Outlook for Indian Stocks in 2014-VRK100-31Dec2013

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During the calendar year 2013, the S&P BSE Sensex 30 index clocked a return of 9 percent, while the NSE’s Nifty 50 index rose by 6.8 percent. But the BSE Dollex 30 index recorded a negative return of 3.5 percent due to steep depreciation, around 12 percent, of Indian rupee against the US dollar. Dollex 30 is dollar-linked version of Sensex. Let us see which sectors have come out winners and losers and what is in store for Indian stocks in 2014.

Sectoral performance:

Among the sectors that have done well are BSE IT index and Healthcare indices, with a gain of 60 and 23 percent respectively. Significantly, both these sectors have partly benefited from the rupee fall. Other things that benefited these sectors are strong export growth, investors’ bias towards companies with strong balance sheets and better corporate governance, good potential for growth and slight recovery in the US economy. Other sectors that have done well include FMCG and Automotive sectors.

Real estate and public sector companies continue to be among the worst-performing sectors in 2013. The BSE Realty and PSU indices showed a negative growth of 32 and 19 percent respectively.

Returns and Volatility:

The Sensex return of 9 percent in 2013 does not reflect the volatility of stock markets in 2013. The benchmark index started the year with 19,510 and reached a peak of 20,328 (intra-day) on 17May2013. But due to fears of Fed tapering, steep fall of rupee against dollar, high current account deficit and policy-related paralysis in India; the index fell to an intra-day low of 17,922 on 27Aug2013.

After the US Federal Reserve deferring the proposed tapering, Raghuram Rajan taking over the reins of Reserve Bank of India and return of FII portfolio inflows; the Indian stock markets recovered sharply with the Sensex reaching an intra-day high of 21,484 on 09Dec2013. By the end of December 2013, the index closed at 21,171. Between May and August 2013, the Sensex fell by 12 percent.

But between September and December 2013, the benchmark index rose by 18 percent, giving some cheer to scary and wary investors. During 2013, the FIIs have brought in USD 20 billion to Indian equity markets.

Why the Difference between Sensex and Nifty Returns?

While Sensex recorded a gain of 9 percent, the Nifty rose by 6.8 percent only. The difference is due to the fact that Sensex consists of 30 companies, while the Nifty reflects prices of 50 blue chip companies. Moreover, at the start of 2013, Nifty was concentrated toward banks and financial companies. During July and August 2013, banking sector lost heavily—though banking stocks recovered in the last four months.  For 2013, the BSE Bankex lost 9.4 percent—causing the difference between Sensex and Nifty returns.

BSE Market Capitalization:

Total Market Capitalisation of All BSE companies:
	Rs Crore	USD Billion	USD-INR
Dec.2007	71 69 985	1 818	39.41
Dec.2010	72 96 726	1 616	44.44
Dec.2013	70 44 258	1 125	61.80
Note: Figures are end of the month; USD-INR is US dollar-Indian rupee exchange rate

Some interesting facts come out when you look at the above table. The market cap of all BSE companies at the end of December 2007 was Rs 71.70 lakh crore, converted to USD 1,818 billlion. But the market cap slumped to USD 1,125 billion (a fall of 38 percent) by the end of December 2013, though in rupee terms it fell by only 2 percent.

Two factors contributed to the steep fall in market cap, in dollar terms, of all BSE companies. One is the steep depreciation of rupee against the dollar. Another factor is the fact that broader indices themselves have fallen. For example, BSE 200 index lost 4.7 percent between December 2007 and December 2013.

