India Stock Index Reaches Record on Foreign Buying

MUMBAI, India (AP) — India’s benchmark Sensex index closed at a record high Thursday, after the Federal Reserve’s decision to buy $600 billion in government bonds to shore up the United States recovery drove a surge of foreign investment into fast-growing India.

The Sensex closed up 2.1 percent, at 20,893.6 points, topping a January 2008 closing high of 20,873.33, according to Bombay Stock Exchange data. The index touched an intraday high of 20,917.0, 290 points shy of its record intraday high on Jan. 10, 2008.

“It’s the Fed’s quantitative easing,” said Nandan Chakraborty, managing director of institutional equity research at Mumbai’s Enam Securities. “It’s great for India.”

Mr. Chakraborty said the Fed’s announcement, against a backdrop of slow growth and near zero interest rates in the developed world, would continue to bolster emerging market stocks, commodities and the rupee. A rising rupee will help India’s importers, like engineering, infrastructure and telecom companies, but will hurt its software services exporters, like Infosys and Tata Consultancy Services, which get more than half their revenue from North America.

On Thursday, foreign investors poured $635.9 million into Indian equities and debt, bringing the year-to-date total to a record $36.3 billion, according to the securities regulator.

India’s central bank has been less concerned about the flood of foreign investment — and its export-bruising impact on the rupee — than other emerging Asian economies because India must finance a growing current-account deficit and an ambitious $9 billion government divestment program.

The central bank has warned that it will intervene if capital flows become disruptive.

India also suffers from higher consumer price inflation than any other major world econ

omy, which makes the Reserve Bank of India more tolerant of the rupee’s rise. The bank seems more concerned about the damage to export competitiveness from inflation than rupee appreciation.

Coal India touched a high of 344.75 rupees ($7.80) on the Bombay Stock Exchange before settling at 342.35 rupees compared with an offering price of 245 rupees a share.

The government sold 10 percent of its stake in Coal India, which controls about 80 percent of the nation’s coal market, raising $3.4 billion in India’s largest initial offering ever.

Reliance Industries, HDFC Bank, State Bank of India and Tata Motors all closed up 3 percent or more.

Courtesy : nytimes

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Mutual funds to disclose assets on quarterly basis

MUMBAI: Local mutual funds need not compete with each other over the status of their assets under management (AUMs) every month end from now on.

The Association of Mutual Funds in India (Amfi), the lobbying arm of local domestic mutual funds, has done away with monthly disclosure of AUMs from October. This disclosure would be made every quarter.

“The average AUM (AAUM) for each quarter (90-day average) will be computed and uploaded on the Amfi website on the first working day of the fol-lowing month of every quarter, effective from quarter ending December 31, 2010,” Amfi said.

The move follows representations from the industry, which felt that monthly AUM disclosure did not serve the purpose because it put ‘undue pressure’ on mutual funds.

“Inflows and outflows are a normal part of the systemic activity. Sharp outflows result in a negative publicity and are interpreted wrongly,” said a chief executive of a private mutual fund.

The race for higher AUMs among mutual funds started in the previous bull run, when investors poured money into schemes. But after the bear phase starting January 2008 and the Sebi ban on mutual funds against charging investors fees to pay distributors in August 2009, flows into schemes are nowhere close to what they were in the previous bull run. Changes in valuation methods of some fixed income schemes and uncertainty in the debt market have also caused volatility in flows into mutual fund schemes.

“Every fall in AUM has been extensively reported in the media and it was putting unwanted pressure. This is not needed, given that the mutual fund industry is a long-term product,” said the sales head of a mutual fund, based in the South.

Courtesy : economictimes

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India Growth Set to Overtake China

FUND MANAGER Q&A: India is now the most expensive Asian market but in the longer term there are substantial growth opportunities, sasy Invesco Perpetual's Tim Dickson

As India celebrates Diwali, we took the opportunity to talk to Tim Dickson, fund mana

ger on the Asia Equities desk at Invesco Perpetual, about his

economic outlook for the country and its emerging market counterparts, investing opportunities in India, and the tradition of reading the 45-minute Muhurat trad

ing session that takes place on the National Stock Exchange of India on Diwali as an omen for the rest of the year.

