Sustained market rally fails to usher in NFOs

There has been a sustained bull market playing out, but new fund offers have virtually dried up

A sustained market rally is usually a harbinger of a slew of new fund offers (NFOs) from fund houses eager to tap into the prevailing optimism. Indeed, past data indicates that, with a slight lag, any prolonged rally in the stock markets brings in its wake a bucketful of NFOs, while a sustained decline results in a scaling down of the same.

This time around though, fund houses are seemingly not enthused by the phenomenal market rally over the past one year. Between 1 January 2009 and 31 December 2009, the Sensex shot up by over 76%. Despite this, the well of NFOs has virtually gone dry. Since the beginning of calendar year 2010, only three NFOs have come out into the markets. Over February this year, not a single NFO has been launched by any of the fund houses.

This is in sharp contrast to 2003 when the Sensex rallied 72%. Fund houses responded in style—they rubbed their hands with glee and presented 19 NFOs before investors in the subsequent year. This was followed by a record 37 NFOs in 2005 after the markets had carried on their momentum into the subsequent year. Similarly, when the index shot up 46% in 2007, fund houses dumped another bagful of NFOs (21 in all) in the subsequent year.

It is therefore surprising to see how the huge rally of last year has failed to bring about a glut of NFOs this time around. The only probable explanation could be the current travails facing the mutual fund industry as a consequence of the changes introduced by the Securities and Exchange Board of India (SEBI) last year. Is this phenomenon a direct fallout of the agenda unleashed by SEBI to impose a new regime for the industry? If fund houses continue to remain silent while the markets chart new highs, this situation would be unique. 

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    balaji v

    1 decade ago

    abolition of entry loads (and hence distributor commissions) leading to lack of channel support coupled with SEBI insisting that fund houses need to explain how a new scheme is different from the existing schemes already available with them would probably have dampened NFO

    A K Sanghvi

    1 decade ago

    NFO are stopped not because of market down or sentiment down but becasue of mutual fund advisor not getting 6% commission which they were before 1st of august when mr,bhave stoped this wrong parctise.

    Financial castles in the air-II

    Builders are offering ‘guaranteed’ returns to home-buyers in return for upfront payments even for under-construction properties. This is the second part of a continuing series

    Last week, Moneylife reported how Delhi developers are tempting investors, promising 12% assured returns on commercial properties. Now, a few big developers in Mumbai and Delhi are offering ‘guaranteed’ returns to homebuyers for a fixed period, or until such time the buyer gets possession of an apartment.

    Various developers are promising 11% (or even above) returns per annum(pa) on reducing balance if a customer pays 100% money upfront at the time of booking an under-construction property.

    K Raheja Corp is offering 11% returns on a reducing balance basis if a customer pays 100% down-payment within one month from booking a property at its project ‘Raheja Vistas’, Mumbai. Currently, the property costs Rs7,900 per square feet.

    According to sources, this kind of a scheme is run by almost all developers in Mumbai and Delhi—be it K Raheja Corp, Hiranandani, Unitech Ltd or DLF Ltd. According to a Delhi real-estate agent, Unitech is offering 10% rebate on the basic sale price (BSP) of its property at ‘Nirvana Country II – ‘Alder Grove’, if the buyer pays 95% of the price of the property within 45 days. According to the scheme, you pay 10% down payment at the time of booking; 85% of the basic sale price, in addition to external developmental charges (EDCs), infrastructure developmental charges, club membership & registration charges along with preferential location charges—all within 45 days of booking. 
    Currently, a villa at ‘Nirvana Country II’ of 1,523 sq ft costs Rs1.22 crore. In India, under-construction projects are usually delayed by a year. The consumer is trapped because all developers have a clause mentioned in the agreement in favour of the developer which says that the developer has six months’ of ‘extension time’ from the delivery date. The agreement also mentions, that if the consumer fails to pay the full amount within the stipulated time, he will be charged an interest penalty rate of 20% pa.

    Therefore, there are chances that the projects for which the prospective buyer is shelling out an upfront payment—in anticipation of returns—may not be completed on time, or the developer may not pay returns every month.

    “The risk attached to such properties is very high. It is very difficult to get returns out of a property investment because soon the properties may undergo 30% price correction,” said Pankaj Kapoor, founder, Liases Foras.

    (This is the second part of a continuing series on ‘assured returns’ being offered by various developers across the country).

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    S&P affirms RIL’s CCR to 'BBB'; revises outlook to ‘stable’ from ‘negative’

    The ‘stable’ outlook reflects the high level of integration in RIL's core businesses, the global scale of the company's operations, a strong competitive position, and expectation that the company will maintain its financial risk profile

    Ratings agency Standard & Poor's (S&P) has said that it has affirmed its long term corporate credit rating on Reliance Industries Ltd (RIL) to 'BBB' and revised the outlook to ‘stable’ from ‘negative’ on expected improvement in the company's financial metrics.

    "We have assumed that going forward, RIL would use most of its internal cash flows for investment in growth opportunities. We also believe that RIL's financial metrics currently do have some headroom to accommodate a potential adverse ruling on the legal dispute," said Suzanne Smith, credit analyst and managing director for corporate and government ratings, South and Southeast Asia, S&P.

    S&P said it expects RIL to further improve its operating performance by maintaining the existing level of gas production and a potential improvement in refining margins. But this depends on the favourable resolution of RIL's legal dispute with Reliance Natural Resources Ltd and NTPC Ltd that relates to the company's gas business, the ratings agency added.

    The ratings agency said it expects RIL's earnings before interest, taxes, depreciation and amortisation (EBITDA) to have increased by 20% for the fiscal year ended 31 March 2010. The improvement is driven by gas production at the KG D6 block surpassing 60 mmscmd (million standard cubic metres per day) of gas within 12 months of starting production, the strong market conditions for the petrochemical business and the successful ramp-up of the new Jamnagar refinery. These factors offset the effects of the very weak market environment for the refining business, S&P said.

    The ‘stable’ outlook reflects the high level of integration in RIL's core businesses, the global scale of the company's operations, a strong competitive position, and expectation that the company will maintain its financial risk profile, the ratings agency said.

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