Performance Chart for 2013:

Indices	31-Dec-13	31-Dec-12	% change
BSE Sensex	21 171	19 427	9.0
BSE DOLLEX 30	2 816	2 917	(3.5)
BSE 200	2 531	2 424	4.4
BSE Mid Cap	6 706	7 113	(5.7)
BSE Small Cap	6 551	7 380	(11.2)
BSE Auto	12 259	11 426	7.3
BSE Bankex	13 002	14 345	(9.4)
BSE Capital Goods	10 264	10 868	(5.6)
BSE Consumer Durables	5 821	7 719	(24.6)
BSE FMCG	6 567	5 916	11.0
BSE Healthcare	9 966	8 132	22.6
BSE IT	9 082	5 684	59.8
BSE Metal	9 964	11 070	(10.0)
BSE Oil & Gas	8 834	8 519	3.7
BSE Power	1 701	1 991	(14.6)
BSE PSU	5 910	7 335	(19.4)
BSE Realty	1 433	2 111	(32.1)
BSE TECK	5 051	3 428	47.4
Nifty 50	6 304	5 905	6.8

As can be seen from the above table, the performance of Sensex, BSE Mid Cap and Small Cap indices differs widely—though select mid cap and small cap companies delivered good to decent returns in the latter half of 2013.

It is interesting to note that mid cap and small cap stocks did better than Sensex in 2012. Investors mood changes—some years they’re optimistic about large caps and in some years they shift their bias towards mid and small cap companies. In general, it’s difficult to predict the mood swings of investors.

What to Expect in 2014?

However, my sense is that small cap and mid cap companies may do well in 2014, subject to the caveat that 2014 general election will throw up a stable government and the Indian economy will fare well next year. Having said that, I would like to add that investors are required to be more diligent as far as small cap and mid cap companies are concerned. They’ve to be very careful about choosing their stock picks. If they’re not experienced, they better consult their financial advisors before investing.

World markets, particularly the US and Japanese, have done extremely well with S&P 500 rising by close to 30 percent and Nikkei 225 by 57 percent in calendar year 2013.

I always maintain that investors have to take care of their asset allocation first. After asset allocation, they’ve to take a portfolio approach towards their equity investments. At this point of time, my thinking goes like this. Suppose you have a stock portfolio with stocks from companies with strong balance sheets, robust cash flows and high perception of corporate governance. Such a portfolio may not outperform benchmark indices if the economy quickly makes a turnaround and interest rates start falling.

This is due to the fact that any sharp turnaround accompanied by falling interest rates will benefit highly-leveraged companies and where investors are highly pessimistic about prospects. (Readers have to take my views with a pinch of salt, because I may change my view quickly depending on market dynamics and outlook on economy).

Let me assume that around 70 percent of your money is currently invested in companies with strong cash flows, decent balance sheets, zero debt and high profit margins.

My feeling is that around 20% to 30% of your money can be allocated to companies with moderate debt (means debt-equity ratio of 0.4 to 0.8), strong corporate governance and managements, reasonable but not very high interest coverage ratios, low operating profit margins and with potential to increase capacity utilization in the next 12 to 18 months. (Many companies are at present struggling with low capacity utilization which negatively impacted their profit margins).

The idea is that if and when the expected turnaround happens, these companies with moderate debt will be highly benefited as compared to companies with strong balance sheets and rich valuations—that have already been discovered by the market. You may have observed this kind of churning actually happening to some extent in the market in the last two/three months—select stocks in auto ancillary, NBFC, capital goods and power equipment sectors have risen sharply.  

It goes without saying that higher risk is usually rewarded with higher returns, provided you do your homework properly—peppered with some luck.

Of course, in the long run (beyond three years), companies with strong balance sheets, robust cash flows, pricing power and competitive advantage will continue to perform well. For a long time, I have preferred companies with strong balance sheets, low debt-equity ratios, strong cash flows and high growth potential.

But now I am thinking that as long as around 70 to 80 percent of your money is invested in companies with strong balance sheets, competitive advantage, pricing power and strong profit margins; you can slightly tilt 20 to 30 percent of your money towards companies with moderate debt, strong managements, low interest coverage ratios and low profit margins. This churning can be done in the next six to nine months in a gradual manner—keeping in mind the changing market dynamics, electoral math and progress of India/world economy.

Select PSU stocks may offer some protection from any downside that is anticipated around the 2014 general elections.

This is not to say that India has no problems. As you are aware, India is currently bedeviled with persistently high inflation and moribund investment cycle—not to mention the high cost of subsidies and government policy/regulatory issues. The RBI has kept its option of raising interest rates open.

