Monday, March 23, 2009

(March 2009)

The mutual fund industry in India regained the Rs 5,00,000 crore-mark in assets, after a gap of four months. The combined average AUM of the 34 fund houses in the country shot up to Rs 5,00,973.37 crore in February 2009 as against Rs 4,60,948.99 crore in January 2009, as per the data released by the Association of Mutual Funds in India (AMFI). The total AUM of the mutual fund industry increased by Rs 40,000 crore or 8.8 per cent. The total AUM of the industry in September 2008 was Rs 5,28,871.75 crore. However, in October 2008 the assets had dipped below the Rs 5,00,000- crore mark, which had continued from November 2008 to January 2009. Reliance Mutual Fund maintained its top position. HDFC Mutual Fund gained Rs 5,443.66 crore in its AUM at Rs 56,864.39 crore. ICICI Prudential's AUM stood at Rs 53,514.07 crore at the end of February while UTI Mutual Fund had assets of Rs 49,224.93 crore after an addition of Rs 5,998.57 crore and Rs 3,063.53 crore, respectively. Franklin Templeton Mutual Fund saw an increase of Rs 100 crore in its AUM of Rs 1,9407.80 crore, in February 2009.

Fund flows into mutual funds in recent months, have shown a strong correlation to performance and size of fund houses. Large fund houses, with a large number of better performing funds in line with the CRISIL Composite Performance Ranking (CPR) of mutual funds are attracting higher inflows according to a study by Crisil. The top three fund houses, which recorded the highest increase in absolute AAUM over January and February 2009 have a large number of funds which fall in the CRISILCPR 1 (very good) and CRISILCPR 2 (good) ranking clusters and are large in size. With equity markets still volatile and the economic climate uncertain, the AAUM growth currently is driven mainly by debt and liquid funds. Corporate bond yields fell in February 2009 and in such an environment, debt funds held an edge with respect to returns.
A large cap bias, low cash levels and an investment path which is different from the routine herd investment strategies appear to have worked in the current scenario. The funds that do well are disciplined and they do not rely on a particular skill set of a particular individual. They are as concerned about the risk matrix of a portfolio as they are about their return potential. Public sector fund houses seem to be the preferred choice for mutual fund investors at present.

Reliance Mutual Fund has been awarded the ``India Equity Fund House`` for the year 2008 by Morningstar India. The award has been given for delivering sustained performance on a risk-adjusted basis across their fund line-ups in the equity category for period ending December 31, 2008.

ICICI Prudential Monthly Income Plan (Monthly Income is not assured and is subject to availability of distributable surplus) paid its 100th consecutive dividend in February 2009. The fund has accomplished an unparalleled feat and has not missed a single dividend payment since its inception in November 2000. The fund, true to its mandate, has paid 100 consecutive dividends since its inception in November 2000. The fund has maintained optimal asset allocation to ensure regular monthly dividend payouts despite 2008 being a down beat year.

Piquant Parade

India Infoline Ltd, a domestic financial services major, is planning to float an Asset Management Company
and is focusing on non-broking activities in the financial services segment to protect its revenues during the crisis.

In an attempt to give investors the best of both worlds, mutual fund houses have begun offering flexible asset allocation plans that allow unitholders to keep increasing their exposure to equities while starting off in a debt fund. These funds, which essentially bear resemblance to dynamically managed funds, allow investors to balance their investments in favour of equities while gaining advantage of the current interest rate trend through investment in fixed income. Also known as ‘switch options’ in distributors’ parlance, these plans help investors to move money steadily into equity funds. While ICICI Prudential MF, through ICICI Prudential Income Opportunities Fund- systematic transfer plan STP, and HDFC MF, through HDFC Flexindex Plan, have already launched switch plans, UTI MF will soon launch a fund that will enable investors to shift investments across debt and equity schemes.

All is not well between Punjab National Bank and Principal and their asset management joint venture. The joint venture between Principal Financial Group and PNB is on shaky ground. Principal holds 65% and PNB owns 30% in the asset management company. Major differences have cropped up and a clash in values has triggered PNB to make an exit from this partnership. But what is holding PNB back is the poor market conditions. The total assets under management for Principal-PNB AMC as of February 2009 stand at around Rs 7,000 crore. Principal is offering PNB Rs 100 crore for its 30% stake in the AMC. But, PNB wants more - close to Rs 150 crore.

The abrupt resignations of senior investment officials at a couple of AMCs recently could turn the spotlight on some of the ‘deals of convenience’ struck between promoters and fund managers during the latest boom. Such transactions, mostly involving mid-sized companies, helped promoters boost valuations of their firms while the fund house gained by way of inflows into its equity schemes.
With the uncertainty over general elections looming large, mutual funds are taking positions to counter any market volatility till a new government comes in place. Some fund houses are looking at conservative sectors which are less impacted by market trends and maintaining a cash level of 10-20 per cent in their equity schemes. Election is perceived to be the biggest domestic event that could dent markets in 2009. Already bruised by the global recession, cautious fund mangers are taking investment calls. FMCG, pharma, infrastructure, oil and gas, agriculture and auto have emerged as the preferred sectors to counter any sudden market volatility from the election results. Mutual funds are looking at low beta and low correlation (to broader market) stocks. These stocks chart their own course with less impact from broader market conditions. Hence, they will act as a cushion against any uncertainty.

To be continued…

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