Wednesday, January 18, 2012

>MUTUAL FUNDS REVIEW: Institutional fund flow, Equity funds, Equity diversified funds, Equity Midcap Funds, Equity Infrastructure Fund, Equity Banking Funds, Arbitrage Funds, Exchange Traded Funds (ETF), Balanced Funds, Monthly Income Plans (MIP), Debt funds, Liquid funds etc..

  • The year 2011 has been a volatile one where factors such as the ongoing Euro zone sovereign debt crisis, slowdown fears in the US and higher than anticipated jump in inflation in BRIC countries impinged on the global growth ecosystem
  • The one theme that is consistent across various asset classes is safety first. Risk aversion remained at elevated levels forcing investors to dump riskier assets(global equity markets, riskier bonds and commodities) and resort to perceived safe havens (US treasuries, gold)
  • Going into 2012, sentiments remain weak due to persisting European sovereign concerns and impact of any negative development
  • We expect more of a time based correction and expect the markets to oscillate in a broad trading range till the time reasonable clarity emerges from various local and global macro headwinds
  • In case of a negative outlier event, the markets may fall further in the wake of panic selling. However, we do not expect the markets to sustain at such levels. In such an environment, timing the markets would become extremely difficult. We believe that any sharp cuts should be bought into from a three to five years perspective. Currently, higher allocation should be made in large cap funds with some allocation to midcap funds depending upon risk appetite
  • We believe at least H1CY12 will be volatile as the markets would witness huge swings to the news emanating from the emerging and western world. Also, the markets will react sharply to any surprise coming from within the country on the political/economical front. Such bouts of volatility will provide a platform to accumulate equities in a staggered manner as we expect H2CY12 to be a more trending one as a lot of macro issues may subside
  • In the short term, the fortunes of equities are also tied to the relative attractiveness of fixed income, gold and real estate. Any deterioration in the risk-return trade-off in these asset classes would be a blessing in disguise for equities else equity markets may continue to be sidelined
  • We expect the year end target for BSE Sensex to be boxed in the range of 15442: 14x FY12 Sensex EPS of 1103 ((bear case)– 17822: 4x FY13 Sensex EPS of 1273 (base case) in line with earnings growth of 15% in FY13 and historical average multiples of 14x
  • Since we are currently trading at close to our bear case year end target, equity investors with an investment horizon of more than one year should start allocating fresh money as the long term case for investments in Indian equity markets still remains intact.

To read the full report: MUTUAL FUNDS