Government’s fiscal deficit is a problem as revenue collections have slowed down, while non-plan expenditure (mostly subsidies) shoots up. But unfortunately, plan expenditure is being cut according to several reports.

Global problems may continue to haunt the Indian markets going forward. The government’s divestment effort is making very slow progress.

Finance Minster P.Chidambaram has been trying to limit fiscal deficit to the budgeted 4.8 percent (of GDP), through some creative accounting and cut in plan expenditure. Current account deficit was controlled by imposing severe curbs on gold imports.

It is naïve to expect that government diktats can wean Indians away from the allure of gold. Once the gold import curbs are removed, the gold buying spree will come back with a vengeance. The government seems to have made no serious effort to increase and widen export basket and boost manufacturing sector.

Some headway is being made on the policy front, after years of policy logjam by the central government. Subsidies are cut partially in diesel, LPG and petrol. After a decade, Railway fares too have been increased though marginally. Tesco of the UK has announced FDI in multi-brand retail sector in partnership with the Tatas. Abu Dhabi-based Etihad Airways recently bought a 24 percent-stake in India’s Jet Airways. Air Asia of Malaysia is planning a joint venture with Tatas.

Share repurchases (buybacks) by listed companies are happening. Many foreign promoters—like, Unilever, Vodafone plc and Glaxo Pharma—have been increasing their stake in Indian subsidiaries.  In the last two to three years, foreigners seem to be more optimistic about the prospects of select Indian companies rather than Indian investors, who have been selling heavily. FIIs have pumped in USD 20 billion into Indian equities in 2013.

My sense is that BSE 200 broader index may give 15 to 20 percent return in 2014. My optimism stems from the fact that many Indian companies have been able to weather the storms and will be able to generate decent profits and robust cash flows in future also—despite the uncertainties surrounding the political, fiscal and external fronts.   

Notes:

BSE – Bombay Stock Exchange, FII – Foreign Institutional Investor, NSE – National Stock Exchange and PSU – Public Sector Undertakings.

- - -

Disclaimer: The author is an investment analyst, equity investor and freelance writer. The author has a vested interest in the Indian stock markets. This write-up is for information purposes only and should not be taken as investment advice. Investors are advised to consult their financial advisor before taking any investment decisions. He blogs at:

http://ramakrishnavadlamudi.blogspot.in/

http://www.scribd.com/vrk100

Connect with him on twitter @vrk100

Free Float Indices-Nifty and Junior Nifty-VRK100-30Jul2011

Free Float Indices - Nifty and Junior Nifty

Rama Krishna Vadlamudi


July 30, 2011

This article can be accessed at:

www.scribd.com/doc/61291923


This is about free float indices of National Stock Indices - Nifty 50 and Junior Nifty.

Market Outlook-VRK100-14062011

Market Outlook

In a state of flux

Rama Krishna Vadlamudi, HYDERABAD June 14, 2011


With Sensex hovering around 18,250 and Nifty well below 5,500 at the end of June 13, 2011, the Indian stock market looks to be in a lackluster phase. Investors seem to be worried about inflationary concerns, GDP growth deceleration, lack of governance, policy paralysis and political controversies surrounding anti-corruption stirs. However, investors are looking to a good monsoon, some solution to the anti-corruption agitations and some policy reforms. It remains to be seen whether investors’ expectations will be met. More rate hikes are expected from Reserve Bank of India in this fiscal year.

Inflation

Food inflation proves to be a nemesis for the Government with the latest figures showing a jump in food inflation to 9.01 per cent for the week ended May 28, 2011 compared to previous week’s 8.55 per cent. There is a big mismatch between supply of and demand for food items. Adding to the supply constraints is the rise in demand for food fuelled by rising income levels for the middle income groups in the urban as well as rural areas. Government seems to be having no right solution to control the food inflation in the immediate future. The Government seems to have passed on the buck to the RBI.

