Best Equity Mutual Funds-VRK100-21Sep2011

Best Equity Mutual Funds

Equity mutual funds are in existence in India for almost two decades. The overall performance record of them is mixed. But, there are some equity schemes which have provided superior returns to investors. Selecting the best equity mutual fund schemes from a large number of schemes is a challenge. Here is the list:

	All-season Equity Mutual Funds
1	Birla Sunlife Frontline Equity
2	Canara Robeco Equity Diversified
3	Fidelity Equity
4	Franklin India Bluechip
5	HDFC Top200
6	Quantum Long-term Equity
7	UTI Opportunities

Schemes	NAV	AAUM	Return %
	Rs	Rs crore	2007	2008	2009	2010	2011
Birla Sunlife Frontline Equity	81.3	2 909	62.3	-48.5	90.5	18.7	-14.2
Canara Robeco Equity Diversified	53.1	427	63.4	-50.8	93.0	20.7	-7.4
Fidelity Equity	33.6	3 302	55.3	-50.3	86.1	26.9	-11.5
Franklin India Bluechip	204.0	3 841	47.4	-48.1	84.5	23.0	-10.6
HDFC Top200	194.0	10 507	54.5	-45.4	94.5	25.1	-14.0
Quantum Long-term Equity	20.7	77	45.9	-47.0	103.0	28.8	-13.4
UTI Opportunities	26.9	1 576	71.3	-49.0	97.6	19.4	-6.5
Nifty (NSE) return	-	-	54.8	-51.8	75.8	17.9	-16.2

            Notes: NAV – net asset value as on 20Sep2011 for growth options

                           AAUM – average assets under management as on 30Jun2011

                           2011 return is up to 20Sep2011

Important Highlights:

ü      All the above are open-ended diversified equity funds holding mainly large-cap stocks; with a good long-term track record of more than five years

ü      They hold 10% to 20% in mid-cap stocks, except Quantum LT Equity and UTI Opportunities funds, which hold 34% and 26% respectively in mid-caps

ü      The lowest expense ratio of 1.5% per annum is charged by Quantum LTE

ü      In the past four months, new fund managers have joined Canara Robeco Equity Diversified and UTI Opportunities schemes

ü      All the fund managers are having good experience of 10 to 15 years

ü      These funds protect the investors’ interest during downward market trends

ü      These funds have provided superior and consistent returns in the past

ü      As can be seen from the above table, they have outperformed the Nifty index as well as their benchmark indices

Investment Principles

ü      It is always better for investors to invest in equity funds in a systematic and phased manner – growth options are advisable

ü      Equity funds perform well in periods of five years or more

ü      Investors should track the performance of funds at least every three months

ü      Never borrow to invest in equities or equity mutual funds

ü      Equity mutual funds carry higher risk and their returns are very volatile

ü      If you are a long-term investor, please ignore the short-term trends

“FINALLY, HAPPY INVESTING!”

Note: Other Mutual Fund schemes worth considering are: BNP Paribas Dividend Yield, DSP BlackRock Top100 Equity, Franklin India Prima Plus, HDFC Equity, ICICI Prudential Dynamic, IDFC Premier Equity Plan A, Reliance Equity Opportunities, etc.

Data Source: ValueResearchOnline

Disclaimer: The author is an investment analyst & writer. His views are personal. Please consult your certified financial adviser before making any equity investments. The author is an equity investor and he has a vested interest in the stock market movements. It is safe to assume that he has investments in a few of the above mutual fund schemes. His articles on financial markets can be accessed at www.ramakrishnavadlamudi.blogspot.com

Rising Government Debt and Fiscal Deficit-VRK100-20Sep2011

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Rising Government Debt and Fiscal Deficit

There are heightened concerns about the financial position of the Government of India due to rising internal debt and fiscal deficit. Doubts have been expressed about the ability of the government to control the expenditure and keep the central government’s gross fiscal deficit within the budgeted target of 4.6 per cent ( as a % of GDP).

Big rise in Government Borrowings

In the last four years between 2008-09 and 2011-12, the central government’s market borrowings – which are raised from the banks, insurance companies and others – have been rising at an alarming rate. The yearly average net market borrowings of the central government for the last four years are at Rs 3,29,000 crore, which is 3.6 times the yearly average of Rs 91,000 crore between 2004-05 and 2007-08.

