (logic) and not “heart” (emotion). Not to mention that there is too much of information, which under the aegis of transparency, simply intimidates the investor.

Many times, a lot of negative terminology like volatility, bears and market fall are used in a span of 30 minutes and they end up scaring the investor. Nimesh Shah, CEO and MD of ICICI Prudential Mutual Fund, says investors don’t like words like volatility. These words bring out negative emotions and the buyer clearly tells the distributor that he is better off with a fixed deposit or some other debt product. “You have to be very careful about the words being used. Investors get scared of negative terminology,” Shah says. He feels that the question to be asked to the investor in today’s world is, ‘What if he lives longer?’

Shah has a point. With advancement in medical research and lower health care costs, the average lifespan of people is only going up. According to World Bank data, life expectancy in India for 2013 is 68 years. It was 61 in 1996.  With per capita incomes going up, life expectancy will also increase. For the US, the number was 81 in 2013, up from 77 in 1996.

MF agents still don’t look at life expectancy numbers and the long term returns of equity markets. But with CEOs like Nimesh Shah and Vikaas Sachdeva understanding this relationship, we might get to see some agents looking at this data more seriously when they plan the retirement future of their clients.

Secondly, insurance products are sold on emotions and mutual funds are sold on logic. Emotional products always have a way of attracting the buyer. Be it a cellphone used to call the daughter, a chocolate advertisement which shows the bond between a mother and her son or a textile brand advertisement where emotions are shown to show bonds between different members of a family.

Insurance products have some of the most emotional advertisements on television. They are very effective and stay on the minds of the consumer for a longer time. MF advertisements are logical but are also easily ignored. “We have a restricted canvas as far as the advertising code goes. Also, we tend to have more product-oriented advertising rather than solution oriented ones, says Sachdeva.

Insurance products are also sold by agents who already know their customer. There is already some kind of a relationship between an insurance sales agent and the buyer. Most probably, the insurance agent is your next-door neighbour, so there is an element of trust involved. A mutual fund agent is mostly unknown and many times, a cold caller.

Thirdly, mutual fund investors are more attentive to their portfolios when they see the markets fall. The only time most investors or mutual fund buyers remember their investment is when stock markets crash. Not that this happens often. But whenever markets crash, investors tend to look at their returns more carefully. And since the pain of losses is almost 2.3 times than the happiness of gains (Kahneman and Tversky model), investors tend to stay away from mutual funds all the more. Some can blame the transparency of the mutual fund product that allows the average investor to calculate or understand the losses. Since he cannot do the same with an insurance product, the chances are that he will remain happy in his ignorance.

The insurance team plays together and everyone has a single philosophy and unless this single line of sales or philosophy is not clear, the mutual fund agents will have a problem selling their products.

As far as commissions go, the insurance industry has been able to reward its agents far more lucratively rather than the MF industry. Insurance agents say that while there is a belief that insurance commissions range anywhere between 35 percent and 60 percent, the fact remains that commissions are not high especially with the LIC which gives the same commissions to individual agents as well as corporates. The latest guide to LIC agents /distributors shows that a typical first-year term policy premium is 25 percent. The insurance agents say that the commission they receive is higher compared to the commissions received by mutual fund agents but then some of the funds have taken a on the AMC balance sheet and giving the MF agents upfront commissions, especially in close-ended schemes.

So, we have a “push” in terms of commissions and a “pull” in terms of a USP – no wonder the insurance industry has grown so rapidly. On the other hand, if you look at the MF industry with no clear USP and now with Sebi talking about disclosing distributor commissions and fund manager salaries, the industry is bracing itself for a slowdown.

At the end of the day, one question which will matter is: What about the end buyer of the product?

The end buyer is getting smarter and now understands the old school methods of selling financial products, especially in major cities. However, with a 14 percent financial literacy rate across the country, most will struggle to differentiate between a mutual fund and an insurance product or for that matter any financial product. The key is to have a level-playing field for all financial products, starting with communication and some agreed norms of disclosure.

mumbai_shutterstockImage: Shutterstock.com

The last ten years have done wonders to the wealth of super-rich Mumbaikars. The tribe of super-rich individuals has increased in the city over the last decade and going forward, their strength is slated to further increase, says a Knight Frank report.