RBI rate hikes

Reserve Bank of India has been increasing policy interest rates for the past one year in order to contain inflationary expectations in the economy. It is expected to increase the benchmark repo rate by another 25 basis points or 0.25 per cent when it announces the mid-quarter review of its monetary policy on June 16th. The rate hikes are expected to continue for another two to three quarters. The markets have been bracing themselves for a further rate hike of 50-75 basis points in policy rates in this fiscal year. The banks may absorb some of the rate hikes themselves by compromising on their net interest margins and may pass on only a portion of the rate hikes to borrowers. The banks’ margins at present are at elevated levels giving them some cushion to absorb the rate hikes.

India’s GDP Growth

In the last four quarters, India’s GDP growth has come down substantially. After touching a high growth of 9.40 per cent (year-on-year) in the January-March 2010 quarter, the growth rate has come down progressively to 7.80 per cent in the January-March 2011 quarter. But the consumption theme seems to be in good shape despite the visible signs of a slowdown in the economy.

FII inflows

After pumping in $ 17.5 billion in 2009 and $ 29.4 billion in Indian equity markets, foreign institutional investors (FIIs) have slowed down their investments in Indian stock market during this calendar year. At $ 85 million of net inflows in this calendar year, their investments have been almost negligible. However, in the first two weeks of this month, they have put in $ 467 million or Rs 2,103 crore in the Indian equity market. The FII appetite for Indian stocks will depend on several global factors, including inflationary concerns in India. The US Federal Reserve (Fed) has been buying bonds worth $ 600 billion. The buying programme, known as Quantitative Easing 2 or QE 2, is coming to an end on June 30th. It is not yet clear whether the Fed will continue or stop its easy money policy after June 30th. If the Fed continues with another round of bond buying or QE 3, this easy money from the US will chase commodities and may push up commodities’ prices which may be negative for India in general.

Commodities

In the last one month, most of the commodities have come off their inflated levels. Silver has lost 30 per cent from record levels of close to $ 50 (per ounce) levels to $ 35.5 now. Crude oil on Nymex has come down to $ 97 (per barrel) levels with Brent crude hovering around $ 119. But gold prices remain steady at around $ 1,530 per ounce. Gold may continue its dream run for some more time as Europe is going deeper and deeper into a bigger mess following the sovereign crisis affecting Greece, Portugal, Ireland and Spain adversely. The latest news from Europe is that Standard and Poor’s has cut Greece’s rating making it the least creditworthy nation. The ratings agency cut Greece’s rating three notches from B to CCC and said the country was likely to default on its debts at least once by 2013. With such anxieties, most of the commodities may come down going forward but gold may remain at elevated levels because of its status as a ‘safe haven’ asset in times of economic woes.

India imports 80 per cent of its crude oil demand making it vulnerable to oil prices. High oil prices increase inflationary expectations in India which in turn adversely impacts India’s growth rate. High oil bill is likely to increase fiscal deficit as the Government is unable to pass on fully the rise in international oil prices to consumers. Diesel, LPG and Kerosene are heavily subsidized in India.

With problems persisting in the Middle East, low inventories and lack of spare capacity, crude oil prices may not come down significantly in the near future unless something dramatic happens in OPEC (the body of oil exporters).

The US dollar index (against a basket of six major currencies, like, Euro, Yen and Pound Sterling) is around 74.5. The US dollar has been weakening against these major currencies in the last six months. However, in the last one week, it has shown some resilience and the index has moved up from lows of 72.5 to the present 74.5. The dollar’s overall weakness is pushing up commodities’ prices to some extent.

Global factors

The Dow Jones is at around 11,950 well below 12,000 after reaching a high of 12,800 recently. The S & P 500 is hovering around 1,270 after reaching a high of 1,360. The US indices have been in a bullish range in the last six to eight months. However, the Asian indices have been mostly in bearish territory. The Shanghai Composite (China) is at a low level of 2,700. The Hang Seng (Hong Kong) index is at 22,500 and Nikkei 225 is at a weak level of 9,400. The FTSE 100 and DAX indices are much stronger at 5,770 and 7,080 respectively.

