Fixed Income
Rising short term debt increases external vulnerability, says Nomura

In today's Asia Chart Alert, Nomura expressed serious concern for India's rising short-term debt, even with a fully funded current account deficit, as it has increased India's external vulnerability

Short-term debt and long-term debt due in the next one year are on the rise. As per the Reserve Bank of India (RBI) figures, this has increased to $172 billion in March 2013, up from $147 billion a year ago.

Excluding NRI deposits, short-term residual maturity debt amounts to a massive 42% of total forex reserves. While this is not as alarming as the early nineties, Nomura notes that it is indeed a steep rise from a low of 16% in 2004.

While debt capital inflows help finance the current account deficit, they could also worsen the balance of payments situation. According to Nomura, with global risks on the rise, difficulty in rolling over debt could put pressure on net capital inflows, thus leaving the currency vulnerable.


Is the CRISIL-AMFI mutual fund performance index grossly flawed?

With great fanfare the mutual fund industry announced CRISIL-AMFI Equity Fund Performance Index yesterday, which is claimed to give an annualised return of 22%. However, a simple check shows that there were 25 equity schemes in April 1997 (that have survived) and only six have delivered a return above 22%. The average return of all equity schemes was 17%

At the Mutual Fund Summit 2013 organised by the Confederation of the Indian Industry (CII), CRISIL and the Association of Mutual Funds in India (AMFI) jointly launched a family of mutual fund performance indices across all categories. As per the report titled CRISIL-AMFI Mutual Fund Performance Insights, “These indices, the first of their kind in the country, represent the performance of various mutual fund categories and enable comparison of these categories with appropriate benchmarks across time frames and market cycles.” Out of the five main categories, the CRISIL-AMFI Equity Fund Performance Index is claimed to have delivered an annualised return of 22% since 1 April 1997, as compared to annualised returns of 12% and 13% by the benchmarks CNX NIFTY and CNX 500, respectively during the same period.

The report does not mention a word about the methodology. Since 22% appeared to be a very high average number, Moneylife decided to analyse the performance of equity diversified schemes over this period. To our surprise we found out that there were 25 schemes launched prior to 1 April 1997 which are still in existence. Out of these schemes there were just six schemes which delivered returns greater than 22%. The average return of the schemes was 17% with the top five schemes delivering an average return of 26% and the bottom five schemes delivering a return of 7.18%. CRISIL-AMFI Equity Fund Performance Index looks grossly flawed.

Of course, our data is biased in favour of survivors. If we want to free it from survivorship bias, the 17% figure will drop down drastically because we will have to include the dregs of fund list which have been closed and merged.

The report mentions that the indices are constructed using schemes that are ranked by CRISIL under its quarterly mutual fund rankings. The indices are meant to reflect the performance of funds at an aggregate level. Has the Crisil-AMFI index been adjusted for ‘non-surviving’ mutual fund houses? Fund houses like those of PNB Mutual Fund, Alliance Capital Mutual Fund, BOI Mutual Fund and BOB Mutual Fund have failed to continue their business. How does the index adjust for the performance of the schemes of such fund houses or even schemes of present fund houses which get merged with other schemes?

Moneylife sent an email to AMFI and CRISIL to learn more about their methodology for calculating the index, however, no reply was received till the time of publishing this article.

Roopa Kudva, managing director and chief executive officer, CRISIL, at the launch said “Retail investors can use these indices as a standard performance metrics to understand the benefits of investing through mutual funds.” However, if retail investors were to follow this index, it would give them a flawed judgement of performance. The performance analysis, that too, from reputed institutions.


Disclaimer: All our mutual fund analysis is based on the data purchased from Mutual Funds India database of ICRA Online. While the analysis is our own, we cannot guarantee that Mutual Funds India has reported the data correctly.



Suiketu Shah

4 years ago

Jason great article.One more reason why mutual funds are best to be avoided due to their complicated nature.

Warren Buffet's principal is not to buy equity which he doesnot understand.Indian mutual funds fall in the same category-very complex,confusing,complicated and worst of all Z grade agents out to cheat investors by making them buy at high price so they earn high cash commission at the expense of investors interest.


4 years ago

What good is that performance Index? What inference can you draw? How will it help in making an informed investing decision?

There may be a method. But, it is madness.

Ramesh Poapt

4 years ago

inflate positive picture and hide bad situation is mantra of the Govt. SEBI, all Minsitry, AMFI,LIC,PSU banks are partners...!

Sensex, Nifty may be on a short uptrend: Thursday Closing Report

The Nifty has to stay above 5,670 tomorrow to keep the upmove intact. However, a close below 5,590 may signal a fresh downtrend

The domestic market settled off the highs of the day on lower-than-expected current account deficit figures, which led to the strengthening of the rupee. The Nifty has to stay above 5,670 tomorrow to keep the upmove intact. However, a close below 5,590 may signal a fresh downtrend. The National Stock Exchange (NSE) reported a higher volume of 74.60 crore shares on account of the expiry of the June F&O contract. The advance-decline ratio was 728:640.