The number of ultra high net worth individuals (UHNIs) in India’s financial capital is expected to more than double in 2015-2025 to 2,255 individuals.

According to the 2016 Wealth Report by Knight Frank, an international real estate consulting firm, the number of UHNIs—people with net worth above $30 million (around Rs 201 crore)—in Mumbai has witnessed the fastest growth in a list of 25 global cities that were tracked by the firm between 2005 and 2015.

Over the last decade, the number of UHNIs in Mumbai grew 357 percent to 1,100 individuals and in the next ten years their number is slated to rise by 105 percent to 2,255 individuals, according to the report.

This makes Mumbai the fastest-growing city in terms of the number of UHNIs, albeit from a lower base. New York has the highest number of UHNIs at 5,600 followed by London at 4,900.

There are many factors that have worked in favour of Mumbai. First, the city has gained from its fast-growing GDP, which has gone up by 11 percent annually over the last ten years. This resulted in a growth in capital markets and the real estate market, which were up by 15 percent annually.

The bulk of the assets of the super-rich are invested in capital markets and real estate. India is one of the few countries that has seen these markets go up continuously over the last decade. Considering the fact that the country still has the highest GDP growth, it won’t be a surprise to see India’s ultra rich grow their wealth in the next decade.

Here is the list of the top 25 global cities and the number of UHNIs in each:
(Note: The infographic is interactive. Click on the drop down icons to engage with the data.)

 

deadpool_big The movie starts with ‘Mera joota hai Japani’ with a superhero wearing a red suit. No wonder the movie is a big hit in Russia.

Deadpool has had the biggest opening for an R rated film at $325 million from 62 markets since it opened on February 12, 2016. In Russia, the film garnered $13.1 million in the opening weekend. That is even higher than the Star Wars Episode VII: The force awakens which bagged $12.3 million in Russia in the opening week.

Now the question is will Deadpool live up to its reputation and manage to actually beat Star Wars Episode VII’s total collection of $2 billion worldwide.

It doesn’t really matter. The movie has done what it was meant to do. And that is to create high quality entertainment for the matured superhero fan.

The movie is incredibly witty with gags and black humour. It mocks the entire superhero universe and makes fun of some of the most loved characters in the Marvel and DC franchise. But it is the self deprecating parts that really get you. Here are seven reasons why you should be watching Deadpool:

1. Superhero movies follow the deadly cycle of eight years. In 1992, there was Batman Returns followed by a financial crisis. The Christopher Nolan directed movie Dark Knight was released on July 18, 2008. On September 15 that year Lehman Brothers filed for bankruptcy. And now, we have Deadpool  and a lot of financial analysts screaming this is the beginning of a new crisis. Oil prices are below $30 and there are negative interest rates. The time is perfect for a superhero who doesn’t hesitate to kill whatever that doesn’t need to survive.

2. Most of the characters in the movie are low-level wage earners. There are mutants, ex-soldiers and CGI characters struggling to make ends meet. There are no rich guys in the movie. No fancy villains. The bad guy is a mutant crook who wants to create slaves out of people.

3. There is a cure for cancer. But then, there is too much torture and if you survive the treatment you will be immortal with a weird sense of humour. So serious surgery will come at a cost and that is plenty of black humour.

4. Deadpool starts with the popular Hindi song ‘Mera joota hai japani’ being played inside a cab driven by an Indian called Dopinder. He prefers a yellow cabbie. A superhero dressed in red and not having his own supercar and the Hindi song point towards a left-leaning superhero. He might be an inspirational figure for the protesting students from JNU.

5. Negasonic Teenage Warhead looks like Sinead O’Connors who did that phenomenal early nineties song cover version of ‘Nothing Compares to You’. If you still remember her then chances are that you missed the entire grunge scene and music stopped with O’Connors. There is a Ripley-Alien 3 joke in the movie. Negasonic is the futuristic version of Sigourney Weaver and Si O’Connors.