Cook: India today celebrates Diwali – a national holiday in the UK would usually mean the London Stock Exchange would be closed for the day, but that’s not the case in India. Can you explain what happens in India and what is traditionally seen on the India market?

Dickson: Yes, so the traditional thing is to open up the market for an hour in the evening—for 45 minutes to be precise—and it’s seen as a sign of luck for the year ahead. So the idea is that if the market rises in this time, it’s a good sign for the future. Obviously volumes are very low but what tends to happen is people put in orders to buy shares for family members as a gift, so instead of buying gold or something they buy them a few shares, and if the market’s up that’s meant to be a good omen and is supposed to signify there are many more good trading sessions to come. It’s a bit like Groundhog Day: if the hog shows its face then it’s good news.

Historically it appears that the market does tend to go up a few points on Diwali as I guess no one wants to spoil the good luck charm. Though you’re only talking a few points—much less than a tenth of a percent.

Cook: Given that Mumbai's Sensex hit an all-time high yesterday with a 2% rise, it might be a little harder than in previous years for the market to add extra points today. Presumably yesterday’s session was partly festive spirit but there was also a major IPO, wasn’t there?

Dickson: Yes. A few things were driving up India yesterday—all positives. First of all we had the QE2 from the US which drove markets up across Asia because the amount announced was as much, if not potentially slightly more, than people had hoped. So that helped. And then there was a lot of excitement around Coal India, a government-owned company that was listing a 10% stake. I think it’s the largest coal company in the world by reserves—it’s a big, big company. So there was a lot of excitement around

that, it closed up around 40%. So I’d say there were more important factors than just Diwali—it was really going up with the rest of the world.

Cook: The region as a whole has been particularly strong for a while now; investors are certainly broadly optimistic about emerging markets at present. How do the opportunities in India compare with those in other emerging markets?

Dickson: I think there are a couple of things that are attractive about India and that have been attracting money to India. The first thing is the growth trajectory has really picked up. People used to think of India as being in the 5%-6% growth trend, whereas China—obviously people were thinking more in the region of 8%-10%. But what we’ve seen over the past few years is India picking up a gear, partly because investment has picked up and partly thanks to the reforms that were made back in the ‘90s. The result of that is the economy has picked up to a new trajectory of perhaps 7% or 8% and I think that change has generated a lot of excitement.

The second issue is that if you look at longer-term interest rates in India, they’ve come

down, and obviously as interest rates fall that tends to encourage investment as well. So it’s become a very interesting place to grow.

A final point is that the Indian economy is much more domestically driven than a lot of the other economies in Asia; exports represent around 15% of GDP, whereas in other Asian countries it’s much higher, particularly in SE Asia where it can be 60% or 70% of GDP. So in an environment where people are a bit concerned about global growth—and our view is very much that growth in the developed world is set to be quite slow—India is relatively insulated.

Cook: Would it be fair to say that investing in India could actually provide an opportunity to hedge against that growth slowdown that we’re seeing in the more developed markets?

Dickson: To some extent, definitely. The one caveat to that is India is one of the few markets in Asia that’s running a current account deficit, so actually it’s dependent on capital inflows to support the currency and for investment to flow into the country. So if you get a shock,

if you get a euro break up, or you get a big bank failure again—and none of these things can be ruled out for sure—then those capital flows stop quickly and I think India would actually suffer quite a lot.

Certainly in 2008, during the crisis, the Indian market sold off as much as any other market, so the economy’s definitely a bit more protected because of that lack of trade but from an investment perspective it is sort of exposed because of its reliance on capital flows.

Cook: Would you describe India as a higher-risk investment destination in terms of volatility and political risk?

Dickson: Certainly relative to developed markets. Politics isn’t a terrible issue—the worst thing about politics is that not a lot gets done and it can get bogged down in a quagmire of bureaucracy. In terms of stability, it’s not a big issue. The concern is really that the economy continues to have a lot of inefficiencies in it, corruption is still a problem, you still get corporate fraud, all th

ose sorts of factors, which you have in common in a lot of emerging markets, mean it does remain a risky place to invest.

Cook: What’s your general outlook for the Indian economy and Indian equities over the next few years?

