Investors still on the Sidelines for New Mutual Funds

By Vipin Agnihotri

If the recent trends are anything to go by, the Indian mutual fund (MF) investor seems to have grown wiser. In my opinion, investors are not taking the new fund offer (NFO) bait that easily.

It has come into the notice of The India Street that of the top 25 diversified equity schemes — in terms of assets under management (AUM), as on July 31, 2007 — only two schemes launched NFOs this calendar year.

The two schemes that lunched NFOs this calendar year are the Fidelity International Opportunities Fund and the SBI Infrastructure Fund Series I. Statistic wise; the Fidelity International Opportunities Fund has an AUM of Rs 1,645.58 crore. On the other hand, the SBI Infrastructure Fund Series I have an AUM of Rs 2,594.77 crore.

When one compare this with the same period last year, one would get to know that of the 25 biggies, seven schemes had their NFOs in calendar 2006. Clearly, one can say that the craze for NFOs is on the wane.

If experts are to be believed, in this year’s list of top 25, 13 existing schemes have grown their AUMs. It is worthwhile pointing that they have done so not just by the mark-to-market gains of the stocks in their portfolios, but through fresh inflows as well.

Point to be noted here is that the AUM of a scheme can vary on two factors. First and foremost, through the gains or losses of the stocks the scheme invests in, and secondly net inflows/outflows into the scheme.

For example, take the case of SBI Magnum Global Fund 94. Since July 2006, it has grown its AUM 175%. Taking into consideration the fact that the Sensex has returned 44.74% in the period, a majority of the AUM growth would have come through fresh inflows.

It is pretty much the case with ICICI Prudential Dynamic Plan as well. Theoretically speaking, its AUM has grown 139% since July last year. The India Street have a talk with various mutual funds experts in this issue and most of them were of the opinion that discerning customers have started pouring money into good schemes, and all this is coming in the form of systematic investment plans (SIPs). According to sources, Rs 300-400 crore is coming in every month through SIPs.

Other schemes that have made an impact on the investor mind are Sundaram BNP Paribas Select Midcap, DSP Merill Lynch India TIGER, Reliance Vision, Reliance Growth, Tata Infrastructure Fund and HDFC Top 200.

Suggested Reading:

India’s mutual fund industry crossed the $100 billion milestone

Markets eagerly awaiting India Inc’s first quarter result-

Avadh Singh As the first quarter of financial year 2007-08 is near completion, and with the equity indices hovering around their all-time highs, the markets are awaiting India Inc's first quarter numbers for any further cues. The India Street spoke to a section of market experts to get a feel of Street expectations on corporate performance in the present quarter. While large chunk of analysts were upbeat on engineering and capital goods, there are some who are apprehensive on the numbers of automobile and information technology companies. Talking about automobile, higher input costs and stiff competition in the lower and mid-segments has of late seen margins of automobile companies, especially those of two-wheelers, take a hit. On the other hand, despite the higher cost of funds and requirement in cash reserves, banks are expected to clock higher net interest margins. Not so long ago, RBI had hiked the repo rate by 25 basis points and the CRR by 50 basis points in order to

fight a higher rate of inflation. Plenty of banks followed suit by increasing their lending rates to remain unaffected by the increased cost of funds. "The rupee appreciation is bound to dent the profit margins of companies in the information technology business by 3-4 per cent," pointed out Shailesh Kajriwal of Sunrise Infotech. Though, the extent of damage because of currency appreciation would solely depend on the onshore-offshore business composition of these companies and their respective hedging strategies. If one takes into account the recent report on the Indian steel industry, there is a distinct possibility that the shortfall in supply of steel is likely to continue till financial year 2009. Furthermore, with demand continuing to rule firm despite the higher prices for steel, companies in the sector are expected to carry forward the momentum to the current quarter also. Companies in the oil and gas sector have of late been enjoying higher operating margins. In addition, a stronger rupee has helped them reduce payouts. There is no doubt that refining margins continue to be good for companies in the sector. And that is where companies into exploration and production of oil are expected to generate good profits in the current quarter. Companies in engineering and capital goods sector had ended 2006-07 with bulky order books. In my view, the trend is ongoing, therefore helping them notch up good numbers in the current quarter. According to experts, Engineering and capital goods companies, because of their strong order book positions, are expected to do well in the current quarter. The speed of execution of contracts has also improved in the recent past. Technorati : India Quarter results Buzznet : India Quarter results