6. If you were a Wham fan in your teens then Deadpool is for you. Deadpool is a Wham fan. Remember George Michael and Andrew Ridgeley. But since most of the people in the cinema hall would not have heard Careless Whisper, chances are that you will feel like an uncle. If the 90s pop music nostalgia is not over for you, then the movie also has ‘You are the inspiration’ playing in the background during a serious fight. This one will kill you for sure as you will remember your 10th standard summer vacation.

7. The movie is the directorial debut of Tim Miller who had earlier done the title sequence of The Girl with the Dragon Tattoo and the opening sequence of Thor: The Dark World.

 

amtek_autoAmtek Auto saw a lot of enthusiasm in the stock movement on Friday, November 20, for some time before closing at Rs 44.60 (down by 0.34 percent). For some time, the stock was up by two percent on news that SSG Capital, a vulture fund, had stepped forward to buy the debentures of Amtek Auto which were subscribed by JP Morgan Mutual fund. The company had failed to honour the debentures due to which the fund faced serious problems. It had to remove the Amtek debt investment from its schemes – JP Morgan India Short Term Income Fund (JSTI) and JP Morgan India Treasury Fund (JTF) – in such a way that one set of investment or portfolio had the Amtek Auto investment while the other did not have it.

The debenture issue was for a total of Rs 800 crore where Rs 600 crore was subscribed by banks, which according to reports, refused to look at Amtek as an NPA. On the other hand, the move from SSG Capital has come as a big saviour to all stakeholders.

Mutual funds in general had never invested in Amtek Auto, especially on the equity front. It was a stock that was clearly avoided by funds. “We had a problem with the management style of the company. Besides, the financials of Amtek Auto were always a question,” says a CIO of one of the big mutual funds in the country on condition of anonymity.

Amtek Auto had a return on capital employed of around 8.15 percent (Source: Cline) in 2008 which kept on going down over the years. A report on forensic accounting by Ambit Capital in December 2014 had spotted accounting anomalies in the balance sheet of the company. It was charging lower depreciation to its assets in spite of the fact that 90 percent of its assets were land and building. The same number was around 78 percent for its peers. The report also stated that there was volatility in the non-operating income of Amtek Auto. Investors were not happy with these findings.

The debt to equity ratio of the company was also not in the comfort zone. For the year ended June 30, 2008, it was 0.88:1 which increased to 1.46:1 by the end of September 30, 2014. Over the years, the debt went up by 22 percent annually while the net worth went up by 13.51 percent. One of the main problems with this lacklustre performance was the auto market itself which had not shown any growth for some time.

The stock of the company was considered to be very volatile. It had doubled after the market went into a rally when Narendra Modi was announced as the prime ministerial candidate in September 2013. Even if one would have purchased the stock in January 2014 at Rs 75, he/she would have seen it double in the next three months. By September 2014, the stock touched Rs 250 or gave a return of 231 percent in nine months. But professional fund managers in general stayed away from it. The stock later plummeted to Rs 30 by the middle of October 2015.

JP Morgan Mutual Fund was the only mutual fund that purchased the Amtek Auto debt from the secondary market. In August 2015, JSTI held 10.78 percent of its total corpus in Amtek Auto while JTF held 5.87 percent.

While the fund managers we spoke to didn’t want to come on record, they state that the problem with JP Morgan was that the debt team was not in communication with the equity team. “Anybody who is tracking the equity market in the auto segment knew that there were big problems with Amtek Auto. If the debt team was in communication with the auto team, such problems would never happen,” said a CIO. “Another problem is that the equity analysts are forward looking while debt analysts are backward looking and that creates all the problems,” he added.

In some mutual funds, there is a culture of working in silos. And as the funds start growing big, the communication between different teams comes to a standstill. The fund managers we spoke to had never ever invested into the equity as well as debt instruments of Amtek Auto because the feedback from the equity analysts was grim. In many cases, the debt fund managers were completely dependent on the equity analysts to understand new information about companies. This new information gets easily reflected into the share prices of stocks and is also available to everyone in the market. But that is not the case with debt markets. In most cases, debt as an instrument is very illiquid to trade and analysts are not in a position to value these instruments. So it becomes all the more necessary for them to be in touch with the equity analysts.

