Another scheme — the Tata Natural Resources Fund — has entered this space, but there is nothing which this fund can deliver that existing equity funds cannot
Three are three natural resources funds which were all launched in 2008 when the commodities boom was at its peak. Two of the three have beaten their respective benchmarks. A fourth one is now being launched - by Tata Mutual Fund. Is it worth investing in it? Not really. Look at how the existing natural resources funds have invested their money. The label is a misnomer.
DSP BlackRock Natural Resources & New Energy Fund manages a corpus of Rs180.50 crore as on 30th July. The fund has mainly invested in Indian companies. Its top five picks are Castrol India (10.12% net investments), SRF (4.86%), Hindustan Petroleum Corporation (4.54%), Indian Oil Corporation (4.52%) and Coromandel International (4.49%). The fund has 26.71% exposure towards mid-caps, 47.11% in small-caps and 23.88% in large-caps. The fund launched in April 2008 has posted a net asset value (NAV) return of 16% when its benchmark BSE Metal Index slipped by -0.74%, outperforming its benchmark by far. However, why a natural resources fund should have the BSE Metal Index as the benchmark is unclear.
Reliance Natural Resources Fund launched in February 2008 has been an underperformer. The fund has delivered 0.17% return since inception while its benchmark BSE 200 edged up 1.35% during the same period. Again, why should a natural resources fund have BSE 200 as the benchmark is a question. The fund had a corpus of Rs3,296.88 crore as on July 2010. Its major exposure was in Indian companies like Oil & Natural Gas Corporation, Reliance Industries, Hindustan Petroleum Corporation, Tata Steel and Bharat Petroleum Corporation, etc. The fund also has investments in foreign firms like Potash Corp of Saskatchewan, Peabody Energy Corp, General Electric Company, CSX CORP, Caterpillar, Macarthur Coal, BP Global, JGC ORD, Xstrata Plc and Atlas Energy Inc. It is impossible for Indian investors to know whether these stocks are worth the investment or not.
The third scheme, Sahara Power & Natural Resources Fund launched in June 2008 has been the top performer. The fund posted NAV return of 19% since inception while its benchmark S&P Nifty is up 12.34% between the same period. As on July 2010, the fund had a tiny corpus of Rs6.72 crore. Its top picks are Uflex Ltd (3.93% net investments), Gas Authority of India Ltd (3.59%), Rallis India Ltd (3.47%), Bharat Heavy Electricals Ltd (3.26%) and Hindustan Petroleum Corporation Ltd (3.22%).
The latest to join the natural resources bandwagon is Tata Mutual Fund, which recently filed a draft offer document with the Securities and Exchange Board of India (SEBI) to launch its open-ended equity scheme called 'Tata Natural Resources Fund' (TNRF). The fund comes with two plans - 'Plan A' and 'Plan B'.
The fund (Plan A) aims to invest in companies principally engaged in the discovery, development, production or distribution of natural resources in various economies of the world including India. At least 51% of the corpus would be invested outside India while the 'Plan B' would invest predominantly in India.
The Plan A scheme will be benchmarked against the 'MSCI World Energy Index' (70%) and 30% against the BSE 200. 'Plan B' will be benchmarked against the BSE 200 to the extent of 65% and MSCI World Energy Index to the extent of 35%. The benchmark is a complex concoction designed to justify the label. But investors don't really need it. There is nothing which this can fund can deliver that existing equity funds cannot.
The Sensex valuation has factored in a 20% growth in operating profit for the entire fiscal year 2011; but Q1 has been a damper. What if the growth does not resume in the next two quarters?
Till today 26 of the 30 companies that make up the Bombay Stock Exchange (BSE) Sensex have put out their financials for Q1FY2011. While revenues have witnessed a strong 24% aggregate growth, operating profits grew only 12%.