INDIAN STOCK MARKET – AN OUTLOOK

By Sundaramurthy Vadivelu

Important Disclosure

The views expressed below are the opinions of the author based on the principles of technical analysis, a science that has been tested and proven for more than hundred years. The views are unbiased and informative in nature. These do not constitute an offer to buy or sell stocks. Every effort has been made by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc.

Investing or trading in stock markets is a high risk activity. Those who cannot afford to risk their money should refrain from dealing in stocks.

The author has no vested interest in any of the stocks mentioned. He and/or his close associates may or may not be having positions at the time of writing this article.

The reader needs to understand that this article is purely for informative purposes only and all transactions, if entered into by him will be solely at his risk. The author does not guarantee that the projected targets will be achieved within the stipulated time frame.

Source for the price data displayed in graphics and tables:

National Stock Exchange of India Limited, Mumbai, India (www.nseindia.com)

- - - - - - - - x - - - - - - - - x - - - - - - - -

In this article let us analyze the current market scenario, how Nifty has performed during last 4 years and comparison of index vis a vis some of the individual index stocks.

Current Scenario:

As of now, there is no significant threat to the indices. No major reversal sign has been observed in the monthly charts of Nifty. Watch the reversal patterns displayed in the chart below. Bearish “three outside down” pattern occurred in April 2000 and bullish “three outside up” pattern was seen in June 2003. Since then, Indian markets are on a high.

In the absence of strong reversal signs, it may be concluded that markets will continue their uptrend.

Wave analysis:

The following table illustrates the wave count and their retracements:

This means that after the completion of the 5th wave (which needs a confirmation) a downtrend is likely to begin.

The longer term target for the Nifty, when calculated from a low of 920, works out to 4600. This will give wave 5 a gain of 177.20%.

What is the reason behind this huge rise in index?

Like all other financial markets, Indian markets are also governed by the fundamental principles of demand and supply gap. When interest rates were lowered, stock market looked an attractive option and investors began to look for opportunities. Huge foreign funds are another reason for the upsurge. Liquidity is one more factor – one can easily transact with a click of a mouse unlike the old days when physical share certificates were in use.

Whatever be the reason behind any move, it is always reflected in the charts. All other factors, namely, business conditions, economy growth etc. are always discounted when analyzing the market technically.

How many stocks got benefited from this nearly five fold rise in index in the last 4 years? Let us analyze some of the index stocks.

* Adjusted Close 1 due to stock split / bonus / rights issue

** Close 1 as on 31/07/2004

*** Close 1 as on 31/08/2003

It can been seen from the above table that not all the index stocks have performed in the same manner. ABB, BHARTIARTL and SAIL have outperformed when compared to the overall index.

It should be noted here, that the ‘performance’ in stock market by a scrip has nothing to do with the financial performance of the company. It just implies that the investors have chased this stock more strongly compared to the rest.

We can see no direct relationship between the overall index performance and the individual stocks’ performance. This indicates the demand and supply gap scenario for the stocks discussed.

What could be the reason for the uneven performance?

The price of a particular stock on a given day is decided by the market participants. They are

FII’s or the foreign institutional investors FI’s or the financial institutions MF’s or the mutual funds Long term investors Medium term investors Short term investors Day traders Speculators Punters Derivative traders

When thousands of people are trading a particular stock, no one can be very clear of what the other trader thinks. This leads to volatility and uncertainty in the markets.

When one person buys a stock, obvious reason is that he thinks that it will go up. The person who sold the stock thought that it would either go down or he had enough profit or loss.

In a complex scenario like this, price fluctuations happen regularly. The investor needs to take advantage of the situation by buying when the demand just starts picking up for the stock and sell when it just starts diminishing.

Having said that it is difficult for an ordinary investor to completely understand and assess the market status.

What can the investor do now?

