After witnessing Rs3,400 crore redemptions in July, equity schemes shed 2.93 lakh investor accounts. Instead of expanding the investor base, SEBI is presiding over a shrinking investor population.
Despite a 9% GDP growth and a booming stock market, mutual fund investors are still shying away from equity schemes and trying their luck in debt funds. Since November 2009, three months after the ban on entry load on mutual funds, the industry has lost a whopping 8.33 lakh equity folios till July 2010. The benchmark BSE Sensex has risen 8% since November 2009. According to the latest data available on the Association of Mutual Funds in India (AMFI) website, the 40 fund houses have together lost 1.66 lakh investor accounts in the month of July.
Equity funds witnessed Rs3,400 crore redemption in July despite the launch of two new schemes.
Debt funds added 1.18 lakh investor accounts in July while Exchange Traded Funds (ETFs) saw their investor base rising by 27,467. Fund of Funds, which invest in other funds, lost 7,955 folios.
Balanced funds, which invest a part of the corpus in equity, lost 10,459 folios in July. The total investor base or number of folios as on July 2010 stands at 4.77 crore. The five heavyweights of the industry together lost 93% (1.55 lakh investor accounts) of the total 1.66 lakh slump in folios. However, HDFC Mutual Fund bucked the trend by adding 23,544 investor accounts.
"There is a fear of the direct tax code (DTC) being applicable on capital gains. Some distributors are suggesting that investors pull out the money and re-enter afterwards. There is no clarity on the DTC yet. Some people are taking their own decisions. There is also some profit-booking," said a marketing head of a fund house.
Equity scheme folios declined by 1,47,745 last month despite a slew of launches like Baroda Pioneer Infrastructure Fund, Birla Sun Life India Reforms Fund, DSP BlackRock Focus 25 Fund, ICICI Prudential Nifty Junior Index Fund, IDBI Nifty Index Fund and Taurus Nifty Index Fund.
"Most of it is being redeemed because of the frequent and confusing changes in mutual fund regulations," said an industry source. Since last August, market regulator Securities and Exchange Board of India (SEBI) has made frequent changes such as removal of entry load, changes in cost structure and also who gets the trail commissions when investors switch from one scheme to another. "SEBI's mandate is market development and investor protection and what we are witnessing is a shrinking investor base. Some serious rethinking is needed is needed about SEBI's recent actions," says a mutual fund head.
The key reason is capped gas output of Reliance. But GAIL has a few options up its sleeves to get growth going
Gas Authority of India Ltd (GAIL) is the only gas stock that has not been outperforming over the last month or so largely because Reliance Industries has capped its gas production. GAIL's latest analyst meet provides some clues to its future performance. Moneylife had said on 17th July that gas stocks could outperform because Section 16 of the PNGRB Act of 2006 which was notified from 15th July gives PNGRB authority to issue distribution rights to companies retailing CNG for automobiles and piped cooking gas to households, speeding up this process all over India.
Since then, Indraprastha Gas has moved from Rs293 to Rs305, Gujarat Gas from Rs302 to Rs320, and Gujarat State Petronet from around Rs100 to Rs110. Only GAIL has stayed at around Rs450.
One obvious explanation of this performance is that it is already trading at premium valuations and that RIL unexpectedly capped its gas production for this year. However, in its analyst meet, GAIL laid out a strategy to get around this hurdle. It is now banking on higher gas pipeline throughput by importing 2-3 spot LNG cargoes/month. Besides this it also said its capex plans are on track - it is investing huge amounts in pipelines over the next three years, doubling the capacity of its petrochemicals plant in Pata (Uttar Pradesh), is planning to enter city gas distribution (CGD), and has made investments in the power sector.
