Mutual Funds
ICICI Securities says right time to accumulate equities; believes market will be higher by year end

Brokerage reports that equity mutual fund AUMs continue to shrink, but argues for investing in equities over a two-year period

ICICI Securities believes that the risk-return trade-off in equities is highly favourable over a two-year perspective and that investors should, therefore, use the current market volatility to accumulate and build their equity portfolio.

In its mutual fund review published recently, the brokerage said it expects to see the markets at a higher level by the end of 2011 as they are trading at a P/E of 15 times the current FY12 earnings, at the lower end of its historical value of 14-17 times.

While the Indian markets continue to trade in a range of 5,200-5,700 on the Nifty, they have rebounded sharply after a correction from the higher range in the first half of June, indicating strong investor appetite at lower levels, the brokerage commented.  

It said short-term concerns over developments in the European sovereign crises and slow economic recovery in the US could lead to higher volatility. "Although some tail risk remains due to macroeconomic headwinds, most of them have already been discounted in the price."

After six to nine months, the market will be discounting FY13 earnings, which will make it very attractive from a valuations perspective.  

In the first half of the calendar year 2011, mutual funds bought equities worth Rs3,088 crore, far more than the Rs2,055 crore worth of equities purchased by FIIs. While FIIs turned buyers in the second half of June, Mutual funds continued to buy on dips.

However, assets under management continued to shrink for a third consecutive month in June, down by 8%, due to outflows from liquid funds and reforms by the Securities and Exchange Board of India to reduce corporate money in mutual funds.  

While FMCG-focused funds performed the best (9.7% returns in the category versus 7.7% on the index) in the first half of 2011, infrastructure funds were the worst performers (-13.5% from category versus -8.5% on the index).

ICICI Securities expects a pickup in infrastructure opportunities as the government starts to expedite reforms, which should provide a good move over the next three to five years. Banking also suffered due to higher interest rates which led to a decline in net interest margins. But the brokerage is upbeat on the growth of Indian financials over the long term.

The brokerage pointed out that while midcap funds had underperformed, eroding investors' wealth by about 9%, they did outperform the CNX Midcap Index which was down by 11% in the same period.

The recent sharper correction in midcaps had resulted in the current valuation discount of midcaps against large caps increasing to around 21%, which is near its long-term average of 20%-22%. Many individual stocks are trading at a 30%-50% discount to their large cap peers.

But given the overall negative sentiment coming from lower growth expectations, midcaps could take longer to perform, the brokerage said. "Staggered investment in midcaps over the next few months with an investment horizon of more than two years may be a better investment strategy."

On the debt markets, ICICI Securities said that there had been a moderation in yields of about 20-40 basis points across the yield, due to easing off of system liquidity on advance tax coming back into the system. "Longer duration yields are expected to be volatile on news flows from the domestic and global front, therefore they are more risky as compared to the shorter duration yields."

In this situation, ultra short-term and short-term debt funds provide a relatively better risk-return trade-off, as there is low expectation of yields moving up significantly from the current higher levels, and this may be seen to be moderating once liquidity improves.

Fixed maturity plans and interval funds offer relatively safer option to conservative investors to lock in current yields with low mark to market risk.

The worsening debt problems in the US and Europe have continued to support gold prices with considerable currency volatility and political uncertainty around the world, the brokerage stated. Gold continued to make new highs in the first half of July 2011 crossing $1,600/oz and Rs23,000 in the domestic markets. Gold is up by more than 7% in dollar terms, while in domestic terms it is up by 3.2%.

While investors should avoid going overweight on gold, they could allocate some resources from their overall portfolio for gold which continues to provide effective diversification.



Sachin Jain

5 years ago



5 years ago

Coverage of our report in money Life

Indians’ share of money in Swiss banks only 0.07%: Swiss National Bank

Indians' deposits of $2.5 billion (about 1,945 million Swiss francs) comprised about 1.66 billion Swiss francs ($2.1 billion) held by Indian individuals and institutions and about 287 million Swiss francs ($355 million) by trusts

Geneva: Amid a raging debate in India over wealth stashed away by Indians in Swiss banks, official Swiss bank figures show that the quantum of such money is only a very small fraction, or 0.07%, of the total assets of all foreigners with banks in this European nation, reports PTI.

As per the official figures disclosed by Switzerland's central bank, the Swiss National Bank (SNB), total deposits of Indian individuals and companies with all the Swiss banks put together stood at about $2.5 billion at the end of 2010.

In comparison, total foreign assets worth around 2.85 trillion Swiss francs ($3.5 trillion) were parked in Swiss banks at the end of the year 2010, said a spokesperson for the Swiss Bankers' Association, the apex body of Switzerland-based banks.

However, the actual total wealth held by entities from India directly and indirectly in Swiss banks may be much higher and some private bankers have pegged this figure at $15-$20 billion.

