Commodity MFs rush on high inflation

 

The markets may be on a sticky wicket impacting the performance of diversified equity mutual funds (MFs), but with inflation still remaining high, funds focused on the commodities sector have come out on the top. In all, six commodity-oriented MFs have made it to the top-10 list in the past six months and have delivered 9.4-18.6% during the period. While sensex and Nifty lost 6.1% and 6% respectively in six months (till March 25), diversified and tax-saving MFs lost 10%. Only pharmaceuticals and information technology-focused funds have managed to stay in the green but have given meagre returns.

"Commodities are becoming a natural hedge against equities. In any recovery, commodities as an asset class would do well," said Arvind Bansal, vice-president, ING MF. Commodities stocks would continue to outperform as long as global inflationary pressures persist, said Surajit Misra, national head, Bajaj Capital, a distribution platform for funds. Stocks of commodity firms do well, pushing up returns from these funds when there is a strong demand for key raw materials in markets such as China and India. The impact of commodity prices is much higher in emerging markets such as India, said observers.

Experts said that investors should have commodity MFs in their portfolio as a hedge. That's because, India is not a top producer of major commodities (except food grains), and therefore it is susceptible to price hikes, which in turn would impact debt and equities market in the country. Investors can have 5-10% in commodity-related MFs to start with, and can increase it up to 20% depending on market conditions, they said. Several commodity funds have outperformed their peers in the equities space by as much as 30%, said observers. Commodity MFs would give good returns as long as loose monetary policy continues in the West, said Bansal.

However, only a handful of commodity-oriented MFs are available and they have exposure to mostly global stocks and funds. These MFs invest in a range of companies including Monsanto, Rio Tinto, Posco, Exxon Mobil and funds with underlying investments in global commodity stocks. Commodity-focused MFs, however, can be extremely volatile and most funds generated negative returns in the first six months of 2010. They also attract more taxes than diversified equity funds. Since these funds have their underlying investments in global commodity stocks, they also carry exchange rate risks.

A strong rupee can impact returns adversely, said observers. The markets may be on a sticky wicket and impacting the performance of diversified equity mutual funds (MFs), but with inflation still remaining high, funds focused on the commodities sector have come out on top. In all, six commodity-oriented MFs have made it to the top-10 list in the past six months and have delivered 9.4-18.6% during the period. While sensex and nifty have lost 6.1% and 6% respectively in six months (till March 25), diversified and tax-saving MFs are down 10%. Only pharmaceuticals and IT-focused funds have managed to stay in the green but have given meagre returns.

"Commodities are becoming a natural hedge against equities. In any recovery, commodities as an asset class would do well," said Arvind Bansal, vice-president, ING MF. "Commodities stocks would continue to outperform as long as global inflationary pressures persist," said Surajit Misra, national head, Bajaj Capital, a distribution platform for funds. Commodity stocks do well, pushing up returns from these funds when there is a strong demand for key raw materials in markets like China and India. The impact of commodity prices is much higher in emerging markets, said observers.

Experts said that investors should have commodity MFs in their portfolio as a hedge. That's because, India is not a top producer of major commodities (except food grains), and therefore, it is susceptible to price hikes, which in turn would impact debt and equities market in the country. Investors can have 5-10% in commodity-related MFs to start with, and can increase it up to 20% depending on market conditions, they said. Several commodity funds have outperformed their peers in the equities space by as much as 30%, said experts. Commodity MFs would give good returns as long as loose monetary policy continues in the West, said Bansal.

However, only a handful of commodity-oriented MFs are available and they have exposure to mostly global stocks and funds. These MFs invest in a range of companies including Monsanto, Rio Tinto, Posco, Exxon Mobil and funds with underlying investments in global commodity stocks. Commodity-focused MFs, however, can be extremely volatile and most funds generated negative returns in the first six months of 2010. They also attract more taxes than diversified equity funds. Since these funds have their underlying investments in global commodity stocks, they also carry exchange rate risks.

Commodity MFs rush on high inflation

 

The markets may be on a sticky wicket impacting the performance of diversified equity mutual funds (MFs), but with inflation still remaining high, funds focused on the commodities sector have come out on the top. In all, six commodity-oriented MFs have made it to the top-10 list in the past six months and have delivered 9.4-18.6% during the period. While sensex and Nifty lost 6.1% and 6% respectively in six months (till March 25), diversified and tax-saving MFs lost 10%. Only pharmaceuticals and information technology-focused funds have managed to stay in the green but have given meagre returns.

