Kraft’s Cadbury deal may force cocoa consolidation

Kraft Foods' purchase of Cadbury is likely to have repercussions throughout the cocoa supply chain as a newly created chocolate giant seeks to drive down costs. The new company will be the top player in the chocolate and confectionery industry by revenue, overtaking Mars-Wrigley, and traders and analysts expect it to use its increased clout to achieve promised cost savings.

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    Outflows from schemes continue; Axis MF spurs net inflows

    The Rs905 crore collected by Axis Bank through its banking channel helped net equity inflows turn positive (Rs980 crore) in January after five months of decline

    After a continuous drain of five months, equity mutual funds (MFs) have recorded positive inflows. Axis Mutual Fund, supported by its banking channel, contributed 90% to these net inflows. Existing schemes still recorded an outflow. However, new fund offers (NFOs), that too by a bank-sponsored fund, may not be available for February, raising doubts about the sustainability of the net inflows for equity MFs.

    During January 2010, equity MFs have managed to record a net inflow of Rs980 crore compared to a net outflow of Rs2,185 crore as on December 2009, according to data released by the Association of Mutual Funds in India (AMFI). However, a major chunk of the net inflow is made up from contribution by Axis Mutual Fund’s equity scheme, which was launched on 19th January and has collected around Rs905 crore so far through its powerful banking channel of 1,000 branches.

    Rajiv Anand, managing director and chief executive, Axis Mutual Fund, has been quoted in the Economic Times as saying that “the new regulation has not impacted us gravely as is evident from the initial collections of Rs905 crore from our first equity offering. The primary reason we were able to reach out to investors is that we are part of a large well-recognised and well-respected financial services group. Axis Bank today has a reach of over 500 cities through over 1,000 branches and being part of such a large group, we are in a position to leverage Axis Bank’s brand equity and its distribution network.”

    However, as our separate article points out, bank customers can be more easily persuaded to invest in a bank-sponsored NFO, thanks to existing relationships. Axis Bank had gone all out to collect money for its fund, setting steep targets for its branch managers. It had some strength to sidestep the impact of the banning of entry loads. Indeed, bank-sponsored equity funds will be able to replicate Axis’s success. To that extent, the playing field is uneven.

    January saw the launch of three new open-ended equity funds like Axis Equity Fund, Fidelity India Value Fund and Sundaram BNP Paribas Select Thematic Funds—PSU Opportunities.

    Equity funds comprised 22% (Rs1.70 lakh crore) of the total Rs7.60 lakh crore assets under management (AUM) as on January 2010 compared to 26% (Rs1.70 lakh crore) of total Rs6.70 lakh crore as on December 2009. Total sales jumped 14% at Rs8.80 lakh crore for the month of January compared to Rs7.80 lakh crore in December 2009 while average AUM fell 4% at Rs7.60 lakh crore (as on January 2010) from Rs7.90 lakh crore in December 2009.

    “Due to high volatility in the domestic market, investors kept their hands off equity funds while debt fund categories like gilt, bond and liquid funds saw (a) massive downward move due to expectation of rate hike from the Reserve Bank of India,” said Sharekhan Ltd in a report.

    Deep correction in the stock markets along with less fund deployment by the banks in mutual funds dragged the AUM down by 4.14% in January 2010. During the month, fund managers made net total sales worth Rs1,340.60 crore and made debt market investments to the tune of Rs31,231.80 crore.

    Sharekhan said that the domestic equity-oriented MFs are sitting on a comfortable cash reserve of Rs11,941 crore that is waiting to be deployed in the market. The absolute cash and equivalent proportion of all equity funds rose by 7% in January, it added.

    During the month, a total of 23 mutual fund houses (AMCs) saw their AUMs falling where 14 fund houses saw their AUMs rise. Baroda Pioneer Mutual Fund showed an exceptional growth during the month once again with the AUM rising to a whopping Rs3,694.30 crore in January 2010 from a meagre Rs2,984.10 crore in December 2009. Sahara Mutual Fund’s AUM for the month grew by 21.9% over the previous month. Edelweiss Mutual Fund saw its AUM for the month falling the most—down 14.3%—followed by Religare Mutual Fund, which saw its AUM falling by 12.9% over the previous month. Though Reliance Mutual Fund continues to hold the highest AUM, it fell by 2.3% in the month. HDFC Mutual Fund, growing at a fast pace, retained the second slot with AUM of Rs94,797 crore. Among the top ten fund houses, Kotak Mahindra Mutual Fund saw its AUM fall the most by Rs4,620.42 crore.