Biggest driver: Gas transmission
In the short- to medium-term, GAIL believes that global LNG markets will be oversupplied. Additionally, the Indian market is facing a shortage with RIL capping its KG DG gas production. GAIL plans to take advantage of this situation by buying 2-3 cargoes on the spot market and increasing its gas transmission volumes. It is confident that it will find buyers for LNG, even if it proves a little expensive. GAIL plans to route these extra volumes through PLNG, Shell Hazira, and later through the Dabhol terminal which is expected to start in Q4FY11. Petronet LNG will be a huge beneficiary of GAIL's plans of importing ~25 spot cargoes in a year which could translate into ~1.5 MMTPA of re-gasification volumes for Petronet.
Capacity expansion: Aggressive and on track
GAIL plans to invest close to Rs300 billion between FY11 and FY13 - of which 67% is on pipelines, 6% on exploration and production (E&P), and 9% on petrochemicals. To fund this, it has plans to borrow Rs154 billion over FY11-13 of which term loans could be 31%, bonds 31% and external commercial borrowings. The company has a low D/E ratio of 0.08:1, which may allow it to get cheaper loans.
A quick snapshot of its seven key pipeline projects
* DVPL phase II, 610km, Rs52 billion (to be complete in April 2011)
* Vijaipur Dadri, 505km, Rs57 billion, April 2011 (partially complete)
* Dadri-Bawana-Nangal, 646km, Rs24 billion, April 2011 (partially complete)
* Chainsa-Jhajjar-Hissar, 349km, Rs13 billion, April 2011 (partially complete)
* Jagdishpur-Haldia, 2,050km, Rs76 billion, phase I - March 2012; phase II
* Dabhol-Bengaluru, 1,389km, Rs50 billion, phase I - March 2012, phase II
* Kochi-Mangalore-Bengaluru, 1,114km, Rs33 billion, phase I - March 2012,
phase II - December 2012.
GAIL is doubling the capacity of its petrochemical plant at Pata to 900 KTPA in 42 months (first phase of 500KTPA in Q4FY11 from 420KTPA currently).
In the E&P segment, GAIL is commercially producing crude oil from the Cambay basin and expects its generating blocks to a total of three by FY14 (27 blocks of which eight are onshore, 18 offshore, and one is a coal-bed methane block).
While GAIL is not a serious player in the power segment, it has made a few exploratory investments. It has a stake in Reliance Gas Transportation Infrastructure Ltd for its 1,600MW power plant, a stake in Gujarat State Petroleum's power plant, a wind energy plant at Bhuj, and has plans to set up small power plants along the Dabhol-Bengaluru pipeline.
Among all of GAIL's future plans, it is possible that the importing spot LNG cargoes will give the stock a fillip in the near term while the expansion of its gas pipeline network and its petrochemical expansion will a be good long-term driver
New Delhi: The Insurance Regulatory and Development Authority (IRDA) today said it will not tweak its proposed guidelines on Unit-Linked Insurance Products (ULIPs) even as the industry fears that the norms, to be effective from next month, could squeeze their profits in short term, reports PTI.
"We have considered all that (the proposed guidelines) and we do not see any need for worry from the regulations already there. We will have to balance the profits of insurance companies with what is right and proper," IRDA chairman J Hari Narayan told reporters on the sidelines of a Federation of Indian Chambers of Commerce and Industry (FICCI) event here.
The regulator, in June, had come up with new guidelines for ULIPs under which the investments would be locked in for five years, up from three years now.
Also, the agents' commission would be reduced and even if investors opt out earlier, the discontinuance charges will be lower than they were before.
Insurance companies are of the opinion that the capping of surrender charges and the even distribution of charges over the lock-in period of five years will adversely impact the profitability of companies.
When asked whether the profitability of the insurers would be impacted, he said, "I do not think that the performance would be significantly impacted in this fiscal or next fiscal."
He said the insurance companies will have to contain expenses to maintain revenue in the long run.
"The insurance companies require to get back to a much reasonable expense pattern for sustainability. We do not want to spin the industry to a high cost sector," Mr Hari Narayan said.