"Commodities are becoming a natural hedge against equities. In any recovery, commodities as an asset class would do well," said Arvind Bansal, vice-president, ING MF. Commodities stocks would continue to outperform as long as global inflationary pressures persist, said Surajit Misra, national head, Bajaj Capital, a distribution platform for funds. Commodity stocks do well, pushing up returns from these funds when there is a strong demand for key raw materials in markets like China and India. The impact of commodity prices is much higher in emerging markets, said observers.

Experts said that investors should have commodity MFs in their portfolio as a hedge. That's because, India is not a top producer of major commodities (except food grains), and therefore it is susceptible to price hikes, which in turn would impact debt and equities market in the country. Investors can have 5-10% in commodity-related MFs to start with, and can increase it up to 20% depending on market conditions, they said. Several commodity funds have outperformed their peers in the equities space by as much as 30%, said observers. Commodity MFs would give good returns as long as loose monetary policy continues in the West, said Bansal.

However, only a handful of commodity-oriented MFs are available and they have exposure to mostly global stocks and funds. These MFs invest in a range of companies including Monsanto, Rio Tinto, Posco, Exxon Mobil and funds with underlying investments in global commodity stocks. Commodity-focused MFs, however, can be extremely volatile and most funds generated negative returns in the first six months of 2010. They also attract more taxes than diversified equity funds. Since these funds have their underlying investments in global commodity stocks, they also carry exchange rate risks.

Koenigsegg to jaunt in 10cr superfast machine

 

India's dream run with super cars is keeps getting hotter. With Ferrari, Maserati and Aston Martin waiting in the wings and the Rs 16 crore Buggatti making an entry, it is now the turn of Swedish super carmaker Koenigsegg Automotive AB to burn the rubber on the roads here. "The company, known for its superfast hand-made dream machines, is set to enter India next week, in partnership with InterGlobe Enterprises, which runs low- cost carrier Indigo," sources said. It has decided to get its cars to the Indian market considering the huge wealth creation in the economy and the rising love of Indians for superfast cars even if they cost a fortune. Koenigsegg, a relatively new company (formed in 1994) that was started by Christian von Koenigsegg, produces hand-crafted supercars at its factory in Sweden, which surprisingly had earlier been home to the Swedish Air Force. Sources said the cars could be priced in the Rs 10 crore range, though there is no confirmation on this at the moment.

While being a virtually unknown brand in India, Koenigsegg has created ripples in the global super car market. The company had the distinction of producing one of the fastest cars in the world in its CCR model that in 2005 became the fastest production car in the world, beating the nine-year-old Guinness World Record of the McLaren F1. Bugatti, however, bettered this with the Veyron later. Koenigsegg unveiled its latest model-the Agera R at the Geneva Motor Show in February that has a five-litre V8 bi-turbo engine-which boasts of a pulsating 1115 horse power (depending on the fuel type).

Despite the absence of adequate infrastructure, India is fast emerging as an upcoming destination for super car makers, purely led by the indulgence of its rising list of billionaires. While volumes are still limited (an overall double-digit market annually), it is giving Indians their taste of speed and aspirational brands. The rising wealth and the global exposure of Indians have seen many opt for these brands, most of them even boasting of having multiple super cars in their driveway. The bullishness has seen virtually all the supercar makers queue up for India. While Bugatti had last year debuted its Veyron at a jaw-dropping ex-showroom price tag of Rs 16 crore, others are about to launch their cars. These include Ferrari and Maserati from Fiat's stable as well as Aston Martin models, the cars that James Bond made famous through many Ian Fleming flicks. German brand Porsche is already selling its sports cars in India for the last many years and has identified it as a key sales destination.

CPI-M candidates for Tamil Nadu assembly poll debuted

 

The Communist Party of India-Marxist (CPI-M) Tuesday renominated three of its legislators for the Tamil Nadu assembly elections. The CPI-M, part of the AIADMK-led front, finalised the list of its 12 candidates Tuesday at the state committee meeting in Tiruchirapalli, around 335 km from here.

Apart from K. Balabharathy, R. Leema Rose and P. Dilli Babu, the three sitting legislators, the party has also fielded veteran trade union leader A. Soundararajan from Perambur. G. Ramakrishnan, the party state secretary, said the candidates will file their nominations before March 25.

The CPI-M will highlight price rise, power crisis and corruption in its election campaign, he said. From the DMK-led front, the PMK, contesting 30 seats, named its two candidates Tuesday. Tamil Nadu goes to polls April 13.