This clearly shows the central government’s increasing dependence on market borrowings to meet the gaps in its finances.

Fiscal Deficit is Becoming Uncontrollable

As the government is unable to control its expenditure on petroleum and fertilizer subsidies, the fiscal deficit is getting out of control. The budgeted gross fiscal deficit of the central government is Rs 4,12,817 crore for 2011-12 and the figure for states stands at Rs 1,98,539 crore for 2010-11. The budgeted fiscal deficit is 4.6 per cent of GDP for 2011-12 and the revenue deficit is 3.42 per cent of GDP for the central government.

As per FRBM revenue deficit is supposed to be at or below one per cent – this goal was achieved only once in 2007-08. If GDP growth rate were to decline in the next few years, the fiscal and revenue deficit ratios will deteriorate, because fiscal deficit will be growing at much faster than the GDP growth rate. The government is unable to sell its stake in public sector companies as part of its disinvestment programme.

One Positive Factor

One noteworthy feature of the central government’s finances is the internal debt ratio as a percentage of GDP, which has declined from 56.73 per cent in 2006-07 to 48.04 per cent in 2010-11. Under difficult conditions for GDP growth, it may not be possible to show further improvement in this ratio.

Interest Payments Increasing Sharply

The interest payments of the central government amount to Rs 2,67,986 crore for 2011-12, which is putting pressure on revenue deficit. Interest payments are 2.98 per cent of GDP for 2011-12 as per budget estimates.

Government’s Growing Internal Debt: ‘The Dirty Picture’

The total outstanding debt is at Rs 23.48 lakh crore as on 19 September 2011 as per the RBI data on outstanding Government of India securities. It is shocking to note that fifty-six per cent of this outstanding debt is raised in the last four years between 2008-09 and 2011-12! Interestingly, nearly half of this debt has to be paid in the next seven years beginning from 2012-13. This means the government has to resort to more market borrowings to fill the future deficits and the outstanding debt will go on increasing. These figures do not include the numbers of the 28 state governments. If included, it will indicate a worse scenario.  

Outlook for Bond Market Is Bleak

The deteriorating fiscal picture has not been factored in fully in the prices of government securities in the last three to four years. The central government is able to borrow at very lesser rates in the past four years. 

For example, the weighted average cost of the central government’s bonds (excluding treasury bills) is ranged from 7.23 to 8.12 per cent between 2006-07 and 2010-11. So is the case with the state governments. Going forward, will the government be able to raise money at such low rates?

FIIs are permitted to invest in government securities up to an amount of $ 10 billion comprising of $ 5 billion for bonds with the residual maturity of five years and $ 5 billion for bonds without any residual maturity restrictions.

Lately, Indian rupee has been declining against the US dollar due to a variety of reasons. Is it possible that the same negative feeling too will develop in the government bond market? I have an eerie feeling that government bond prices are in for higher volatility if there is heavy selling of government securities by FIIs.

However, the percentage of holding of FIIs in the government bonds is very low and RBI may not encourage any volatility in the bond markets.

FII – Foreign Institutional Investor, FRBM – Fiscal Responsibility and Budget Management Act, and  GDP – Gross Domestic Product or national income.

Data source: RBI

Note on author: Author is an investment analyst and writer. The views are personal and this is written only for information purpose. Readers are advised to consult their certified financial adviser before taking any investment decisions.

Author’s articles on financial articles can be accessed at:

www.ramakrishnavadlamudi.blogspot.com

Market Outlook-No Signs of Interest Rates Peaking-VRK100-20Sep2011

	Market Outlook

Rama Krishna Vadlamudi, Hyderabad          20 September 2011

In the last two or three weeks, Indian stock market is stuck in a tight range. The benchmark Sensex is moving between 16,000 and 17,500 and Nifty between 4,800 and 5,200. This is a reflection of various negative global factors impacting the sentiment of positive long term growth prospects in India and reasonable stock valuations. The sovereign debt crisis in the eurozone and the US is yet to unfold completely and nobody is having any clear idea what kind of surprises will be tossed up in the next few quarters. One thing is sure we are going to experience further uncertainty regarding the prospect of Greece defaulting on its government debt or Italy facing more trouble.