Nandkumar Surti, managing director and CEO of JP Morgan Asset Management Company, has decided not to discuss this issue with the press. But if you look at the volatility of the equity stock, it becomes clear that there were a lot of things that the equity stock was capturing on a regular basis. JP Morgan completely missed this basic clue and now has lost trust amongst its investors.

Gillian Tett, a journalist with the Financial Times, has written a book called The Silo Effect that deals with this phenomenon to a certain degree. The book talks about examples where people in different parts of the organisation refuse to talk with each other. The Guardian newspaper wrote that according to Tett, the financial crisis was caused both by a Silo effect of inadequate communication between department of giant banks, and by the mental silos that resulted into misclassifying credit instruments and by simply ignoring the tell-tale growth of what, after the fact, was vividly christened “the shadow banking system”.

http://economictimes.indiatimes.com/mf/mf-news/vulture-investor-ssg-capital-management-to-rescue-jpmorgan-from-amtek-fiasco/articleshow/49851730.cms

http://www.livemint.com/Money/bS3UqQhPddMRq8pJA0NTdP/JP-Morgan-AMC-to-move-Amtek-Auto-investments-into-separate-s.html

http://www.theguardian.com/books/2015/oct/17/the-silo-effect-why-putting-everything-in-its-place-isnt-such-a-bright-idea-gillian-tett-review

Since 2009, Forbes India has been compiling and publishing a data set on the 100 richest Indians. It is arguably the most comprehensive data that you will find on India’s wealthiest people. We have been crunching the figures every year to find interesting nuances and changes in the composition and distribution of wealth among the top 100. Over the last seven Forbes India Rich Lists, the data set has increased to 700 records and we decided to do something interesting with it.

We came across Tableau, a data visualisation company, which has the ability to convert any data into a picture. Their job is to “make data and spreadsheets understandable to a layman”.  One of the minds behind Tableau is Professor Pat Hanrahan, a founding member of the animation film company Pixar, who believed that the Pixar type of technology could be used in data visualisation.

Deepak Ghodke, who looks at Tableau’s business in the Asia Pacific and India regions, put us in touch with his colleague Prashant Momaya, a data analyst and data visualiser. We wanted a way to compare the change in fortunes of the top 100 wealthy Indians between 2009 and 2015. This is what Tableau India gave us:

There are two panels in the infographic.
1. Change in wealth: This is an interactive panel. Select any number of names listed on the right and the comparison of their change in wealth over the years can be obtained as a line chart. By default, we are giving you a comparison of the change in wealth of Dilip Shanghvi, the Godrej Family, Azim Premji and Mukesh Ambani from 2009 to 2015.

2. Distribution of wealth: Here we have represented the wealth of each rich list ranker as a share of the total wealth of the richest 100 Indians. The individual’s share of wealth is represented as a bubble which can be compared over 2009 and 2015. This panel is not interactive.


Man cycles past residential buildings under construction in Kolkata

Image Courtesy: REUTERS/Rupak De Chowdhuri

According to the Economic Times the real estate market has corrected by 30 percent.

Is that good enough reason for you to run to the nearest home loan bank, wave your monthly salary slip at them and ask for a loan? After all, only last year one of your friends bought a 2-BHK flat in Borivli (Mumbai) for ₹2.2 crore, and if the Economic Times is right, something similar would cost you around ₹1.5 crore now. Perhaps you should pause before lacing up your running shoes.

Ashutosh Limaye, who handles research at JLL India, a real estate consulting firm, agrees that there are pockets where you will find that prices have fallen, but calling it a huge correction is going too far. He says, “If there is a correction then it should be across the board for everyone without asking for any discounts. There should be no connection with the developer and no cash transactions. Even if one aspect is missing out of these three parameters, I will consider this as a deal-specific discount.”

For instance, developers are ready to give you discounts where the structures are still being built, but getting one in a completed project is extremely difficult. Though the same is not true for buildings that are old: Extremely crowded areas in Mumbai like Borivli, Dadar or Ghatkopar have seen some minor price falls over the quarter ended March 2014. According to MagicBricks.com, rates in Ghatkopar west are down by 5.4 percent.