PTC India Financial's IPO Prices at 28 Rupees

 

PTC India Financial Services Ltd is likely to price its initial share offering at the top end of its indicative price band, between 26 and 28 rupees, despite relatively tepid demand for the offering, two people familiar with the matter said Monday. State-run power trading company PTC India Ltd financing arm is likely to sell the 133.2-million-share IPO at 28 rupees a piece, the people told Dow Jones Newswires, asking not to be named.

Although the fully-subscribed offering was just about 1.7 times covered around three hours before closing Friday, most bids came in at the upper end of the price band, the people said. The offering will raise close to 4.38 billion rupees through the share sale at the top end of the band, including the 658 million rupees worth of shares sold to three anchor investors on March 15.

The company raised 658 million rupees by placing 23.5 million shares with three anchor investors--HSBC Bank Mauritius Ltd., Capital International Emerging Markets Fund and Emerging Markets Growth Fund Inc--at 28 rupees a share. The IPO was managed by SBI Capital Markets Ltd., JM Financial Consultants Pvt. Ltd., and ICICI Securities Ltd., along with Almondz Global Securities Ltd. and Avendus Capital Pvt. Ltd.

This is the largest initial share sale to be launched so far this year and will be seen as a key barometer of primary market appetite in the coming months, as the government prepares to push through its divestment program, valued at 400 billion rupees, to help pare its gaping fiscal deficit. A long list of private firms, including L&T Finance Holdings Ltd., Micromax Informatics Ltd. and Future Ventures India Ltd. are also seeking to tap the primary share market in the coming months.

Global HD consumer electronics shipment to rise at 19%

 

According to recent research study by RNCOS "Global Consumer Electronics Market Forecast to 2013", high definition consumer electronics shipments are projected to grow at a CAGR of around 19% during the forecast period 2011-2013. With the fast expanding list of HD content suppliers and the rapid adoption rate of HDTVs & STBs, HD video transmission and delivery will become major motivators for consumer to invest money in new technology television displays and playback/recording equipments, finds RNCOS.

RNCOS estimates global shipments of HD consumer electronics are expected to be more than triple by 2013 from 2008 levels as HD becomes the ubiquitous video standard worldwide. RNCOS also says High Definition set top boxes will capture the major chunk of the global HD consumer electronics market during the forecast period. As per the report, HD STBs' shipment has witnessed significant growth during the past few years with growth in digital televisions (DTV) and high-definition televisions shipments.

As per RNCOS, the Asia-Pacific region will become the dominant territory during the forecast period, accounting for nearly half of the global HD STBs demand. India and China will represent majority of this demand, however both the countries have registered slow uptake of multi-channel TV till date owing to price and technology limitations. As costs reduce, both the countries will record phenomenal growth, adds RNCOS.

India unites top 10 Wiki donors club

 

It is not only the Indian billionaires who have realized the power of giving, small donors also seem to have caught the "giving" fever. India has moved up the rank of donors to the Wikimedia Foundation to become the sixth largest donor in 2010-11 after donors from the US, Canada, Japan, Spain and the UK.

Nearly 11,000 Indians donated $ 193,657 to the foundation, which raised a total of $ 14.81 mn through donations from across the world. Donors from the US contributed over $ 10 mn, the highest among all countries.

In 2007-08, India ranked 18th in the list with merely 583 donors contributing about $ 12,532. A year later, 2008-09, India was at 15th rank with 1759 donors contributing $ 38,776. In 2009-10, the country slipped one place to the 16th rank with 2956 donors contributing $ 52,156. An average Indian who donated gave $ 18.5 to the foundation this year up from the previous average of $ 17.6 last year.

So why did they do it? Some say that they can't imagine a life without Google and Wikipedia. Some say that it feels good to be doing something for a good cause. The reasons may be many but it will be a very small price to pay if the foundation goes on to realize its vision to create the "sum total of all human knowledge."

Says T Gautham Shenoy, a creative director at an advertising agency, "It's my way of giving something back to Wikipedia for being what it is today. Perhaps not authoritative, and definitely not without its flaws and errors but it surely is the first port of call for many of us on a daily basis and the go-to site for quick references. And can you image the result if it achieves its dream of being the storehouse of all human knowledge? This is my contribution to help make that dream come true. As they say, Information wants to be free. But it takes money to keep it free."

Coimbatore based self-employed professional, who goes by the name Sodabottle on Wikipedia, donated $ 46 to the foundation. "I was paid for speaking about Wikipedia at a conference at a college. I donated the amount to the foundation instead, as I am doing the Wikipedia outreach as a volunteer," he told ET. Contributing to Wikipedia has made him a better writer in both Tamil and English, he said.