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    Uphill Struggle

    Index heavyweight Bharti Airtel’s decline, surge in inflation and China’s surprise move to restrict bank lending weighed heavily on Indian markets

    Indian markets remained highly volatile during the day following index heavyweight Bharti Airtel’s massive slump and a jump in inflation. China’s surprise move to restrict bank lending to cool its surging economy weighed on market sentiments as worries rose about the impact of monetary tightening on global growth. The Sensex declined 114 points from Thursday’s (11th February) close, ending the day at 16,038 while the Nifty declined 25 points to close at 4,802.

    Currently, Indian bourses are struggling to continue their uptrend and are likely to hover between the 15,900–16,200 levels. The Sensex from here on has to breach the 16,200 level to see a serious upward movement.

    At 12:00 hrs IST, the Sensex was trading at 16,057, down 96 points from Thursday’s close, but at 14:00 hrs IST, the Sensex was trading down 66 points at 16,086.

    At the end of the day, Bharti Airtel fell 9% on reports that the company is in talks to buy the African assets of Kuwaiti telecom player Zain for $10.70 billion. Bharti said in a statement that it has entered into exclusive talks with Zain over the assets, which exclude operations in Morocco and Sudan.

    Hitachi Home & Life Solutions (India) rose 3% on reports that the company is reducing prices of air-conditioners to boost its market share.

    Transgene Biotek shot up 5% after the company recently said that a novel drug for liver cancer developed by its scientists has cleared some latest tests.

    Castrol India rose 3%, on reports that the company board will meet on 18 February 2010 to consider issue of bonus shares.

    Tube Investments of India has acquired a controlling stake in Sedis Group, France, through acquisition of 77% equity in its holding company, Financiere C10. The stock was up 4%.

    MBL Infrastructures Ltd has bagged orders worth Rs100 crore from Reliance Infrastructure Limited for its 6x660 MW Ultra Mega Power Project. The stock was up 2%.

    Ruchi Soya Industries Ltd has acquired Palm Tech India Ltd, the largest palm oil unit in Andhra Pradesh, which is engaged in the business of development and extraction of palm oil. The stock plunged 3%.

    During trading hours, government data showed that the wholesale price index (WPI) rose 8.56% in January 2010 from a year earlier, driven by higher food prices. The latest WPI reading was the highest since November 2008. It was higher than an annual 7.3% rise in December 2009. The rise was driven by a 17.4% jump in food prices, which rose on weak monsoon rains and flooding from last year. Inflation in manufacturing picked up to 6.55% from about 5% in December 2009, a sign that inflationary pressures were spreading to other sectors of the economy. Meanwhile, the government revised upwards WPI inflation for November 2009 to 5.55% from 4.78% earlier.

    Meanwhile, D Subbarao, Reserve Bank of India (RBI) governor, said over the weekend that large government borrowing influences monetary policy. The government completed its market borrowing of Rs4.51 lakh crore ($97 billion) for the current fiscal year to end-March early this month and the RBI expects its gross market borrowing next year to be slightly higher than this year. As per the data released on Friday, 12 February 2010, industrial output grew 16.8% in December from a year earlier, up from a revised annual rise of 11.8% in November. The RBI has already started to unwind stimulus, and is widely expected to tighten rates at its April meeting.

    As per media reports, finance minister Pranab Mukherjee will not present any major tax reform to bring down corporate tax and simplify income-tax rules this month. The Direct Taxes Code bill was expected to be presented in the budget session of Parliament beginning on 22 February 2010, with the aim of coming into effect from April next year. There are several complications in the Direct Taxes Code in its present form, and it required further scrutiny. The reports also added that the government may delay the major tax reform bill to the next session of Parliament, which starts in July.

    EPFR Global, the Massachusetts-based research firm that tracks global fund flows said that investors took $2.90 billion out of all emerging-market equity funds in the first week of February 2010, the highest weekly decline since 9 July 2008. EPFR further added that global funds in particular were hurt as investors pulled out $1.76 billion, a 60-week high.

    During the day, Asia’s key benchmark indices in Japan and Indonesia fell 0.64% and 0.78% respectively. Most Asian markets will remain closed today and tomorrow for the Lunar New Year holidays.

    As per reports, Japan’s economic growth accelerated at an annual 4.6% in the three months ended 31 December 2010 as a global trade revival fuelled demand for the nation’s exports. China ordered banks on 12 February 2010 to set aside more deposits as reserves for the second time in a month, as loan growth quickened and property prices surged. The reserve requirement will increase 50 basis points effective 25 February 2010.

    On Friday, 12 February 2010, the Dow Jones Industrial Average fell 45 points whereas the Nasdaq Composite was up 6 points. US markets are closed on Monday for the Presidents’ Day holiday.

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