No signs of interest rates peaking

The primary ‘dharma’ of RBI is price stability. As part of its resolve to control inflation, RBI has expressed its desire to continue with its dear money policy. However, of late, there is a perception in the markets, that the interest rates in India are peaking or near peak. This view appears to be a bit misplaced when: 1) there is pressure on fiscal deficit, and 2) there is no sign of inflation getting under control in near future. Moreover, the Government has recently increased petrol prices by Rs 3.14 per litre, which will feed in to inflation in the next few months. It is not clear whether international crude prices will come down.

During the previous interest rate up-cycle from October 2005 to October 2008, RBI raised repo rate from 6 per cent to 9 per cent – the previous up-cycle lasted for three years. After a peak of 9 per cent, RBI started reducing interest rates dramatically between October 2008 and April 2009 in view of the Lehman Brothers collapse and the concomitant global financial crisis – the immediate past interest down-cycle lasted for barely 18 months in view of the extraordinary circumstances then.

In financial markets, it is a fashion to look for patterns. Based on the past experience, many market experts are of the view that the interest rates are peaking in India. But, it is not always advisable to look for such past patterns playing out in a similar manner in the future also. The current interest rate up-cycle started from March 2010, with RBI increasing repo rate from 4.75 per cent to 8.25 per cent till now. The previous peak rate is 9 per cent which existed between July 2008 and October 2008. The current situation is different from the previous interest rate down-cycle, when RBI reduced interest rates dramatically from 9 per cent to 4.75 per cent in a matter of just six months.

However, Kaushik Basu, Chief Economic Advisor, differs with RBI in respect of interest rate hikes and he argues that there is a need to cut interest rates to give fillip to growth.   

India’s Macro Picture

Last week, Reserve Bank of India raised interest rates by another 25 basis points (0.25 per cent) which is broadly in line with market expectations. GDP growth rate is declining, so is industrial production represented by index of industrial production (IIP). Due to concerns of global slowdown, there are some doubts about exports growth, which are quite robust as of now. Despite RBI raising interest rates by 350 per cent (3.5 per cent) in the last 18 months, the inflation refuses to show any reasonable signs of relenting.

For some time, RBI has been expressing its anxiety about fiscal deficit going out of hand which will put pressure on the growth rate. RBI is of the view that there is a need for fiscal consolidation in view of the deceleration in tax collections and higher expenses on account of fertilizer and oil subsidies. The Indian rupee has weakened to 48.20 against the US dollar from a level of 44.75 on 5 August this year. A weaker rupee increases India’s oil import bill, putting intense pressure on fiscal deficit.

Government raising fuel prices, three times this year, amidst opposition from the people and opposition political parties is a good sign that the central government is serious about curtailing fiscal deficit and bringing some transparency in fuel pricing policy.

To know about the RBI continuous raise of interest rates, just click:

http://ramakrishnavadlamudi.blogspot.com/2011/09/rbi-raises-interest-rates-vrk100.html

Outlook

Overall, the outlook for the stock markets and bond markets in India is not very optimistic considering the pressure on the growth rate – which is impacted negatively by the stubborn inflation and negative global cues. There is no reason to believe at this point of time that the RBI will stop raising interest rates and start decreasing interest rates very soon, unless some serious cooling off happens on the inflation front or some actual debt defaults happening in Greece or some other countries in the eurozone. However, several good quality stocks are available at reasonable prices while the Sensex is hovering is around 17,000 and Nifty at 5,100 for investors who have the patience and risk appetite to hold stocks or equity mutual funds for a period of more than three years.

Disclaimer: The author’s views are personal. He has a vested interest in the stock markets and his views should be taken with a pinch of salt. He may change his views very fast without any notice depending on the market and economic conditions. His views should not be construed as investment recommendation. There is a risk of loss in equity investments. Investors need to consult their certified financial adviser before making any investment decisions.

For author’s articles on financial markets, just click:

www.scribd.com/vrk100

or,

www.ramakrishnavadlamudi.blogspot.com