The market opened on a firm note on supportive global cues as markets in Asia were higher on hopes that the reassurances by the Chinese central bank will yield results and speculations that the US Federal Reserve will continue with its stimulus package. Back home, the F&O contract expiry is expected to keep the market volatile.


The Nifty opened 59 points higher at 5,648 and the Sensex resumed trade at 18,716, a jump of 164 points over its previous close. Buying in heavyweights and banking stocks and lower current account deficit numbers for the March quarter kept the momentum in the morning session.


Current account deficit (CAD) for the March quarter was $18.1 billion, or 3.6% of GDP, lower than expected and below the $21.7 billion deficit a year earlier. CAD for the full fiscal year ending in March 2013 was $87.8 billion, or 4.8% of GDP, compared with $78.2 billion (4.2%) a year earlier.


Profit taking in consumer durables, capital goods, fast moving consumer goods and power stocks led the market led the market to its lows, albeit in the positive terrain, in noon trade. The Nifty fell to 5,631 and the Sensex slipped to 18,688 at their respective lows.


Gains in oil & gas, healthcare and IT sectors pushed the market higher in the post-noon session.  The benchmarks hit their highs in the last hour of trade with the Nifty rising to 5.699 and the Sensex moving up to 18,926.


The market settled slightly off the highs powered by gains in oil & gas stocks as the Centre is expected to look at hiking gas prices later today. The Nifty closed 94 points (1.68%) higher at 5,682 and the Sensex finished the session at 18,876, a gain of 324 points (1.75%).


While the broader indices also ended in the green, they underperformed the Sensex today. The BSE Mid-cap index rose 0.26% and the BSE Small-cap index gained 0.32%.


Barring the BSE Consumer Durables (down 1.08%) and BSE Capital Goods (down 0.04%), all other sectoral gauges settled higher. The top gainers were BSE Oil & Gas (up 3.22%); BSE IT (up 3.15%); BSE TECk (up 2.70%); BSE Healthcare (up 2.49%) and BSE Realty (up 1.80%).


Out of the 30 stocks on the Sensex, 20 stocks settled higher. The chief gainers were ONGC (up 4.14%); TCS (up 3.85%); HDFC Bank (up 3.62%); Sun Pharmaceutical Industries (up 3.54%) and Reliance Industries (up 3.48%). The major losers were Maruti Suzuki (down 1.61%); Tata Motors (up 1.35%); NTPC (down 0.53%); Coal India (down 0.49%) and BHEL (down 0.37%).


The top two A Group gainers on the BSE were—JSW Energy (up 7.42%) and Jaiprakash Power Ventures (up 6.53%).

The top two A Group losers on the BSE were—Gitanjali Gems (down 9.99%) and MMTC (down 4.96%).


The top two B Group gainers on the BSE were—Alka India (up 20%) and Objectone Information Systems (up 19.82%).

The top two B Group losers on the BSE were—Hanung Toys (down 19.64%) and Vardhman Industries (down 13.37%).


Of the 50 stocks on the Nifty, 39 ended in the in the green. The major gainers were Cairn India (up 5.76%); DLF (up 5.19%); UltraTech Cement (up 4.69%); ONGC (up 4.23%) and HCL Technologies (up 3.51%). The key losers were IDFC (down 1.40%); Maruti Suzuki (down 1.39%); Grasim Industries (down 0.86%); Punjab National Bank (down 0.68%) and NTPC (down .60%).


Markets in Asia settled mostly higher as assurance from the People’s Bank of China to boost liquidity helped soothe investor sentiment. Besides, slower-than-expected economic growth reports, which gave rise to speculations that the US Fed may not cut its stimulus programme, also lent support.


The Hang Seng gained 0.50%; the Jakarta Composite surged 1.92%; the KLSE Composite advanced 0.62%; the Nikkei 225 jumped 2.96%; the Straits Times rose 0.44%; the Seoul Composite climbed 2.87% and the Taiwan Weighted settled 1.27% higher. On the other hand, the Shanghai Composite lost 0.08%.


At the time of writing, the key European indices were trading with small gains and the US stock futures were modestly higher.


Back home, foreign institutional investors were net sellers of stocks aggregating Rs547.79 crore on Wednesday while domestic institutional investors were net buyers of shares amounting to Rs336.97 crore.


Kalpataru Power Transmission (KPTL) today said it has secured new orders worth over Rs 1,130 crore in international and domestic markets. The contracts include two projects worth Rs500 crore in Zambia, for supply and erection of 330 KV transmission line of 446 km, and from Power Grid worth around Rs330 crore for supply and erection of 765 KV D/C transmission line of 140 km. The stock advanced 1.51% to close at 7.10 on the NSE.


Sanghi Industries has drawn up plans to invest Rs275 crore in the next 18 months. While Sanghi Cement makers will invest Rs150 crore on acquiring ships and setting up new jetties/terminals, Rs125 crore would be spent on enhancing capacity at its Kutch plant. The stock declined 1.18% to Rs16.80 on the NSE.


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