But the figures made available by SNB showed that Indians' money in Swiss banks was much lower than the figure for a host of other countries, including the US, UK, Germany, France, Japan, Luxembourg and Hong Kong.

The Indian figure is in fact far lower than many developing countries as well, such as Russia, Brazil, China, Turkey, Ukraine, Mexico, Venezuela, Egypt, Israel, Jordan, Liberia, Saudi Arabia, the UAE, Indonesia, Malaysia, Marshall Islands, Philippines, South Korea, Thailand and Uzbekistan.

Even the figure for Pakistan, 1,947 million Swiss francs, is marginally higher by 2 million Swiss francs (about $2.4 million, or about Rs11 crore) than for India.

Indians' deposits of $2.5 billion (about 1,945 million Swiss francs) comprised about 1.66 billion Swiss francs ($2.1 billion) held by Indian individuals and institutions and about 287 million Swiss francs ($355 million) by trusts.

Compared to this, individuals and entities from the UK had 324 billion Swiss francs ($400 billion) and those in the US had over 240 billion Swiss francs ($300 billion)-making them the two largest groups in terms of money held in Swiss banks.

Among developing countries, Russia accounted for over 10 billion Swiss francs (over $12 billion), Brazil about 5 billion Swiss francs ($6 billion), China 4.3 billion Swiss francs ($5.3 billion) and Taiwan close to 10 billion Swiss francs (over $12 billion).

Individuals and institutions from Pakistan accounted for 1.64 billion Swiss francs, while fiduciaries or trusts had 306 million Swiss francs, taking their total to 1.947 billion Swiss francs.

The Asia-Pacific countries accounting for figures lower than India included Afghanistan, Bangladesh, Bhutan, Kazakhstan, Nepal, Myanmar, Sri Lanka and Vietnam.

Among developed countries, Finland, Denmark, Portugal, Norway, Iceland and the Vatican were below India in terms of the quantum of money parked in Swiss banks.

The deposits held by Swiss banks have declined in the past few years, possibly due to growing international scrutiny over their status as a safe haven for black money.

The amount held by Indians in Swiss banks has declined by about $500 million in the past three years, from about $3 billion at the end of 2008 to close to $2.5 billion at 2010-end.




5 years ago

There is a proverb which says" what is a minor spill for the elephant while eating would be a major food store for ants."

Raja begins arguments opposing corruption charges in 2G case

"If the policy pursued by me was wrong, then all former telecom ministers since 1993 should also be in jail with me (Mr Raja)," senior advocate Sushil Kumar, appearing for the former telecom minister said while opposing framing of charges against Mr Raja

New Delhi: Former telecom minister A Raja today defended himself against corruption charges in the second generation (2G) spectrum allocation scam, saying he had not done anything wrong and was merely following the policies pursued by his predecessors and the NDA government, reports PTI.

The 47-year-old DMK MP pleaded before special Central Bureau of Investigation (CBI) judge OP Saini that there was nothing wrong in his decision of not auctioning 2G spectrum as he had "implemented only what I have inherited."

Senior advocate Sushil Kumar, appearing for the former telecom minister said if Mr Raja is being prosecuted for following a certain policy then all telecom ministers since 1993 are liable to be prosecuted as they too followed the same policy.

"If the policy pursued by me was wrong, then all former telecom ministers since 1993 should also be in jail with me (Mr Raja)," the counsel said while opposing framing of charges against Mr Raja.

He said, "As telecom minster Arun Shourie distributed 26 licences while Dayanidhi Maran distributed 25 and I (Mr Raja) distributed 122 licences. Numbers make no difference, however, it is to be noted that none of them auctioned the spectrum.

"If they had done no wrong, why am I being questioned? Let them deny that they have not done what I did. I was just following the 2003 Cabinet decision that is not to auction 2G spectrum. If I am following the law, I am not liable to be prosecuted. In fact, I should be rewarded," Mr Raja said.

While defending his policy as telecom minister, Mr Raja submitted that it is because of his policy that mobile phone call rates came down and they became affordable to even a 'rickshaw wala'.

"It was my obligation to social justice that every man on the street should have a mobile phone. I am a servant of my people and I made the call rates of mobile phone so cheap that even a 'rickshaw wala' or a maid servant can be seen using it," Mr Raja said.

Mr Raja, who was arrested on 2nd February for his alleged role in the 2G scam, today began his arguments opposing charges of cheating, forgery and criminal conspiracy against him.

The arguments are still continuing.

CBI had begun its arguments on framing of charges against Mr Raja and 16 others, including three telecom firms, from 21st July and had completed its arguments on 23rd July.

All the 14 accused including DMK MP Kanimozhi are presently lodged in the Tihar Jail.


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