This performance is contrary to the market's expectations, which is anticipating a 20% growth in operating profit for the entire fiscal year 2011. This has also been factored into the current valuations, and the market is now trading at a PE multiple of close to 18. However, the latest quarterly performance may not bode well for the rest of the year. It is obvious that since profit growth is lagging so far behind revenue growth, the Sensex companies are reeling under some cost pressures. If this profit growth fails to pick up significantly by the next quarter, the markets may lose confidence and head southwards.
Companies that have witnessed robust growth in the June quarter include Sterlite Industries, DLF, BHEL, Tata Motors and Reliance Industries. Sterlite's revenues surged 35% while operating profits zoomed 197% during Q1FY 2011, over the corresponding period last year. DLF's revenues also jumped 56% while profits surged 107% during this period. Similarly, BHEL and Tata Motors recorded sales growth of 16% and 63% respectively, with profits surging by 63% and 53% respectively. RIL also put in a strong performance, with sales growing by 87% and profits jumping by 46% over this period.
Companies that put in a disappointing show during the last quarter include ACC, ONGC, Reliance Infrastructure, ICICI Bank and NTPC. ACC witnessed a 3% fall in revenues and 23% drop in profits during Q1FY2011. Similarly, ONGC and Reliance Infrastructure's revenues fell 9% each, with profits contracting by 16% and 15% respectively. While ICICI Bank's revenues slid by 19%, its profits fell 13%. On the other hand, NTPC's sales jumped marginally by 6% while profits declined 10% during this period.
These companies will have to put in a much superior performance in Q2 to bolster the market's confidence. At this juncture, it seems that the market is poised for a significant move. Unless reported numbers improve considerably over the next quarter, the Sensex may very well go down.
Washington: India fared comparatively well during the recession that had engulfed the world, mainly due to inherent strength of its economy, reports PTI quoting a Congressional oversight panel report.
"Because the financial crisis originated in domestic housing bubbles, and was transmitted by highly leveraged multinational financial firms, countries that were shielded from those forces fared comparatively well," said the panel in its 162-page report for the month of August.
India fared comparatively well, the report said.
"Brazil, India, China, Australia and Canada, for example, generally avoided the banking crises that plagued US and much of Europe; nonetheless their economies felt many of the after-effects of the global financial crisis."
Brazil, the report said, is one of the countries that has fared best during the global financial crisis.
"Its highly regulated banking sector had limited operations outside India, and therefore very little exposure to subprime lending in the US," the report said, adding that although India did feel the follow-on effects of the crisis, though.
Its export-driven economy suffered when global demand dropped; its financial sector suffered from the global liquidity squeeze, which led to a fall in lending; and its stock market lost roughly 50% of its value between June and December 2008.
"Although the Indian government did not provide capital to Indian banks, it did respond to the crisis with fiscal stimulus equal to about 2% of gross domestic Product (GDP), and it shifted from a tightening monetary policy to an expansionary one," the report said.
The Congressional Oversight Panel said China's financial system also fared relatively well during the crisis, though it should be noted that China's state-owned banks have benefited from repeated government rescues in the recent past.
China maintains capital controls that limit foreign investment by individuals and businesses; these controls had beneficial effects during the crisis, since Chinese investors had little exposure to troubled parts of the US and European financial systems, it said.
Banks in China had invested heavily in US securities, but those investments were generally not in sub-prime securities, but rather in safer Treasury bonds and securities issued by Fannie Mae and Freddie Mac, which the US government stepped in to backstop during the crisis, it said.
"Therefore, the China's financial system, like Brazil's and India's, did not sustain major damage from the crisis.
China's export-driven economy did suffer, though, from the sharp downturn in global demand and the slowdown in foreign investment," the report said.
China's explosive growth slowed during the crisis, but the government countered the effects of the slowdown by increasing bank lending, lowering interest rates, and introducing fiscal stimulus spending that was among the largest in the world as a percentage of GDP.
"Australia also suffered relatively little from the crisis. Its only decline in GDP occurred in the fourth quarter of 2009, meaning that Australia did not enter into a recession," the report said.