China is going through its own problems. The non performing assets of Chinese banks are expected to go up significantly in the next one year. The central bank there has been increasing interest rates to tackle inflation. China wants its growth rates to slow down a bit to avoid any hard landing. There are concerns of overinvestment and overcapacity in China’s manufacturing sector. Following the global financial crisis of 2007/2008, China had pumped in huge amounts into its infrastructure and manufacturing sector.

Summary

The Indian Government and the RBI have to tackle inflation both from the fiscal and monetary angles. Some economists have suggested that allowing Indian rupee to appreciate against the US dollar may help in containing inflation in India. The data from RBI indicates that it has not been intervening in the foreign exchange market. The Government and RBI have to take both immediate and long-term measures to tackle inflation head on. However, the Government seems to be in some sort of a gridlock embroiling itself in controversies about how to tackle corruption monster. The general impression is that the Government may not be able to push the economic reforms forward in such a situation. The disinvestment programme seems to be in a limbo. The markets have noticed this policy drift and have been expecting further slide in stock indices. Investors need to be cautious at this point of time. As such, it is not a bad idea to hold some cash and wait for a correction and start buying Indian stocks at Sensex levels of between 16,500 and 17,500.

Nifty BeES: Making Risk-Less Profits - vrk100 - 30Sep2009

Nifty BeES

Making Risk-Less Profits

 

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Rama Krishna Vadlamudi 

MUMBAI

September 30th, 2009

 

(You can read this comprehensive blog on reader-friendly Scribd)

NIFTY BeES (Nifty Benchmark Exchange Traded Scheme) is a mutual fund product, but it is traded on NSE like any company’s share. It is an open-ended mutual fund scheme. Like a share, one can buy/sell units of Nifty BeES on NSE (National Stock Exchange) throughout the trading hours. NIFTY BeES is traded in demat form only. One can buy NIFTY BeES from NSE through one’s broker and the units will be credited to one’s demat account on normal T+2 basis. If one desires, one can sell the units again through NSE anytime during the trading hours. 

 

EXCHANGE-TRADED FUND (ETF):

An ETF is basically an index mutual fund scheme with a little difference.

The main difference between an index fund and an ETF is this: an ETF is always listed and traded on an exchange; whereas an index fund has to be bought/sold directly with the particular Mutual Fund company or through a mutual fund agent/distributor.

An ETF is linked to a benchmark index like any index fund.

An ETF can be bought and sold through an exchange like any share.

To buy an ETF, one requires a demat account and a trading account with a broker to buy/sell on the particular exchange where the ETF is listed/traded; whereas for buying an index fund, investor does not require a demat account and she can directly approach the mutual fund for buying or selling the index fund units.

SALIENT FEATURES OF NIFTY BeES:

One unit of NIFTY BeES is equal to one-tenth of the value of S&P CNX Nifty Index. On 29.09.09, Nifty 50 index has closed at 5,007; whereas, NIFTY BeES was quoting at Rs 498 on day’s closing. The small difference (technically called tracking error) between the underlying Nifty index and NIFTY BeES is due to the supply and demand factors of NIFTY BeES on NSE. On 29.09.09, its day’s high was Rs 500 and day’s low was Rs 495. During the trading hours, the price of NIFTY BeES will fluctuate in tune with the movement of Nifty 50 index.

If the NIFTY Index goes up to 6,000 in the next six months, the value of one unit of NIFTY BeES will go up to Rs 600 or if the Nifty Index retraces to 4,500, then the value of one unit of NIFTY BeES will be readjusted to Rs 450 in tune with the movement of the general market.

The structure of Nifty BeES is such that it does not hurt long-term investors from the inflow and outflow of short-term investors. This is because the Fund does not bear extra transaction cost when buying / selling due to frequent subscriptions and redemptions.

It is traded only on the NSE (face value Rs 10) & it is India’s first ETF.

It is managed by the AMC of Benchmark Mutual Fund, which is sponsored by one Niche Financial Services Pvt. Ltd. The fund manager is Vishal Jain. This Mutual Fund maintains other ETFs also – like, Gold, Bank, Derivatives and others. The total average assets under management by the Benchmark MF are Rs 1,213 crore as on 31^st of August, 2009.

