Stocks
Nifty, Sensex may continue to struggle – Tuesday closing report
Nifty has to head back above 7,150 for the new downtrend to end
 
We had mentioned in Monday’s closing report that Nifty, Sensex would struggle to rally and that Nifty rally might reverse if it closes below 7,150. The major indices of the Indian stock markets suffered a sharp correction and the losses over Monday’s close were of the order 1.60% and higher. The trends in the day’s trading are summarised in the table below:
 
 
The BSE market breadth was heavily tilted towards the bears -- with 1,890 declines and 717 advances. Investors' confidence was eroded by the continuing conflict between the ruling NDA (National Democratic Alliance) and the opposition, which is seen as having a bearing on some key economic legislations that await parliamentary approval. The government is expected to push through major economic legislations like bankruptcy code and Goods and Services Tax (GST) Bill during the ongoing Budget session. In addition, a weak rupee kept investors' unnerved. The rupee opened at 68.66 to a US dollar from its previous close of 68.60-61 to a greenback.
 
On Monday, the rupee weakened by 14 paise to touch its 30-month closing low. This level was last seen during late August 2013. Besides, softening of crude oil prices, which declined by 1.95% to $32.7 and negative Asian and European markets, deterred investors to chase stock prices higher. Caution also prevailed over the upcoming G20 finance ministers' meet in Shanghai, China.
 
Automobile major Maruti Suzuki on Tuesday announced that it has resumed production at its facilities in Gurgaon and Manesar. The company had to temporarily suspend manufacturing of vehicles at its flagship facilities in Manesar and Gurgaon on Saturday, due to the transport and other disruption caused by the Jat community's quota agitation. "Maruti Suzuki India has resumed production of vehicles at its facilities in Gurgaon and Manesar, starting Tuesday, February 23 (second half). The supply of components has started gradually," the company said in a regulatory filing with the BSE. "The company had to suspend operations at its facilities from Saturday, February 20 (second half), as supply of certain components was disrupted due to the agitation in Haryana." Currently, the combined output of Maruti Suzuki from Manesar and Gurgaon plants is about 5,000 vehicles per day. Haryana's Jat community, wanting affirmative action, had started a state-wide agitation. The protests and violence accompanying them adversely impacted various companies' ability to get supplies, or ship out their merchandises. The Jat community's quota agitation even crippled rail and road transport to and from the national capital to Haryana, Punjab and Rajasthan. Maruti Suzuki’s shares closed at Rs3,492.50, down 0.87%.
 
President Pranab Mukherjee said on Tuesday that the country recorded the highest ever software exports during 2015. Addressing the joint session of both houses of parliament, he said that 29 electronic manufacturing clusters were under development. "The country recorded the highest ever software exports during 2015," the president said. “Setting up world-class infrastructure for electronics manufacturing across the country remains a priority for my government," he said. He said the government's endeavour is to scale new heights in space building upon the success over the past year.
 
Japan shares ended the trading Tuesday lower by erasing gains in the morning session as sentiment here brought by rising oil prices was weighed by the Japanese yen's advance that triggered selling of export-oriented issues. The 225-issue Nikkei Stock Average edged down 59.00 points, or 0.37 percent, from Monday at 16,052.05, Xinhua reported. The broader Topix index of all First Section issues on the Tokyo Stock Exchange was down 8.83 points, or 0.68%, to 1,291.17. Decliners were led by fishery, agriculture and forestry, real estate, and information and communication issues. The day's turnover was about 2,292.5 billion yen (around $20.40 billion).
 
Chinese stocks closed lower on Tuesday, with the benchmark Shanghai Composite Index down 0.81 percent, at 2,903.33 points. The smaller Shenzhen index closed 0.69% lower at 10,299.67 points, Xinhua reported. The ChiNext Index, which tracks China's NASDAQ-style board of growth enterprises, lost 1.22% to close at 2,218.12 points.
 
The top gainers and top losers of the indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 

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COMMENTS

LALIT SHAH

1 year ago

Nifty has little support @ 7058 if break and trade bellow 7050 is garntee of 6000-6300 fast and may before budget

Assam cabinet approves Metro rail for Guwahati
Guwahati : The Assam cabinet has approved the project report for a Mass Rapid Transit System (MRTS) for Guwahati, and the setting up of the Guwahati Metro Rail Corporation Limited (GMRCL).
 
Chief Minister Tarun Gogoi will lay the foundation stone for the Metro project in Khanapara area on February 29, a statement issued by the Chief Minister's Office said on Tuesday.
 
The state cabinet under Gogoi's chairmanship approved the detailed project report (DPR) for the MRTS and the setting up of GMRCL for implementing the project on Saturday.
 
The statement issued on Tuesday said the 203 km Metro corridor will be completed in three phases.
 
Phase I will cover a length 61.4 km, and will have four corridors -- Dharapur-Narangi (elevated), M.G. Road to Khanapara (underground), Jalukbari to Khanapara (elevated) 19.4 km and ISBT to Paltanbazar (elevated).
 
There will be 54 stations in the first phase.
 
The trains will have a carrying capacity of up to 975 passengers each.
 
The projected cost including land is estimated at Rs.18,020 crore.
 
While the Assam government and central government will share 20 percent each of the total cost, local bodies will contribute Rs.350 crore, while the remaining Rs.10,074 crore will be funded through soft loans from funding agencies with guarantees from the central government.
 