Dickson: We’ve had quite high inflation in India. It is beginning to moderate now, th

ey’ve had a good monsoon and oil prices aren’t going up as much as they were, both of which are quite important factors for India—food and oil, it’s a big importer of oil. Because those are l

evelling off, inflation is beginning to come back down, having previously raised concerns by getting above 10% measured by the WPI. In the short term, my concern is that the RBI [India’s central bank], which has b

een putting interest rates up quite steadily, probably still has to do a bit more tightening. That would be okay but the problem is that India is now the most expensive market in Asia, trading on around 18 times

earnings. My concern is that, given that headwind of higher interest rates and those high valuations, in the shorter term I actually don’t think India will perform that well. I should say that I’ve thought that for quite a while and it’s continued to perform quite well, so the problem is picking the timing.

But looking out further, into the medium term, longer term—so talking a year, 2 years, 3 years—I’m positive as I think there’s been some really noticeable improvements. I’ve been travelling to India for 12 years now and my last trip there, which was about a year ago, was the first time that I’ve noticed new infrastructure—a new airport, a new bridge in Mumbai, more roads—and all that is very positive and suggests that things are moving forward. I’m definitely in the camp that says the sustainable growth rate has lifted. And against that backdrop I think the outlook is very positive.

Cook: And how does that compare to your outlook for other Asian regions?

Dickson: Well overall, in the shorter term, we’re reasonably positive; we’re continuing to see quite strong flows. So in the shorter term I’m probably more positive on other areas in Asia, most notably China, than I am on India. In the longer term I think India probably looks like a very good place to invest because we are getting this shift in growth, whereas somewhere like China it’s probably the opposite. I think we’ll see China actually slowing from the old growth rates of 8%-10% to more like 6%-8%, so the momentum is definitely with India.

Cook: Are there any areas of particular opportunity that you see within Indian equities?

Dickson: Anything with a domestic bias. I do think things like the coal sector, the energy sector where growth is almost guaranteed because they’re going to need a lot more power and they’re going to need a lot more fuel to feed that. I think other sectors that are probably worth a look are probably infrastructure, the sector that’s building roads and building power equipment, and the financial system. Credit to GDP in India has been increasing quite sharply, but it’s still only about 60% of GDP, whereas in the UK it’s several times GDP. And that suggests to me that there’s still a lot of capacity for credit to improve and credit to grow, probably 15%-20% a year, and that should be a powerful driver for the financial sector. So the financial sector, power, energy—those sorts of sectors I think will do quite well.

Cook: To sum up, is it fair to say that the short term outlook for Indian equities is perhaps a slight cooling off but on a medium-term or long-term perspective you see better opportunity?

Dickson: That is most definitely my view. As I say, I’ve felt that for a while and India’s continued to do quite well. But I just feel that the valuations are now factoring in several years growth effectively and in a way they almost need to stop a bit and let the earnings catch up. That would be my short term view. But longer term, I think the growth is there and what we find when we go and visit Indian companies is that we’re able to find really high quality management who are very good at running the businesses. We can find good companies, it’s just a question of what you have to pay at the moment to buy them.

Cook: Thanks Tim, for your time and for giving us an interesting insight into India investing this Diwali.

Dickson: My pleasure.

Courtesy : hemscott

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‘India will remain favoured by global investors'

The market looks only one year or 18 months ahead. But it does not factor in the cumulative power of growth over a sustained period and that is really where most people go wrong in evaluating the positive trends in the economy and stock markets. - SATISH RAMANATHAN,HEAD, EQUITIES, SUNDARAM MUTUAL FUND

SATISH RAMANATHAN, HEAD, EQUITIES, SUNDARAM MUT

UAL FUND

Aarati Krishnan

Vidya Bala

Though Sensex valuations may appear high, Satish Ramanathan, Head of Equities at Sundaram Mutual Fund, belie

ves that the risk of steep meltdown in stock prices from here is limited. Investor preference for quality companies, the strong case for investing in India and favourable demographics that are enhancing the long-term growth prospects are key factors that investors should bear in mind before they consider e

xiting equities, he told Business Line.

Excerpts from the interview:

Market valuations appear quite high, though people like to say they are a little way away from the 2007 highs. Do you feel there is a bubble in the making?

