The first sign of weakness in Nifty will be a close below 5,960
The market today witnessed a volatile session with no proper direction. During today’s trading session the indices moved in a narrow range (Sensex 188 points, Nifty 54 points). This was the smallest range since 26 September 2013.
The indices opened marginally lower, Sensex at 20,229 while the Nifty at 6,001. The Sensex hit the intra day high and low in the morning session itself while the Nifty after hitting its low in the morning session recovered to hit the high in the early noon session. Sensex hit a high of 20,324 while the Nifty hit a high of 6,034. The indices hit a low of 20,136 and 5,980. Sensex closed at 20,273 (up 24 points or 0.12%) while the Nifty closed at 6,021 (up 14 points or 0.22%). The National Stock Exchange (NSE) recorded a lower volume of 55.96 crore shares.
Except for Bank Nifty (down 0.45%); Finance (down 0.21%); FMCG (down 0.03%) and Media (down 0.03%) all the other indices on the NSE ended in the green. The top five gainers were Auto (1.82%); Smallcap (0.86%); PSU Bank (0.86%); Nifty Junior (0.72%) and Metal (0.58%).
Of the 50 stocks on the Nifty, 29 ended in the green. The top five gainers were Tata Motors (5.55%); Ranbaxy (3.32%); NMDC (3.30%); Lupin (2.68%) and Grasim (2.07%). While the losers were Tata Power (2.74%); Hindalco (2.38%); Kotak Mahindra Bank (1.63%); Hindustan Unilever (1.48%) and Bajaj Auto (1.48%).
The International Monetary Fund (IMF) had yesterday projected the domestic economic growth at 3.8% in FY14 against 5.6% forecast in July. The IMF today clarified that "For India, we wish to clarify the basis on which our forecasts are produced. To be comparable across countries, the IMF world economic outlook projections are done at market prices, which differs somewhat from the factor cost definition used by the government and most analysts". However, today, India's Economic Affairs Secretary Arvind Mayaram has said the country still has the potential for achieving a growth rate of more than 5% this fiscal year.
US indices closed mainly in the green on the back of signs of progress in ending deadlock in Washington after news that US President Barack Obama would meet House Democrats and House Republicans. House Republican and Senate Democratic leaders are open to a short-term increase in the $16.7 trillion debt ceiling, according to congressional aides who spoke on condition of anonymity.
Brazil's central bank on Wednesday raised the country's baseline lending rate once more by half a point. But the central bank also mentioned that it will slow the pace of rate hikes going forward.
Except for Shanghai Composite (down 0.94%), Hang Seng (down 0.36%), Seoul Composite (down 0.07%) all the other Asian indices ended in the green. Nikkei 225 was the top gainer, up 1.12%. Taiwan's markets were closed for a holiday.
Japanese core machinery orders rose 5.4% in August from the previous month, the government said Thursday, on a recovery in capital spending by businesses and increased demand ahead of a planned sales-tax hike. That came after a 0.03% decline in July, and was the first rise in three months.
European indices were trading in the green. US Futures were trading a percentage higher.
In Europe, Bank of England's (BoE) monetary policy announcement is due later in the global day today, 10 October 2013. The BoE is expected to keep rates steady at 0.5% as the central bank has tied any changes in rates to a drop in the unemployment rate to 7%. Also, the bank is expected to retain the £375 billion quantitative easing program.
While close-ended schemes have an advantage over open-ended schemes, much would depend on the market valuation when the scheme is launched
ICICI Prudential Value Fund plans to launch a close-ended equity scheme—ICICI Prudential Value Fund. Each series under the scheme will have tenure of three to five years from the date of allotment of units. The scheme would invest a minimum 65% of its portfolio in equity instruments. Investments in equity would be based on a value investment strategy. Value investing requires a great deal of skill and experience. Being a close-ended scheme, the fund manager can invest depending on the maturity period of the scheme. In a close-ended scheme, a fund manager does not have to deal with the inflows and outflows of funds from investors as in the case of open-ended schemes.
However, as in the case of all close-ended schemes, much depends on when these schemes are open for subscription and their maturity period.