In November last, the Wikimedia Foundation had set out on its annual fund raising exercise to keep Wikipedia, the worlds largest online encyclopedia running for free. They had set a target of raising $ 16 mn from donations across the world. Lately, the foundation has been active in emerging markets and had announced its intent to improve its focus in countries such as India and Brazil.

"Any partial or full commercial ownership of Wikipedia could severely impact its neutrality with a systemic-bias. At the same time, Jimbo Wales' focus on developing Wikipedia in Indian languages is supposed to provide a great opportunity for consolidation of knowledge with indigenous flavors from Indian sub-continent on this monolith global platform," said Milind Joshi, another donor who works as a principal business technology consultant at a top MNC in Bangalore. The rise in the number of donors is also being attributed to an increase in disposable income.

"We are concentrating on professionals who own credit cards and have high disposable incomes. There are over 18.2 million credit cards in the country and individual fundraising on the internet is potentially a very large source of funds for us," said Anirudh Bhati, Treasurer, Wikimedia India Chapter.

UBS latest to reduce India's FY12 growth forecast to 7.7%

UBS on Wednesday joined the growing list of brokerages lowering India's 2011/12 economic growth forecast, paring Asia's third-largest economy's growth to 7.7% from 8%, as interest rate rises and higher oil prices start to bite. Morgan Stanley and Bank of America-Merrill Lynch had last week lowered their growth forecast for the Indian economy in the next fiscal year that begins in April to 7.7% and 8.2%.

UBS also cut the world's second-fastest growing major economy's gross domestic product forecast for the current fiscal year to 8.7% from 9% on weak December-quarter growth and continuing weakness in the industrial output growth. "The reason for the slowdown is as before: lagged impact of todays tight money on demand plus effect of higher oil prices," Philip Wyatt, an economist at UBS wrote in a note, adding he sees the economy recovering to 8.6% growth in 2012/13.

India's economy grew at a slower-than-expected 8.2% in the December quarter from a year earlier, after expanding at 8.9% in the previous two quarters. Industrial output in January topped forecasts, but was still weak at 3.7% annual rise. "We expect WPI (wholesale price index) inflation to accelerate from 7% in March 2011 to 7.7% a year hence," Wyatt wrote. India's headline inflation unexpectedly quickened in February on rising fuel and manufacturing prices, raising expectations for aggressive central bank tightening beginning later this week.

The market and economists both expect a 25 basis points increase in key rates on Thursday, when the Reserve Bank of India (RBI) reviews its monetary policy. UBS said the slowdown in the industrial production (IP) growth suggests policy-pause is round the corner. "Slower IP trends indicate weaker domestic pricing pressures, but lending growth remains way above the official 20% projection. So, we still expect the RBI to act on March 17 - with a 25 basis points. But after this, we could see a policy pause," Wyatt said.

Indian bank loans rose 23.2% on year as of February 25, latest data showed on Friday. UBS said rate increases would make an effort to bring lending growth back closer to 20% and reduce the still elevated price pressures. "Our calculations suggest that if global oil prices don't rise too much further, then inflation could stay in the 7% to 8%range this year. Consequently, the money tightening process could be near an end," Wyatt wrote.

Exports of India Steel to Japan Likely to Hike

Exports of finished steel to Japan will rise in the coming months as the Asian nation rebuilds after the 9.0 magnitude earthquake, two senior Indian steel company executives said Tuesday. Economists estimate damages from the earthquake could run as high as 10 trillion yen and knock three percentage points off Japan's gross domestic product growth this year.

"It would be important to note that a lot of the wooden houses and structures traditionally found on Japan's coastline may now be replaced with buildings made of steel and cement, as they would be better able to withstand the impact of a tsunami," Malay Mukherjee, chief executive of Essar Steel Ltd., said on the sidelines of an industry event.  He said the quake could lead to a reduction in steel exports from Japan.

"It's difficult to gauge the impact on prices of steel and raw materials right now. However, a rise in demand is very likely," he said, adding that another major source of worry for Japanese steel mills could be the availability of electricity after the earthquake. A growing list of companies in a range of Japan's industries, from consumer electronics to steel makers and retail store operators, were suspending parts of their operations affected by the earthquake, while preparing to cope with planned power outages.

Several metal and building materials stocks around Asia edged higher Tuesday on hopes for reconstruction opportunities in Japan, while coal shares climbed and uranium miners plunged on worries about the prospects for nuclear power projects. State-run Steel Authority of India Ltd.'s chairman, C.S. Verma, told reporters that Indian steel companies may export more finished steel to Japan when it starts rebuilding efforts. Mr. Verma also said he expects international coking coal prices to decline in the near-term as Japanese steel mills are likely to slow down purchases.