Markets are close to their all-time highs, but what one needs to appreciate is that

earnings have grown in the interim. It is now two years since the all time high was reached and

earnings have grown by 50 per cent in this period. So, in that sense, the markets are less euphoric than earlier.

Two or three trends have unfolded, which we need to bear in mind when we talk about valuations. One is the flight to quality. Quality companies that are underleveraged have become far more expensive than they were in the previous market cycle. Companies th

at have debt, and issues on repayments or on credibility, have become far cheaper than they were in 2007 and 2008.

So, when we aggregate and say that the average market P/E is X, what has actually happened is that companies with good quality have become two times the median valuations

and companies that have issues such as constant need for capital, have become half

the median valuations. Markets have become far more discriminating.

The second trend is that global investors now have to invest outside of their home count

ry, primarily for growth. India is going to remain one of the favoured destinations for that reason. China is moving to become a far more developed country and its requirement for heavy capital is going to come down. Therefore, incremental money has to come to India

, though it may probably go to Africa or some of the LatAm countries too.

Trend number three, which is very important, is demographics. You are going to

have a very robust period of domestic demand which can stretch on for 10 or 15 years. Case

in point, look at the two-wheeler industry. That is demographics at work.

The industry offers a home-grown solution for infrastructure because we did not

privatise transportation in rural markets adequately. So while yes, the market is exp

ensive, based on what we have seen in the past, there are always going to be themes and sub-themes that will work and are available at a price.

So, do you believe that, overall, the markets are not expensive?

These are two key risks we need to bear in mind when we call the market expensive or cheap because, technically, the market looks only one year or 18 months ahead. But it does not factor in the cumulative power of growth over a sustained period and that is really where most

people go wrong in evaluating the positive trends in the economy and stock markets.

Markets may be expensive, some of the leading companies may be expensive but if growth were to last for five years, then it is not expensive. So, from a fund manager's and investor's perspective one has to bear in mind this point before selling off equity positions.

Consumption-related sectors have led this rally and are at a premium to the market while other sectors (such as infrastructure) are at a discount. Do you see scope for the latter to catch up?

This is not really just about sectoral shifts. Within sectors, the good companies or the well-run companies with high return on equity have been continuously re-rated in this market.

Fund managers have taken the call that ‘if I have to buy a company I will buy a quality well-run company rather than a depressed company on depressed valuations based on the ho

pe that there will be a turnaround in business sentiment or management'.

However, probably a year down the road, risk appetite could come back. If there is a quantitative easing II and if there is indeed an abundance of cheap money, at some point in time there could be a section of the market actually saying why don't we take that extra risk or how can a company be trading at 20 PE or 25 PE and why don't I get a company that is at 10 PE and get that 2 or 3 PE extra? That risk appetite has not yet set in but could come in pretty fast if the money situation remains adequately liquid.

Are you saying that earnings performance in one quarter or so does not really matter?

The earnings performance could have several aspects. One is the commodity cycle itself. We have to bear in mind that 20-25 per cent of our earnings comes from the commodity oriented companies. The commodity cycle is far better in the second quarter. Financials too appear to be coming out of their troubled patch.

Having said that, the fundamental risk that Indian companies and markets face is that their margins are among the highest, given that ours is a capacit

y-starved economy. And the price power is tremendous with companies. So there is a risk that even though our GDP grows, that profits do not grow for some period of time as a result of higher interest cost coming in and higher depreciation as a result of capacity expansion.

Also, the logical end to higher capacity expansion is lower margins. So you could see three or four quarters of this adjustment taking place. The risk is that the markets actually do nothing for some time. Eight quarters from now, you may see markets at the same level as they are today. Apart from that, do I fear a meltdown or am I building that into my scenario of expectations — the answer is ‘No'.

It is usual for mid-cap stocks to play catch-up in the second leg of any m

arket rally. Do you believe the valuations of mid-caps offer room for this, given the fundamentals?

The term mid-caps has to be used with some caution. As a house, we see that some mid-caps are leaders in their space but are mid-caps because of the size of the business. Typically, what we find is that companies that are small in a large business segment do not have pricing power or capital access and become weaker after a recession or a slowdown. A case in point are the construction or infrastructure companies. L&T and BHEL have come out stronger but many small construction companies have become far weaker.

