CRISIL says investor interest revived in debt mutual funds

The strong recovery by the mutual fund industry is reflected in the growth in assets under management (AUM) of debt schemes which have more than doubled within a year to Rs5.68 trillion.

Ratings agency CRISIL said improvement in liquidity conditions in the Indian financial market along with revival in investor confidence has helped the Indian mutual fund industry tide over the aftermath of the liquidity crisis faced by the financial market during the third quarter of 2008-09.

“CRISIL has also witnessed an increased preference by mutual funds for lower credit risk with a preference towards government securities and AAA or P1+ rated instruments,” said Pawan Agrawal, director, CRISIL Ratings.

The strong recovery by the industry is reflected in the growth in assets under management (AUM) of debt schemes which have more than doubled over the past year to Rs5.68 trillion as on 31 October 2009. CRISIL said it has also observed a shift in investor preference towards relatively shorter-term schemes, increased investment in higher-rated credits and high demand for debt instruments issued by banks.

While improvement in liquidity contributed to increased demand for debt schemes, introduction of new guidelines issued by the Securities and Exchange Board of India (SEBI), capping the maturity of investments in liquid schemes, resulted in increased preference for ultra short-term funds. The share of liquid schemes has come down to 27% from 49% of AUM, the ratings agency said.

CRISIL, a unit of Standard & Poor's, said financial sector entities, especially banks, continue to dominate the portfolio constituting two-thirds of the AUM. However, within the financial sector, there is a clear shift towards investments in instruments issued by banks as compared to that of non-banking financial companies (NBFCs).

While the overall exposure to the financial sector remained stable, mutual funds’ exposure to banks has increased to over 50% from 43.3% as on 31 August 2008. On the other hand, exposure to NBFCs has come down to just above 8% from almost 18% as on August 2008, it said.

"Exposure to pass-through-certificates (PTCs) and real estate sector has also come down sharply because of the illiquid nature of the instruments and their increased credit risk” added Mr Agrawal.

Yogesh Sapkale [email protected]
 

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Turmeric, Corn and Copper

The price of turmeric between 1 October 2009 and 15 October 2009 shot up from around Rs8,000 to Rs8,900 due to lower arrivals and strong demand. Emergence of export demand from the Middle East is also supporting the gain in prices. Turmeric stocks were already lower by seven lakh bags compared to last year and the recent floods and heavy rains have further increased the gap to about eight lakh bags. Post-Diwali, prices are expected to touch Rs7,800 to Rs8,000 levels as some profit-booking would be seen in the markets.

Recent floods in the southern states of Andhra Pradesh and Karnataka have affected the corn-producing belt. This will keep corn prices high, since nearly one-fifth of the crop in Karnataka and AP has been wiped out. Karnataka and AP account for 10% and 20% of corn output respectively.

Copper remains a base metal with strong fundamentals. Chinese demand has begun to normalise; demand for copper remains fairly robust while scrap supply remains steady too. However, fears that all is not well with the supply scenario have resurfaced due to strikes in key producing areas. The rich countries are likely to join the emerging world in global economic recovery in 2010 resulting in a rise in the copper demand in the first quarter of 2010. Copper prices are expected to move above $6,700 in the next three-four months. 
 

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Crude Oil

Crude oil has hit a fresh one-year high. Prices can touch $90 per barrel from here on. Demand from emerging Asia is already strong; and demand from rich countries should start to pick up in the first quarter of 2010. Capacity expansion could create tightness in supply with refinery capacity increasing rapidly. The weak US dollar should also support higher prices. Between 7 October 2009 and 14 October 2009 crude has gained 12% closing the day at $78 per barrel. According to the American Petroleum Institute, US crude oil stockpile fell 172,000 barrels to 339.20 million barrels in the week ended 9 October 2009.

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