Ideally, one would like to take some money home. If one has remained a long term investor and likely to get some profit, he can book it.

Remember that the chance of the profit going down may increase with the time a stock being held.

For the one who wants to invest for long term in stocks, he has to be cautious, as can be seen from the charts and tables provided.

Some thoughts on investing in stocks:

Not too many people understand the stock market dynamics. So take professional advice, consult a qualified and experienced person. He may charge you a little, but it is worth taking the risk than worrying later.

Invest the amount that you can afford to lose. There are only probabilities, no certainties in financial markets.

Keep doing your research. Observe prices at least once a week. If you think you gained a reasonable amount, book your profits at least partially.

Last but not least, never borrow money to invest in stocks thinking that prices will always go up!

Good luck.

Chennai Tops Real Estate

By Dhruva Jyoti Chowdhury

Kolkata, India: In the last decade, when the realty all over the country witnessed a major boom, the price rise of land in Chennai did not rise as sharply as they did in the other metros. That reputation, of being a relatively sober market, has taken a U turn now.

The realtors believe that nearly 1,000 medium and large residential housing projects are coming up within a short span and importantly the buoyant interest rates on housing loans have not dampened the market spirit. That’s the reason for which developers are now occupying even the industrial wasteland which extends from the northern to the western part of Chennai.

SSI Limited has acquired one of the oldest industrial landmarks of Chennai, the Buckingham and Carnatic Mills in Perambur, for a real estate project. SSI is building 5,000 apartments on a 70-acre plot. The 1,000 crore rupees project, with landscaped grounds is projected to change the face of the area which was once a working class suburb. Further SSI expects to build 1,000 apartments, priced between Rs.30 lakhs and Rs.40 lakhs, every year for the next five years. Integrated townships along the GST Road, on the Tambaram-Velachery Road, at Valasaravakkam, Sriperumbudur, Vandalur and at Siruseri is also on the planning list of SSI.

Added to this is the government's move to open up Foreign Direct Investment in the sector. Moreover, the Securities and Exchange Board of India (SEBI) has approved guidelines for the Real Estate Mutual Fund, a scheme to facilitate investments in real estate property which will cause prices to spiral out of control.

Growing economy, participation of foreign investors, younger age groups dominating in population and growth of service sectors have made a positive impact on the scenario of Chennai properties. A large number of NRIs have also contributed in the real estate in Chennai. In order to provide a further impetus, both the Centre and the State government has coughed up 200 crore rupees in initiating building a six lane Chennai bypass Phase II, a cloverleaf structure close to the airport that will directly connect the city to different National Highways by 2008.

The average age of prospective clients now has dropped to 28-35 years as compared to about a decade ago when planning to purchase a house was done on the verge of retirement from services. For travelers who combine business and leisure several up-market hotels have been built in recent years. Feeling the heat, international players such as Courtyard Marriott, Radisson, Hilton and Le Royal Meridien have a visible presence in Chennai while another cluster of international hotels are in the queue.

The rates of land being acquired vary between considerable ranges. The land on the lower side consisting of areas in Mogappair East and West is between 1500 to 1700 hundred rupees per sq.ft while the higher side is 3500- 5000 rupees per sq. ft. in areas like Besant Nagar, Nungambakkam and Mylapore.

Feeling the heat Hiranandani group a Mumbai based builder has already invested more than 2000 Crore in the last few months. Besides the ETA group, DLF and several others have already crossed the 400 Crore mark in the city. This elite group includes Chennai-based realty developer Arihant Foundations in joint venture with J P Morgan. Jain Housing and Constructions Limited have more than 3,000 dwelling units covering more than 2 million sq ft. Its current projects involve another 2.5 million sq ft apart from the other national players in realty including Ansal Properties and Infrastructure limited, K. Raheja Group, Bengal Ambuja Housing Development Limited Prestige Group.

The Non-Resident Indians are the most important property buyers in the city. This NRI constitutes the core of the ‘high value’ market in the real estate sector.