Limaye says that this data is based on secondary market sales, where the rationale for selling is not easy to understand. “The seller here sells on reference rates and sentiments, unlike the rates of new projects. When we look at changes in prices, we always go with new projects and primary rates.”

We looked at the data for Mumbai to understand if there was any genuine fall in real estate prices. The big picture? To our surprise, prices in most cases have only gone up. There has been a jump of around 2 to 4 percent in areas closer to Chembur and Kanjurmarg, thanks to improved connectivity with south Mumbai, the Bandra-Kurla Complex and the western suburbs.

One of the surest bellwethers for real estate prices in Mumbai is Lower Parel. Over the last quarter, prices haven’t dropped. In fact they’ve moved up by 7 percent.

Navin Kumar, Executive Director, Milestone Capital Advisors, says “If there is a big correction, then there has to be consumption. Buyers will always rush in immediately if there is a correction. Since there is no data on increased consumption, I don’t see this as a correction.”

Real estate investment is generally for the longer term. Investors typically wait for at least three years before they see serious returns. So we looked at data for three years on MagicBricks.com. Interestingly, since December 2010, the real estate prices in some areas of Mumbai are up by 33 percent or 10 percent annually for the last three years.

Mumbai Area Jan-Mar 2014 Oct-Dec 2013 Oct-Dec 2010 Q-o-Q return (%) CAGR (%) 3-year return (%)
Altamount Road 75152 - 54419 - 10 38
Andheri West 21724 21253 15162 2 12 43
Borivali West 14613 - 11551 - 8 27
Dadar West 31178 31493 25266 -1 7 23
Ghatkopar East 15231 16107 11549 -5 9 32
Kanjurmarg East 14809 14290 - 4 - -
Powai 19851 19743 15623 1 8 27
Chembur 17118 16556 11992 3 12 43
Bandra West 43436 43438 30046 0 12 45
Lower Parel 34238 31978 27031 7 8 27
₹/sq foot

Source MagicBricks.com

S.Naren, the chief investment officer – equities at ICICI Prudential mutual funds is taking a big bet on Cairn India, a global E&P company which has seen its stock price fall by 12 percent over the last year. In comparison, the BSE Sensex has moved up by 21 percent.

The May 2013 fact sheet of the mutual fund shows that Cairn India accounts for 10.53% in his Dynamic Fund. Cairn India accounts for a fourth of India’s oil production and has an exploration acreage of 42210 sq/kms. When it comes to valuations, it is exactly the stock that a fund manager like Naren is on the look out for. Cairn India trades at a P/E multiple of 3.7 times which is lower than the industry P/E of 12.

The market in general is giving a very high valuation to sectors like FMCG, Pharma and quality banks which are being traded at a earnings multiple at around 30 times, fund managers are having a tough time looking for value.

Naren who is known for his fundamental analysis and long term investment philosophy finds the market very expensive at these levels. In general, he has looked for quality at a reasonable price but this is one market he feels that is difficult to understand.

This has to do with the fact that all the quality stocks now has huge FII flows. These are investors who are ready to give higher valuation to stocks as long as they deliver quality. Most of these investors are ready to wait in case the market falters or the companies spook them in terms of growth rates. They know it that India is a growth market and eventually they will get the returns if they are ready to wait for the long term. On the other hand Naren has decided to stay away from this rally. This has also affected the returns for the Dynamic Fund. Over the last one year the fund has underperformed the the BSE 100 which returned 22% while the returns of the fund were lower at 12%.

In such a situation Naren is looking towards Cairn India to deliver.

It is a bet backed by conviction. Only a few months ago he was in a similar situation.

In October 2012 he had taken a similar exposure to Bharti Airtel when the stock was completely out of flavour amongst investors. The stock was down by 40 percentage while the Sensex had moved up by 15 percentage over the last one year. The fund manager saw that there was a lot of value on the telecom growth story and invested into the stock through the Dynamic Equity fund. No one was buying the story when the fund started investing in Bharti at around Rs 260 in August 2012. In the next four month the stock moved up by 34% and thus gave a huge booster to the Dynamic Fund.