If the markets are undervalued at the time of the open offer of the scheme, it would be a good time to invest. A five year lock-in is a reasonable time for equity investments. However, the market condition at the time of maturity of the scheme can influence returns substantially. If one does not wish to exit from the equities at the time of maturity, if valuation is low, they can transfer their investment to another scheme with a similar objective.
There are a few mutual fund schemes that term themselves as value funds. Each fund house has its own style and approach to value investing. For example, Tata Equity PE Fund invests in stocks which have a trailing PE less than that of the S&P BSE Sensex. Templeton India Equity Income Fund puts higher weightage on stocks with a higher dividend yield. UTI Master Value Fund, values funds on their potential future earnings. ICICI Discovery Fund follows the same strategy as the new scheme and is an open-ended scheme.
The fund management of ICICI Prudential Mutual Fund has a decent track record. ICICI Prudential Discovery Fund, which is an open-ended value based scheme, has delivered superior benchmark related performance. Even compared to its peers, the scheme has been at the top in terms of performance. The scheme also has the highest corpus which is over Rs2,000 crore.
Below is how the schemes have performed over a one-year, three-year and five-year period:
As part of the stock selection process the new scheme proposes to consider parameters like the price-to book (PB) ratio, price-to-earning (PE) ratio, dividend yields of companies within its researched universe and try to identify companies with low PB and PE ratios and which have declared dividends consistently in the past and show a reasonable certainty of declaring attractive dividends in the future.
The fund would also look into other quantitative parameters like return on equity (ROE) and return on capital employed (ROCE) to identify stocks which may be available at more favourable valuations when compared with peer group and stocks in the applicable benchmark. Such stocks picked may be a part of the mid-and small-cap universe. Keeping this in mind, the fund managers would diversify to mitigate the liquidity and concentration risks.
The fund does not intend to restrict to only value stocks. The fund may also look at stocks which have in the recent past demonstrated significant price appreciation as a result of improved earnings growth or due to some other reasons. Mittul Kalawadia will be the fund manager of the scheme. He has been working with the fund house for the past seven years.
Other details of the scheme
Benchmark: CNX 500
Minimum Amount for Application: Rs. 5,000/- and in multiples of Rs. 10 thereafter
Maximum total expense ratio (TER) permissible under Regulation 52(6)(c)(i) and (6)(a)—2.50%
Additional expenses under regulation 52 (6A) (c)* (more specifically elaborated below)—0.20%
Additional expenses for gross new inflows from specified cities* (more specifically elaborated below)—0.30%
Sales of equity funds for September 2013 declined to Rs1,996 crore, its lowest since April 2009
After a month of positive inflow, equity mutual fund schemes lost assets during September 2013. The sales of equity schemes gradually declined to Rs1,996 crore in September from Rs3,327 crore in June 2013. While the equity schemes during August received a net inflow of assets on account of lower redemptions, in September, poor sales and high redemptions led to an outflow of Rs2,231 crore. Redemptions increased to Rs4,227 crore during September from Rs2,326 crore in August. The total number of equity folios declined by 5.08 lakh to 3.12 crore during September from 3.17 crore in August.
After almost four months, an equity new fund offer was launched. IDFC Tax Saving Fund, an equity linked saving scheme, was able to gather a subscription of Rs20 crore during its offer period. This had a marginal impact on the total sales of all equity schemes.
The volatile market conditions may have put off equity investors, but is it the only reason the quantum of equity scheme sales in September is the lowest since April 2009. In April 2009, towards the end of the financial crisis, sales of equity schemes amounted to Rs1,994 crore. In the following month, sales more than doubled to Rs5,752 crore as the market started recovering. However, the market environment now is different. Though markets have been volatile, there has been no severe crash. Yet, there has been an outflow of Rs13,615 crore over the past year, with just three months of net inflows. There certainly is a deeper issue which the industry which the regulator needs to find out and resolve.
During September, except for foreign fund-of-funds, all other category of schemes suffered a net outflow of funds. As much as Rs33,910 crore flowed out from the mutual fund industry during the month. The total assets under management of the fund industry declined by Rs20,134 crore, from Rs 7.66 lakh crore in August to Rs7.46 lakh crore in September. Assets of equity oriented schemes increased marginally by 3% to Rs1.62 lakh crore from Rs1.57 lakh crore over the same period, while the Sensex moved up by 4% to 19,380 from 18,620.