This boom is also paving way for the most ultra modern facilities in every nook and corner of the entire city. The developers also seem to be keen on the fact that the owners should get world class amenities and a quality of life that would be virtually impossible in an ‘independent house’. Swimming pools, penthouses, round-the-clock security, landscaped gardens, play areas for children, ATM-banking facility, open-air theatre, shopping arcade, swimming pools and health clubs, ATM-banking facility, open-air theatre, shopping arcade, play areas, swimming pools and health clubs since most of the projects are located on the outskirts, every need of the residents had to be met in order to make it a self-contained township.

Flats are not the only kind of dwelling units coming up in Chennai. For those who have high levels of disposable income, there are builders and promoters who offer "independent" houses, different from the bungalows of yesteryear. For instance, Isha Homes offers middle-class villas with all facilities. The project, located near the nerve-centre of the IT corridor, provides dedicated Internet connections, apart from a common sewage plant, black-topped roads and other facilities on the campus.

Ravichandran, a civil engineer, started his business in 1997 by building in the range of about 25,000-30,000 sq ft per project. In contrast, True Value Homes' Park Villa projects, a "premium project launched two years ago at Perungudi close to the IT corridor is spread over more than 5.25 acres. It consists of 288 dwelling units. Built adhering to the principles of Vaasthu Sastra, the project has virtually created a mini township.

It is now building residential complexes of 1 million sq ft. land prices in the area shot up from Rs.5 lakhs an acre to Rs.50 lakhs an acre since the past project was completed. True Value Homes, like other big property developers, is building an IT Park at MRC Nagar with a capacity of 4 lakh sq ft. The company is also planning a 100-acre satellite township near Tambaram. Experts predict that that the building activity will soon reach Mahabalipuram, about 60 kilometres from Chennai.

Looking at the vast potential of the Chennai market, The Chennai Metropolitan Development Authority (CMDA) plans to implement a `single window' system for processing building plan applications quickly. The idea is to provide a ‘one-stop shop’ for all the approvals for real estate. Even the State government is not lagging in poking its nose to fill up their empty coffers. Recent reports have indicated that Government acquired about 7,000 acres for the establishment of a satellite town outside Chennai estimated over 30,000 acres.

Presently, an apartment in Velchari, Chennai with 28800 sq ft is costing around 10,08,00,000 rupees. These are 2 And 3 Bedrooms with Power Back-up, Lift, Rain Water Harvesting, Three Phase Power Supply, Stilt +Four Floors and Covered Car Parking. A 3 Bedroom deluxe apartment in Harrington Road with 1776 sq ft, is costing around 4500 rupees per sq ft. The apartment consists of large sit out, building with swimming pool, 24 hrs security, covered car park, on the sixth floor (not the top floor).

Thirunmiyur Apartment in Valmiki Nagar is build on 1213 sq ft and is a 2 Bedroom flat on the 1st floor, with a very large bathroom, apartment complex built on 13.8 grounds (33,317sft). Very near to the sea beach is one of the best location of Valmiki Nagar, as per the builders opine. The apartment is being offered for 56 lakh.

Even the commercial spaces are not lagging far behind in this money race. A 900 sq ft basement office space in a good commercial complex in Nelson on Manikam Road is being offered for about 45 lakhs rupees. Near Arumbakkam Spencer's Daily Total 3,795sft land area with 2,876sft Bungalow, 4 Bedroom with servants quarters well designed, in good condition is available for. 1.60 Crores. (Total price for Land and Building).

A 2000 sq ft new apartment for Sale in Alwarpet with 3 bedrooms with balcony in every room, separate dining and drawing room is being offered for about 9000 rupees per sq ft. At present the total area under development is around 32.5 million sq. ft.

Ascendas Industrial Park 1.0 million sq. ft. Mahindra Industrial Park 0.2 million sq. ft. Ambattur 0.2 million sq. ft. City 7.3 million sq. ft. Ramavaram 3.5 million sq. ft. Old Mahabalipuram Road 19.3 million sq. ft.