Though it may look like the Dynamic Equity Fund will miss out on the quality rally that is now experienced by the market, It will be a good idea to go by the guts of S.Naren. It may take him some time for the fund to deliver performance. But given time, the long term investor can still benefit by investing into this fund even at this levels.

Jiju Vidyadharan, Director Funds & Fixed Income Research at Crisil

Jiju Vidyadharan, Director Funds & Fixed Income Research at CRISIL

The last five years have been very painful for the markets with annual returns hovering around 3 percent. Most funds have managed to only marginally beat this benchmark return while others simply languished.

UTI mutual fund is one of the few fund houses that has managed to give good returns in a lacklustre market. The fund has topped Crisil’s quarterly ranking for mutual funds with seven of the schemes in the top cluster for the quarter ended March 2013.

The UTI dividend yield fund, MNC fund and opportunities fund have clocked a return of more than 10% for the last five years. We spoke to Jiju Vidyadharan, Director Funds & Fixed Income Research at Crisil about why UTI has been such a consistent performer.

UTI Fund

FI: Is it really difficult to achieve lower risks and higher returns in the Indian markets?

JV: Some of UTI AMC’s funds have lower volatility in returns. UTI MNC Fund, for instance, has the least volatility of 12.61 percent across all equity funds managed by UTI, over the past three years. The key reason for this trend has been their investments in defensive sectors, which have a lower volatility as compared to the broad market.

FI: When the market has been flat at around 3 percent for the last five years, both dividend yield growth fund and UTI opportunities have managed to return around 10 percent. What has really worked for them?

JV: Over the past three years, UTI Lifestyle fund generated returns of 9.57 percent over the last 3 years ended March 2013. The fund had 21 percent exposure to defensives and 11 percent to finance, which helped it outperform the category. The fund is ranked Crisil Fund Rank 1 as per the Crisil Mutual Fund Ranking for March 2013.

UTI Opportunities fund had 17 percent average exposure to defensives and also had 9 percent exposure to cement during the same period, which helped it generate 7.74 percent returns during the three year period. The fund is also ranked Crisil Fund Rank 1.

UTI Dividend Yield Fund, on the other hand, has yielded returns of 4.68 percent during the same period. This is similar to the category average. Exposure to Oil and gas and Auto sectors lowered the return for the fund. The fund is ranked Crisil Fund 3 as per the Crisil Mutual Fund Ranking for March 2013.

FI: The fund managers in UTI have not taken concentrated risks. How does CRISIL look at concentration of risks in general and how does UTI fit in?

JV: For Equity funds, CRISIL uses diversity score/ Herfindahl’s index as the parameter to measure industry concentration and company concentration. Crisil’s scoring on each parameter is relative among the peer set. Only a few UTI funds are ranked 1 and 2 on both company and industry concentration. This indicates that they are relatively less diversified as compared to peers.

FI: In terms of liquidity parameters how does UTI opportunities and lifestyle fund fare in your ranking?

JV: Crisil evaluates liquidity based on the trading volume over the past six months for stocks in the portfolio. Crisil’s scoring on each parameter is relative among the peer set.

UTI Opportunities fund and UTI India Lifestyle fund have parametric ranks of 5 and 3 respectively on Equity liquidity as per the Crisil Mutual Fund Ranking for March 2013. This indicates that the liquidity of the stocks.

Standard Chartered plc will open a window from May 31 to June 7, 2013 where Indian Depository Receipt (IDR) holders can convert their holding into shares of the company. A foreign company can access Indian securities market for raising funds through the issue of Indian Depository Receipts and StanChart is the only foreign company that has issued IDRs.

Many of these investors have been holding the IDRs for more than a year, when the arbitrage opportunity was much bigger than the present 14 percent. The IDR is trading at a discount to its London price in the Indian markets. Several Indian investors have been waiting to cash in on the arbitrage opportunity ((buying in one market and simultaneously selling in another, profiting from a temporary difference) which could yield around 14.4% on exercise of the IDRs.