The qualitative aspects have a significant bearing on valuations in mid-caps now. We haven't moved towards the commodity stocks and that's something that helps us.

What is the risk of a shift in FII in to other emerging markets such as Latin America (LatAm) and African nations?

I think capital does not seek all destinations at all points in time. It seeks a favoured destination and the momentum sustains it for the next 5 to 10 years. The second aspect is that the first level of development is not as capital intensive as the second level of development.

Widening a road from 2 to 4 lanes is not as capital intensive as going from 2 to 16 lanes, which is what China has perhaps done. So we are at a lower level of capital intensity compared with China while Africa and LatAm countries are slightly behind us.

When I say LatAm a country like Brazil is probably far more advanced than India. So take China, Japan, Taiwan and Korea in turn — there was a logical way in which liquidity flowed. The demographics in India are now most favourable as was the case in China ten years ago or Korea 20 years ago.

Courtesy : The hindu businessline

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Optimism on equities, caution on gold for now

How To Trade in Gold

Commercial real estate looks better than residential.

Samvat 2066 was an average year for equities. But, commodities, led by silver and gold, and residential real estate, outperformed returns among all asset classes. Going forward, equities remain attractive, but there is a sense of

caution for gold in the short term. Commercial real estate is expected to perform better than its residential counterpart.

In Samvat 2066, returns from equities were 20.6 per cent (Sensex), cotton gave the highest return, of 87.5 per cent, followed by silver at 40.3 per cent and gold at 24.9 per cent. Residential properties gave returns of 30-50 per cent, depending on the location. If one goes by the past five years of returns, gold and silver have clearly outperformed equities. Among other commodities, agriculture performed better than metals, though they returned slightly less than equities.

However, in the past one year, leading global agri and metals indices have outperformed equities (see table).

Case for equities

Going forward, ‘slow and steady wins the race’ seems to be the theme. ENAM Group Chairman Vallabh Bhansali said: "If the equity market rises steadily, it has the potential to give above-average returns in the coming Samvat year. Given where interest rates are, the next six months look very good for equities in any case."

ICICI Prudential Asset Management Deputy Managing Director Nilesh Shah

advises patience. He says: "India is benefiting from the wealth effect, through appreciation of l

and, gold and equity prices. If the government can raise productivity across the economy through better governance, this wealth effect

can be sustained and not get converted into a bubble. Investors have to learn the art of investing. Even God cannot deliver a mango before 12 years. Don’t expect markets to deliver returns prematurely."

ENAM Group’s Bhansali also believes gold will continue to be an asset class to reckon with, given the currency problems the world is facing.

With a five-year return of 186 per cent compounded and 227 per cent for silver, bullion has been a best-performer asset class. Equity returned 163 per cent. Commtrendz Research director Gnanasekar Thiagarajan said: "In India, commodities as an asset class have not gone beyond gold and silver. While in the coming months some exchange-traded products in commodities may be launched, bullion would remain a preferred commodity for allowing investments from a policy perspective."

On specifics, he said: "Gold has risen a lot and, hence, those who want to invest can wait for correction." His logic is that investors will soon realise that second dose of stimulus or quantitative easing (QE2) will prove good for the US and result in growth, which could reduce gold’s appeal for hedging, and profit-booking will bring a much-needed correction here. He does not rule out a $100 correction from the current level.

Property

Returns from property have been good in the past five years. However, there is no organised data available for that. If one goes by the index of residential properties announced by the National Housing Bank, its index has risen by 100-150 points on an average from 2007 (base year—100). Chennai gave 83 per cent returns in the past three years, Mumbai 60 per cent, and Delhi returned just 10 per cent, with the Delhi index at 110 this June.

Knight Frank India Chairman Pranay Vakil says: "The Samvat year that is ending has given decent returns in residential properties in general. In the past, commercial properties were giving good returns and, hence, there were huge additions to commercial realty stocks after 2007. Now, residential stock is coming up. In the coming months and year, fresh supply will cap the returns."