"We expect Japan to import less coking coal for the next two months," he said, adding that Japan imports between 9 million and 10 million metric tons of the vital steel-making material each month. Indian iron ore miners also said that spot prices of the ore, which have slipped over the past month due to low demand from China, are likely to slip further as Japanese steel mills slow down immediate purchases while they recover from the earthquake.

"In the short-term, demand for iron ore from Japan may decline as the entire machinery there will have to stabilize first," said R.K. Sharma, secretary general of the Federation of Indian Mineral Industries. "But once the country goes to rebuild its infrastructure, demand should actually bolster." Japan bought 5.87 million tons of iron ore from India in the fiscal year ended March 31, 2010, or as much as 5% of exports by the world's third-largest supplier. In the past month, the export price of ore with 58% iron has dropped to about $140 a metric ton, including cost and freight, from $168 a ton in February, while the price of ore with 50% iron has halved to $40 a ton.

Pranab Mukherjee's Plan

The Centre’s game plan, as revealed by the Budget, is all about sustaining growth. But fixing implementation is the crucial next step. Before Finance Minister Pranab Mukherjee presented the Union Budget for 2011-12, many political observers felt that he may just use it as an opportunity to shore up the government’s diminishing equity. Others expected some big-ticket reforms to indicate that the government had recovered from the sting of a series of scams and meant business worthy of the mandate people gave it two years ago.

Belying either expectation, Mukherjee laid out plans to simplify the administrative machinery and improve economic efficiency to prepare for the big ideas that could come later. If everything goes according to plan, a unified goods and services tax for the entire nation and a brand new direct tax code would become a reality; each citizen will have a right to food and perhaps even have health coverage, well in time for the 2014 elections.

The Budget, both by what it announced and what it did not, reiterated a guiding principle that the United Progressive Alliance (UPA) has articulated over the past couple of years — preserving growth momentum is paramount. And it will rely heavily on private investment to pull it off. UPA, by its own admission, had come back to power with the mandate of ‘inclusive growth’. However, each of the three budget speeches in UPA-II list ‘sustaining high growth’ before ‘making development more inclusive’ as priority.

“There has to be growth before there is inclusion. Without growth there cannot be any inclusion,” says one senior official in the Prime Minister’s Office. This budget clearly shows which side of the debate the government has flipped for. It promised to cut spending, even on some of its flagship social welfare plans (such as the rural jobs guarantee scheme) and subsidies, preferring to tighten its finances with a stiffer fiscal deficit target of 4.6 percent (of the GDP) as against a previous target of 4.8 percent for 2011-12.

In Favour Of Growth

The growth versus development debate has been engaging some of the best minds, as India continues to battle growing inequality and persistent poverty despite fast growth.

Worldwide audiences were captivated recently when top economists and thinkers from across the world inconclusively yet hotly debated India’s growth story in an online forum. Economists such as Jagdish Bhagwati and Arvind Panagariya argued for pro-market reforms as they saw growth as an effective and primary tool for alleviating poverty. It also allows governments to have more resources to bring about redistributive justice, they said.

However, others such as Nobel Laureate Amartya Sen believe that excessive focus on growth is inappropriate. While agreeing that growth helps the poor, Sen believes that excessive focus on growth rates alone, especially in comparisons between India and China, is misleading. What really matter are the fruits of growth like improved human development indicators, he felt.

“People (in India) have started taking growth for granted” — This is a standard refrain among India’s policymakers. It is in this context that the Budget for 2011-12, and what it hopes to do in key areas such as agriculture, manufacturing and systemic efficiency, perhaps needs to be interpreted. The budget lacks short-term measures for tackling food inflation with the government hoping that fresh arrivals of grains and vegetables after a good farming season would by itself take care of that. But it does look at supply side reforms such as a boost to building good storage capacities to tackle price rise in the long term and reduce estimated wastage of 40 percent of India’s fruit and vegetable output.

“After a long time, I have seen a budget which has initiated some very important reforms in agriculture,” says Ramesh Chand of National Council for Agriculture Policy. Chand says the trick lies in pushing those reforms, which, while being crucial, does not necessarily require political consensus. He says the government has recognised the enormity of the constraints on supply and storage and is banking on private investment to remove them.

Farming will also get a boost from direct cash transfer of subsidies that will help improve systemic efficiency and plug leakage. Senior officials say Prime Minister Manmohan Singh had a hand in pushing this reform through. A PMO official says that it is typical of Singh to let debates and dialogues play out in full before taking a decision.