Shares prices likely to soften on Friday: Thursday Closing Report

Despite three days of gains, and a strong rebound in commodities and foreign markets, its not yet clear which way the market is headed

Adding to the gains accrued in the previous session, the Indian market opened in the positive terrain influenced by optimism in the global arena. The Sensex added 80 points to open at 18,286 and the Nifty was up at 5502, 22 points higher from its previous close. The benchmark indices touched the day's highs in the first half hour itself at 18,374 and 5,528, respectively. The rise in food inflation numbers for the week ended 12th March led to some nervousness but investors shrugged it off and buying continued.

A bit of nervousness was noticed around 1.30pm dragged the indices to their intra-day lows with the Sensex falling to 18,269 and the Nifty at 5,496. Thereafter the market was range-bound till around 3pm. A fresh round of buying in the last half hour resulted in the market closing in the green for the third day in a row. The Sensex closed 145 points higher at 18,350 and the Nifty settled at 5,522, up 42 points higher than its previous close. The advance-decline ratio on the National Stock Exchange was a positive 997:668.

The broader indices were also in sync with the Sensex as the BSE Mid-cap index closed 0.78% higher and the BSE Small-cap index gained 0.67%.

Barring the oil & gas and health sectors, all other sectoral gauges closed in the positive terrain.  BSE Realty (up 2.83%), BSE Auto (up 1.40%), BSE Capital Goods (up 1.27%), BSE Consumer Goods (up 1.25%) and BSE IT (up 1.07%) were the top gainers. On the other hand, BSE Oil & Gas (down 0.25%) and BSE Healthcare (down 0.09%) were the losers in the sectoral space.

Hindalco Industries (up 4.25%), Mahindra & Mahindra (up 2.88%), BHEL (up 2.82%), TCS (up 2.76%) and Jaiprakash Associates (up 2%) were the major gainers on the Sensex. Maruti Suzuki (down 0.60%), Bajaj Auto (down 0.42%), Hindustan Unilever (down 0.30%), Reliance Industries (down 0.25%) and DLF (down 0.13%) settled at the bottom of the list.

Food inflation was back in double digits at 10.05% for the week ended 12th March after a fortnight-long gap. Food inflation, which has been showing a declining trend for the last three weeks, stood at 9.42% in the week ended 5th March. The rate of price rise in food items, which accounts for over 14% of overall inflation, may prompt the Reserve Bank of India to hike key policy rates.

Most markets in Asia closed in the green on higher commodity prices and on news that factories in Japan are planning to restart production after factories came to a standstill following the earthquake earlier this month. However, concerns about the radiation levels and damage to the economy kept the Nikkei lower in trade.

The Hang Seng gained 0.39%, the Jakarta Composite surged 1.56%, the KLSE Composite advanced 0.12%, the Straits Times rose 0.69%, the Seoul Composite climbed 1.22% and the Taiwan Weighted was up 0.37%. On the other hand, the Shanghai Composite shed 0.06% and the Nikkei 225 ended 0.15% lower.

Back home, institutional investors-both foreign and domestic-were net buyers in the equities segment on Wednesday. Foreign institutional investors pooled in fund worth Rs312.10 crore and domestic institutional investors pumped in Rs1,111.68 crore.

Tractor and SUV major Mahindra and Mahindra (M&M) (up 2.88%) will set up a tractor manufacturing unit at its existing facility at Zaheerabad in Medak district of Andhra Pradesh. M&M will invest Rs300 crore on the tractor manufacturing facility over the next three years and provide direct employment to about 2,000 people and indirect employment to another 5,000 persons.

The proposed facility, Mahindra's first in south India, is intended to manufacture 90,000 tractors per year and also 3 and 4-wheeler commercial vehicles.

Pipavav Shipyard (up 1.02%) has received clearance from Foreign Investment Promotion Board (FIPB) for building warships for defence sector. The clearance would allow the company to bid for construction of submarines, destroyers, frigates, LPD, corvettes and aircraft carriers.

In November, 2010, the company had said it received a licence to build warships for Indian Navy after securing clearances from ministries like home and defence and other related agencies.

Dhunseri Petrochem and Tea (up 0.86%) will start construction of its PET resin manufacturing unit in Egypt by June. The company had put on hold plans to start construction because of the political instability after an uprising in that country, which put an end to the 30-year-old rule of Hosni Mubarak.

The plant will be built with an investment of about $160 million and will have the capacity of about 420,000 tonnes per annum (TPA).


Peerless Child Plan: A me-too product that will deliver disappointing returns

The scheme will invest mainly in debt. Therefore, it will not beat inflation and will not help your child much!

Peerless Funds Management Co Ltd has launched an open-ended scheme called Peerless Child Plan. The Plan, a hybrid scheme of debt, equity and gold, was launched quietly two weeks ago and closes on Friday. Is it worth looking at?