Areas and Land being developed for Real Estate, at present

After labeling all pre-IPO investment or private placement to foreign institutional investors (FII) in real estate companies as FDI, the government has now decided to bar real estate companies from issuing depository receipts (ADRs or GDRs). The logic of the move is simple. All foreign investment through GDRs and ADRs is to be treated as FDI, which is subject to a three-year lock-in, in the case of real estate companies. A host of restrictions including minimum project size in terms of area and a lock-in period were imposed to keep out speculative foreign capital. They did not take into account the fact that real estate companies could be listed. The FDI norms for the real estate sector framed in 2005 were clearly designed for the simplistic situation of single projects from unlisted companies hence the government is becoming entangled in micro regulation.

Good news for investors as they remain unaffected with service tax on mutual funds

By Vipin Agnihotri

Contrary to the general belief, service tax will not be levied on entry and exit load charged by a mutual fund. Indian government through a circular clarified this. What’s more, highly placed sources in the government inform The India Street, that the service tax on construction industry has been lowered from previous 4 percent to 2 percent.

The pivotal factor here is that in the budget, UPA government included asset management and all other fund managements under the sub head of banking and other financial services to levy service tax at 12 percent. “Making use of the act, the tax department charged the service tax on entry and exit load also, which an investor pays at the time of buying and selling of mutual fund units,” pointed out Shalabh Saxena, Business reporter of The Pioneer adding that this made the industry to raise the issue before the government.

In my opinion, government rightly found that entry and exit load charges have no attachment to fund management service offered by the asset management company but meet the starting issue expense and other expenses of a mutual fund. Fact remains that as these expenses are not in the ambit of service tax at the moment, the department has no power to levy service tax on buying and sale of units.

Point to be noted here is that entry and exit load charges at this moment of time vary between 2 percent and 4 percent. Taking this into account, one can safely say that this ruling will lead to a savings of 0.25 percent to 0.50 percent for investors. Though, the service tax on the fees charged by asset management company will continue. It is worth mentioning in this regard that in a mutual fund, an asset management company implements the fund management routine.

Moreover, the fees charged by the asset management company is chargeable to service tax under ‘fund management service’ category. On the other hand, service offered by the distributors, selling agents, brokers, custodians and trustee to the fund is also taxable in nature under respective services such as auxiliary service, stock broking and other sort of financial services.

If one analyzes the new notification of government, one thing is for sure; provider of contract service will be charged service tax of 2 percent of the total value of the contract, which was 4 percent. Furthermore, in the case of service tax on work contract, the government has offered an abetment of 67 percent of the total value of the contract against the cost of materials such as steel, cement, wood and other fixtures used in implementing the works contract. While calculating the service tax, government has also excluded the property tax paid on an immovable property from its commercial rental income.

Realty Investment Trusts: Mirage or Reality?

A rising India is inter alia characterised by a robust real estate sector, which is witnessing a deluge of investment in land acquisition, development and construction. The spiralling growth of manufacturing, services, retail and hospitality sectors, together with rising levels of disposable income, has fuelled the demand for various classes of real estate.

Currently, the participation of small and medium investors is restricted to the residential sector, through direct purchase of property. Higher returns from fixed income yielding commercial property are beyond their reach. This limitation of participants in the commercial sector, and the over-use of debt funding in the past with limited access to the same today, has made the industry turn to Real Estate Investment Trusts (REITs) as the next big thing.

REITs, common in several developed countries, are generally open or close-ended companies /trusts that hold, manage, lease, develop and/or maintain properties for investment purposes. They are often, but not necessarily, traded on an exchange. The value of units/stock allotted to investors is computed on a NAV (Net Asset Value) basis, as the market value of assets minus liabilities. REIT invests in real estate directly, through properties or mortgages, or indirectly through subsidiaries.

In India, a fledgling attempt at introducing REITs in the form of Real Estate Mutual Funds (REMFs) has been made, with draft Securities & Exchange Board of India (Sebi) regulations on the anvil, albeit not in the public domain. These regulations are being closely scrutinised by the Association of Mutual Funds in India (AMFI), Sebi and Institute of Chartered Accountants of India (ICAI). Valuation norms and periodicity of NAV revision are likely to be difficult problems to resolve.

Source: The Economic Times.

The author - Gaurav Taneja, is national director of tax and partner, Ernst & Young India.