Entry Load is NIL.

 

Exit Load: With effect from August 01, 2009, Exit load (technically referred as CDSC) (if any) of up to 1% of the redemption value charged to the unit holder on redemption of units shall be retained by each of the Schemes in a separate account and will be utilized for payment of commissions to mutual fund advisors and to meet other marketing and selling expenses.

It is open-ended mutual fund.

For tax purposes, it’s considered as an equity-oriented mutual fund. Long-term capital gains tax (for holdings of more than one year) is NIL.

Short-term capital gains tax (for holdings of less than one year) is 15 per cent, plus surcharge (if any) and 3% education cess.

STT is applicable for buying and selling of units of NIFTY BeES on NSE.

As NIFTY BeES is bought from NSE like any share, brokerage needs to be paid by the investor for buy/sell transactions.

Dividend distributed by AMC for NIFTY BeES is exempted from Dividend Distribution Tax (DDT). Dividend is not taxable in the hands of individual resident Indian tax payers. Benchmark AMC declares dividends on NIFTY BeES, now and then. The latest dividend was Rs 4.50 per unit of NIFTY BeES paid with record date of 15.07.09. Previously dividends were Rs 5.00 (12.09.08) and Rs 8.00 (05.01.07).

NSE symbol is NIFTY BEES.

NIFTY is calculated using the Free Float methodology.

Fifty stocks that are part of NIFTY Index are selected based on high degree of liquidity.

Assets under management as on 31.08.2009 for NIFTY BeES: Rs 214 crore. As on September 29^th, 2009; a total of 47.37 lakh units of NIFTY BeES are issued to investors.

It is highly liquid from an individual investor’s point of view.

NIFTY BeES is a passively managed fund. NIFTY BeES’s underlying will be in proportion to the weight of the constituents of Nifty 50 index.

Total expense ratio of NIFTY BeES is 0.50%, which is one of the lowest in the universe of index funds managed by all mutual funds in India.

Tracking error of NIFTY BeES is 0.26% annualized. It is the lowest among all index funds. Tracking error is the difference between NIFTY BeES and its benchmark index, that is, S&P CNX Nifty. The tracking error occurs due to some factors, like: a small component of cash in the fund, difference in weights between the fund and the underlying index, etc. The tracking error of 0.26% is negligible from individual investor’s point of view.

Trading of NIFTY BeES has been going on since its inception on NSE on 28.12.2001.

All types of investors – whether retail or institutional – can invest.

NIFTY BeES has been consistently outperforming (to an extent of one to two per cent) its benchmark Nifty 50 index for several years.

NIFTY BeES PERFORMANCE (as on 29th of September 2009):

% RETURN	3-month	1-year	2-year	3-year	5-year	Since inception
	13.15	29.54	-0.01	12.29	24.61	22.84
NIFTY BeES
	14.03	30.05	-0.14	11.74	23.71	-- NA --
Benchmark*

  Source: ValueResearch

  * Benchmark is S&P CNX NIFTY INDEX

Returns upto 1-year are absolute & above 1-year compounded annual growth rate-CAGR

CHART SHOWING ONE-YEAR RETURN FROM NIFTY BeES:

             

            Source: NSE. Data as on September 29, 2009. One-year price chart.

 In just 11 months, it jumped by 100%!   You may not believe it, but it’s true.

CHART SHOWING ONE-YEAR VOLUMES FROM NIFTY BeES (on NSE):

          

            Source: NSE. Data as on September 29, 2009

WHAT IS THE REPRSENTATION OF NIFTY BeES’ TOP 10 HOLDINGS:

  Data is as on Aug. 31, 2009    Source: ValueResearch

 

The data on the right side of the above table gives an idea about the top holdings of an investor who is holding NIFTY BeES units worth Rs 5 lakhs on a given day, that is, August 31^st, 2009. By buying units worth Rs 5 lakh, you’re indirectly holding Rs 0.56 lakh of RIL, Rs 0..40 lakh of Infosys, Rs 0.36 lakh of L&T and so on.