GMRCL will be a wholly-owned company of the Assam government and will look after the operation and maintenance of the project.
 
The company will be later converted into joint ownership (50:50) of the state and central governments.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Mutual funds and randomly walking monkeys
The often ignored disclaimer, "past performance is not an indicator of future results" is very important for mutual fund investors. A fund that looks the best based on its past performance may not turn out to be the best in the future
 
In 1973, Burton Malkiel, a professor of economics at Princeton University, made an astonishing claim in his best-selling book ─ A Random Walk Down Wall Street.  He claimed that a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts. The implications were profound. It meant that professional fund managers do not create any value for the investors. Unsurprisingly, it was fiercely opposed by the investment professionals and has since been a source of a long-standing debate. 
 
This idea, also known as the random walk theory, suggests that stock prices evolve randomly, and therefore, cannot be predicted. If this were true, professional fund managers would have no informational advantage over the retail investors. Consequently, fund managers would not display superior skill in either selecting the best stocks or in timing the markets. In fact, the proponents of the random walk theory believe that the equity investors are best served by investing in low-cost index funds and exchange-traded funds (ETFs) that provide returns similar to that of the overall market. On the other hand, the mutual fund industry claims to achieve higher returns than the traditional investments. The past performance of equity mutual funds is regularly compared against market benchmarks such as the Nifty and the Sensex, often with mixed results. Some funds underperform the market, whereas others provide better returns than the market benchmarks.
 
It is easy to identify a mutual fund that gave much higher returns than the market in the past one year or five years. Moneycontrol.com provides a free tool to find the top-performing mutual funds for the last five years. Consider an investor who would only prefer to invest in the best performing funds. The table below looks at the top performing equity mutual funds at different time horizons, as on 8 February 2016.
 
 
The best-performing equity mutual funds comfortably outperform the Nifty index. But should you invest in these funds? Careful readers would notice that it is not straightforward to choose the funds based on such an analysis. The choice of the best fund would depend on the time horizon you choose. In the last six months, arbitrage based equity funds have performed the best. In the last two years, funds based on small-cap and micro-cap stocks have performed the best. If your horizon is the last five years, the best equity funds have been the ones that have focussed on a specific sector, such as pharmaceuticals and logistics. Moreover, there is little overlap between the different time horizons, which suggests that even the best funds do not consistently outperform all others. 
 
The often ignored disclaimer ─ “past performance is not an indicator of future results” is very important for mutual fund investors. A fund that looks the best based on its past performance may not turn out to be the best in the future. On the other hand, if a fund manager is really skilful, the fund should be able to generate consistently high returns. Can someone outperform the market simply by being lucky? Absolutely! Note that the return of the overall stock market is a weighted average of the returns of all the individual stocks. As a result, in any period, some stocks would fare better than the market, whereas others would perform worse than the market. 
 
Now, consider a mutual fund manager who constructs his portfolio completely randomly, that is, without any investment skill whatsoever. If he happens to allocate more capital to the stocks that do better than the market, simply by chance, the mutual fund would perform better than the market. Conversely, if he allocates more capital to the stocks that do worse than the market, the mutual fund would perform worse than the market. So the past performance of the mutual fund is not necessarily an indication of the skill of the fund manager, but it may simply be a matter of chance. It is important to distinguish between luck and genuine investment skill, because a fund that performed well due to superior investment skill is more likely to repeat its high level of performance in future, unlike a fund that performed well only due to luck.
 
Our recent study ─ “Testing the skill of mutual fund managers: Evidence from India” attempts to test the skill of Indian equity mutual fund managers. Our findings suggest that the performance of Indian mutual funds is highly inconsistent. For example, we find that the best performing mutual funds (top 25%) for a particular month have a 35% chance of being the best performers in the next month. However, they also have a 31% chance of being the worst performers (bottom 25%) in the next month. 
 
In other words, a best-performing fund of the current period can turn out to be to be the best or the worst performer in the next period with an almost equal probability. To test the skill of equity mutual fund managers, we took a cue from Malkiel’s idea. We simulated a large number of monkeys by generating 10,000 randomly created portfolios with all the stocks listed on the National Stock Exchange (NSE). Then, we compared the performance of equity mutual funds with these “monkey portfolios” over a long horizon (from 1 January 2003 to 31 July 2014). Surprisingly, the average mutual fund did not perform any better than the average monkey portfolio, whereas the best monkey portfolio fared much better than the best mutual fund. 
 
Finally, it can be argued that the retail investors benefit from the diversification provided by the mutual funds. This is true, however, exchange traded funds can be used to achieve portfolio diversification with much lower fund management charges than those of the equity mutual funds. 
 
(Prateek Sharma is Assistant Professor of Finance at IMT, Ghaziabad)

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COMMENTS

Ramesh Poapt

1 year ago

2016 so far is not good for Eqty funds.Balanced funds may have some solace. A recent category of fund which is slightly riskier than MIP us Eqty saver funds,which benmarked as 30% nifty or 25%MIP blended,here benifit is it is eqty oriented fund and debt oriented fund like MIP.
Asset al;location,risk profile and time horizon plays important role.Staggered(SIP/STP)investment is other important tool.

RAVI RAM PV

1 year ago

For choosing the safe option of Index ETFs: Problem is that in India ETFs are not as easily to buy and sell. I had burnt my fingers buying the Bees which is the country's largest ETF. Both ways - buy n sell - there was loss, as the market value did not reflect the NAV.

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