Courtesy : sify

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New realty funds — alternative to property investment

Vidya Bala

BL Research Bureau

Living in Mysore need not deter you anymore from investing in a slice of prime property in Mumbai. What's more, this can be done with as little as Rs 5 lakh of capital. After the realty meltdown in 2008, a number of private equity/venture capital firms have launched real estate funds targeting retail and high net worth individuals (HNIs) in contrast to the earlier focus on the ultra rich and institutions.

This has naturally resulted in the size of minimum investment coming down from Rs 50 lakh-1 crore in the heydays of 2005-07, to Rs 10-25 lakh. In a few cases promoters have come up with products to give investors an opportunity to participate in these ventures with sums as small as 5-lakh. Funds that target smaller investments typically come from new players.

The Rs 750-crore Aditya Birla Real Estate Fund and the Rs 500-crore India Real Estate Fund I from Azure Capital Advisors, besides the realty fund planned by Anand Rathi Financial Services-Knight Frank, are recent cases in point.

Such funds, which either have a broad strategy of investing in residential projects in chosen cities or offer thematic investing in commercial property that provide rental yields or in Mumbai redevelopment projects are increasing in numbers. An indicative yield (no guarantee) of anywhere between 12-18 per cent per annum offered by these funds attract investor attention.

Smaller investors

One reason for increased interest in such funds could be the soaring property prices, says Mr V. Mahadevan, CEO, Wealth Advisors (India) Pvt. Ltd. “The pricing of property has gone beyond reach. This is helping increased participation in realty funds if one is looking at it as an investment option,” he said.

As venture capital funds are usually sold through private placement, firms such as Birla Sun Life Financial Services, Motilal Oswal and A

nand Rathi have floated their own private equity arms perhaps to tap their existing private client and HNI base on such funds.

Not suitable for all

However, real estate funds are for investors who already have savings parked in other asset classes and also have allocable surplus in hand. As Mr Mahadevan states, “for a 22-year-old guy who is looking to own his property, a real estate fund cannot be viewed as a substitute”.

While real estate funds may help investors do away with the hassle of locating a good property to invest, offer diversification and avoid the legal impediments involved, they remain a ‘medium to high risk' investment option.

Mr Sunil Rohakale, Executive Director, ASK Investment Holdings, feels that it is important for investors to assimilate the fund strategy besides knowing key clauses tied to such funds. Real estate funds typically come with a 5-8 year lock-in, which makes them illiquid. The structure, fee and payout patterns in these products are also complex.

However, the risks associated with realty funds can to some extent be mitigated if investors choose the funds that suit their risk profile opines, Mr Shashi Kumar, Head Real

Estate Investment Advisory, Birla Sun Life AMC. “Given the combination of styles of investing and the various themes available, investors can choose the one that suits their

risk profile”.

That said, real state funds are not strictly retail investment products. A Rs 10-lak

h investment in a realty fund would be recommended only when the assets of the individual are say at least Rs 1 crore, states Mr Mahadevan.

A Real Estate Investment Trust or a real estate mutual fund would be retail investment options in the real sense, if they do come in to the market feels, Mr Amit Goenka, National Director - Capital Transaction, Knight Frank India.

Courtesy : The hindu businessline

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Barack Obama: We want to Invest in India’s Rise

In his visit to India, President Barack Obama made a memorable speech at the Taj Hotel Mumbai, with the Gateway of India as a back drop. He stated that he and his country saw India as a strategic partner and a new emerging economic force. He said that US saw India as a market of future and they not only welcome this rise but also want to invest on it.

He also quoted that his visit would be seen as the new beginning of a relation that is unparallel. Barack Obama is the first US president who was accompanied by a group of CEOs and corporate heads. IT is the first time that a presidential visit is further seen as a part of job manufacturing treat.

On the first day of his visit to India, there were more than twenty deals signed which would boost a $10 billion exports for the US. Moreover these deals would create 53,670 jobs in the US. This number is staggering one with the unemployment rate still high in the US.

There are several sectors in which the IUS has shown the interest to invest and shared a deal. From defense, to atomic plants from air craft deals to mining equipments- the corporate sector in India has seen it all on Saturday. India has been striking the chord with the Americans and the growing interest in the Indian market just reaffirmed this belief. US government also expected the Indian counterparts to reduce trade barriers and encourage foreign direct investments.

Courtesy : forexdice

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