TOP FIVE SECTORAL HOLDINGS OF NIFTY BeES:

           

            Source: ValueResearch                          Data as on Aug. 31, 2009

Note: Energy-RIL, ONGC, etc; Financials-ICICI Bk, HDFC, SBI, Axis Bk, etc; Technology-Infoysy, TCS, etc; Diversified-L&T, Grasim, etc; and Metals-Tata Steel, Sterlite Inds, Jindal S&P, etc

BUYING/SELLING NIFTY BeES DIRECTLY

WITH THE BENCHMARK MUTUAL FUND:

An investor can buy or sell minimum 10,000 units of Nifty BeES and in multiples thereof directly with the Benchmark Mutual Fund. This route is usually used by High Networth Individuals (HNIs) and institutions to buy this exchange-trade product. It is very convenient for corporates also.

Minimum Lot Size          : 10,000 units

Price                     : In exchange for a basket of Nifty securities and cash                                                  defined as “Creation Unit”

Eligibility                           : Authorised participant or large institutions

For more on this ‘Creation Unit’, HNIs and institutions can visit: weblink

THREE IMPORTANT RISKS:

1)     MARKET RISK: The returns of this fund are linked to the movement of stock markets in India in general. If the overall market turns adverse, then the fund will give negative returns to investors.

2)     LIQUIDITY RISK: If sufficient volumes are not available on the exchange for the product, investors may not be able to buy new units/liquidate their holdings easily in the market and as such this investment involves liquidity risk (for small individual investors, this is not a problem at all).

3)     TRACKING ERROR RISK: The fund may not be able to invest the entire corpus in the same proportion as in the underlying S&P CNX Nifty Index due to certain factors such as: expenses incurred by the fund, corporate actions, cash balances, dividend payouts, changes in the underlying index and regulatory policies.

MY OPINION & SUMMARY:

NIFTY BeES is a low-risk financial product (low-risk compared to individual stocks). It provides reasonable returns with ‘below average’ risk. It is a very simple and easy to understand product. As the risk is lower, returns from NIFTY BeES will also be normal unlike shares which have the potential to be multi-baggers.  

 

As the number of fund managers, mutual fund houses and number of schemes are increasing by leaps and bounds every day, it would be difficult for fund managers to outperform the indices (like, Nifty, Sensex, BSE-500) on a sustained basis in the long-term (The author does not have any solid data to back his opinion). 

 

Finding new stock ideas year after year is next to impossible in these times of greater higher volatility and abounding global uncertainties.

As the NIFTY BeES represents the country’s top fifty companies on NSE through the Nifty 50 index, it would be very easy and convenient for individual investors to buy the stock market in its entirety without bothering much about the wild movements in the fortunes of individual company’s performance. 

 

However, one needs to keep in mind one’s overall asset allocation, individual’s need for liquidity and to have a broad outlook on market dynamics, prevailing sentiment, country’s economic situation, global factors, corporate performance, regulatory risks, political risks, etc. 

 

By investing through NIFTY BeES, individual investors will be relieved of the burden of poring over bulky annual reports, opaque financial statements, analyzing quarterly/periodical results minutely and scratching one’s head over declarations of bonus shares, dividends, rights issues, open offers, stock splits, etc. 

 

It is a good start with 15 or 25 per cent allocation for ETFs in one’s equity portfolio for individual investors who like passive investments.

NIFTY BeES, as of now and according to the present available information, is much superior to other index funds* that are available to investors. 

 

 

(*These index funds can only be bought directly from mutual fund houses and not through stock exchanges; and these index funds have unreasonable tracking errors which may dilute the overall returns in the medium/long term)

 

 

P.S: For further information, please visit: www.nseindia.com,  www.benchmarkfunds.com, www.valueresearchonline.com and www.vanguard.com. The above analysis is made keeping in mind the needs of individual investors. Mutual fund performance is subject to market risk and as such investors should do their own due diligence before start trading in NIFTY BeES.