The benefit is that an investor gets a combined investment option in three asset classes. But sadly, it is an exact replica of Fidelity's India Children's Plan. Before this, Taurus Mutual Fund launched an open-ended income scheme called 'Taurus MIP Advantage' fund and Canara Robeco launched a hybrid plan called 'Indigo Fund'.

Religare Mutual Fund was the first fund house to enter this asset allocation product in April 2010, with a scheme called Religare Monthly Income Plan (MIP) Plus that seeks to generate income through a portfolio of fixed income securities, gold and equity-related instruments.

The investment objective of the Peerless Child Plan is to generate long-term capital appreciation through a portfolio of fixed-income securities, gold exchange traded funds (ETFs) of other mutual funds and equity and equity-related instruments. The Plan will invest 60%-80% in debt and money market instruments, 5%-35% in equity and 5%-35% gold ETFs. The scheme carries a 1% exit-load if redeemed before one year. It is benchmarked against the CRISIL MIP Blended Index and the price of gold (neutral allocation: 85:15).

Saving for a child's future is high on every parent's agenda. Since the best long-term investment products are equities and equity funds, it is a valid marketing idea for fund companies to come up with a pure equity fund that secures your child's future. Thus, a simple equity diversified fund held over the long term would be good enough. But Peerless will divide its investment in debt, equity and gold ETFs.

Debt and gold will only drag down the performance. Returns from debt cannot keep up with inflation. And while it is a common belief that gold offers good returns over the long term, this is simply not true. Since 1991, gold is up just 8.9% on a compounded annual basis. That hardly beats a recurring deposit scheme.

Suppose 60% is invested in debt, 35% in equity and 5% in gold. If the debt part gives a maximum return of say 9%, the return from the debt part of the portfolio will be around 5.4%. If equity gives a return of around 15%, the return from the equity part of the portfolio would be 5.25%, and if gold crashes the return from gold will be zero to negative. Thus the overall return from the portfolio would be just 10.65%. Thus for just that extra 1.65% return more than the bank fixed deposits, you would pay 2% fees to the fund manager, with the only advantage that the return from the scheme may fetch a slightly lower tax.

Equity mutual funds are the best financial product to beat inflation in the long run. Certainly there is a huge risk involved in equity investment too, such as entry/exit timing, stock selection and as well as portfolio churning. But in the long run it gives the highest-inflation adjusted return. That apart, it is bit strange to see a long-term objective fund investing a majority of its asset in debt. After all, debt is one of those assets which have no growth factor. The return from debt is completely dependent on the prevailing interest rate.

We think the fund is merely designed to attract safe money. Since gold prices are rallying, the fund house has decided to add it to the fund. But gold has been rising for years now. To extrapolate that trend into the future would be imprudent. With so many flaws, we are simply not sure who the fund is meant for. Asset allocation schemes may claim that through one scheme you are able to invest in three asset classes. But this will always lead to sub-optimal returns. It's always good to invest in specific products based on your expectations from that particular asset class that is in line with your financial goals.


False market news: SEBI to take compliance officers to task

The move comes after growing concerns over some employees indulging in activities like fraud against clients, front-running, circular trading and manipulating share prices through rumour-mongering

Mumbai: Market regulator Securities and Exchange Board of India (SEBI) today sought to give more teeth to its new guidelines on dissemination of news by market intermediaries by holding compliance officers of such firms liable for breach of duty in case of a failure to check contents forwarded by employees, reports PTI.

"Employees should be directed that any market-related news received by them either in their official mail/personal mail/blog or in any other manner should be forwarded only after the same has been seen and approved by the concerned intermediary's compliance officer... The compliance officer shall also be held liable for breach of duty in this regard," SEBI said in an addendum.

This comes a day after SEBI announced a new set of guidelines, including restricting access to Internet forums for employees, for market intermediaries to ensure that unsubstantiated news is not circulated.

Failure by any employee to seek approval from the compliance officers before forwarding such material had already been made liable for action.

The move came after growing concerns over some employees indulging in activities like fraud against clients, front-running, circular trading and manipulating share prices through rumour-mongering.

It was intended to prevent dissemination of unauthenticated news which could distort the normal functioning and prices of stocks.

SEBI had said that such news related to various scrips are circulated in blogs, chat forums and e-mails by employees of broking houses and other intermediaries in violation of rules.

"SEBI-registered market intermediaries are directed that ... proper internal code of conduct and controls should be put in place," the circular issued yesterday had said.

It had further said that staff of broking houses and other intermediaries should be discouraged from circulating information obtained from clients or others without proper verification.

"... In various instances, it has been observed that the intermediaries do not have proper internal controls and do not ensure that proper checks and balances are in place to govern the conduct of their employees," SEBI said, adding that such speculative news and "rumours" can affect the functioning of the markets and distort prices of bourses.

The watchdog had further said that access to blogs, chat forums and other sites should either be restricted under supervision or access should not be allowed.

A SEBI-appointed committee comprising representatives from various market intermediaries in its representations had earlier suggested the need for such a Code of Conduct.


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