Ten IDRs represent one share of Standard Chartered. This is how the math works:

Indian IDR price = Rs 118.55

Standard Chartered stock price in London: 16.10 pounds

Standard Chartered stock price in Indian rupee: 16.10 x 83.88 (pound value in rupees) = Rs 1,350.46

10 IDRs will be equal to 1 share which works out to Rs 1185.5

Even if investors buy the IDR at Rs 1,185 and sell it at around Rs 1,350 they can get a return of 14.4%.

Many Indian mutual funds already have Standard Chartered as the largest holding in their portfolio. They are waiting for the window to open where they can quickly profit from the opportunity. Many of these investors have been holding the IDRs for more than a year, when the arbitrage opportunity was much bigger than the present 14%.

The British bank will open up this window for conversion at least once in a year, so investors in India can convert their IDRs into shares. Standard Chartered plc listed IDRs on Indian market in June 2010.

Akshaya Tritiya on Monday was a big day for Gold ETFs (exchange-traded funds). Goldman Sachs’ GoldBees, the biggest of them, notched up a turnover of Rs 525 crore. The ETF’s price, however, price fell by 1.15 percent to Rs 2,560. The average daily turnover for the fund is around Rs 13 crore.

World gold prices are falling and that is reflected in Indian gold ETFs, which generally follow London prices. Since 20 March this year, gold has fallen 10 percent. But, over the last five years gold ETFs have returned 18 percent annually, compared to 3 percent for the Nifty.

So should one keep buying gold as prices go down?
Gold has a negative relationship with equity. In times of crisis, gold as an investment performs better than equity. If we look at annual rolling returns data for gold and the Nifty for the last four years, gold was in negative return territory 21 times and the Nifty was in negative territory 285 times. The total data set had 1,007 points.

After the world economy went into a tizzy because of the Lehman crisis, gold as an asset class has only grown. Indian gold ETFs are now worth Rs 10,600 crore, far bigger than the index ETFs which hold assets to the extent of Rs 1,500 crore. There are now around 14 schemes that allow Indian investors to participate in gold ETFs. Motilal Oswal has an ETF that allows investors to redeem in physical gold.

As the world economy is showing signs of recovery, there is the possibility of gold funds losing some of their sheen, as money will be directed to equity or fixed income. In fact there are many who believe that gold can even fall further.

A Societe Generale report says that this is clearly the end of the gold era. The report argues that since 2000, gold returns have been much higher compared to the rest of the century and if we look at the one year rolling returns of gold in US dollar, since the end of the Bretton Woods system in 1971, negative returns occurred around 38 percent of the time and large losses occurred 18 percent of the time.

The report further points out that since the global economy is on the road to recovery, this could again be negative for gold. There are five drivers for a positive global economy which include advanced de-leveraging (debt reduction), repair of credit channels and reduced policy uncertainty.

But all is still not well with Europe, with countries like Spain and Italy showing prolonged periods of political uncertainty. Inflation is still a worry.

So should one keep buying gold as prices go down?
Since gold has a very strong negative relationship with equity markets, it probably makes sense to have some 5-10 percent in gold ETFs or other investment products as a hedge. Since the world economy is not out of the woods yet, it probably makes sense to hold a little gold- but not as jewellery.

Incidentally, Indians and Chinese account for more than 70 percent of the gold jewellery market across the world and that is not exactly a good thing.

 
 
Pravin Palande
The financial markets generate a lot of number on a per second basis. There are people who have made it a profession to convert this information into trends, buy-sell signals, charts and pivot tables. Over the last 18 years of financial journalism, I have realised that every number has a story to tell. And these numbers as a trend normally never lie. Im forever looking for these trends.
 
 
 
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October 15, 2015 16:03 pm by Chetan
This is the right time to invest into the property in Navi Mumbai. Because today Navi Mumbai is considered to be the best city and have much many faculties. Builders are ready to negotiate in property rates.
October 15, 2015 14:08 pm by Dibyendu Sharma
Good one Prashant...nice use of shapes and lines. Liked it
October 14, 2015 21:00 pm by Vinay
This is brilliant. Never seen data like this before. its so interactive and fast. Thank you