Thursday, May 27, 2010
Monday, June 29, 2009
"Markets fairly valued" - Anand Agarwal, fund manager, Reliance Money
How has your strategy changed after the sharp rally?
Post the sharp rally the markets appear to be fairly valued and one would need to be a bit more selective in their stock selection. However, a lot of the gains in the markets can be attributed to the favourable outcome of elections. Now that we have a stable government at the Centre, investor's expectations have also gone up. They now expect faster implementation of the reforms process.
Which sectors qualify as good investments now?
Given the current situation one needs to take a slightly longer term call on equities and follow a mix of growth and value investing.
Given the fact that India is more of a domestic growth story unlike most other Asian economies, one needs to focus on sectors which would benefit from the internal growth story. One could also look at sectors which would benefit from the reforms process. Some of the sectors to look out for would be banking, capital goods and power.
| ANAND AGARWAL Fund Manager, Reliance Money | ||||
| Top Holdings | % of assets | Cost (Rs) Price | Current price (Rs) | Value (Rs lakh) |
| Colgate-Pam | 9.58 | 559.92 | 574.20 | 1.44 |
| Opto Circuits | 8.57 | 159.2 | 160.55 | 1.28 |
| Indiabulls Real | 7.16 | 194.92 | 214.65 | 1.07 |
| Infosys | 6.10 | 1730.75 | 1826.75 | 0.91 |
| McLeod Russel | 4.65 | 109.37 | 116.10 | 0.70 |
| Total investments | 64.09 | 9.60 | ||
| Cash | 35.91 | 5.38 | ||
| Net worth | 14.98 | |||
| Returns (%) | 49.84 | |||
Your rationale for picking up TRF?
TRF is a mid-cap company which was available at a significant discount to its peers in the material handling equipment space. It was trading at around five times its estimated FY10 earnings when we decided to take exposure.
The company has posted excellent results for FY09 with revenues and EBDITA growing by 62 per cent y-o-y to Rs 723 crore and Rs 90.1 crore respectively. The company posted an EPS of Rs 73.6 for FY09. Moreover, it has a reasonable order book and pipeline over the next 12-18 months. Cheap valuations coupled with revenue visibility prompted us to take an aggressive call on TRF.
Which sectors should be avoided?
Given the sharp slowdown in global merchandise trade, we have stayed away from sectors which are more export-oriented and where India does not have any competitive advantage over other countries. An example of this is textiles.
Are we in a bull market or will the bears make a comeback?
Bull and bear markets are dependent upon the rate of economic expansion. If there is a slowdown in economic growth, then markets tend to go down while accelerating economic growth results in a bull market.
Despite the global slowdown, the Indian economy is still growing at a reasonable rate. While growth rates have come off sharply from around 9 per cent witnessed between FY06 and FY08 to current levels of around 6 per cent, the fact remains that India is still one of the fastest growing economies in the world. So gradually over a period of time as the developed economies stabilise we should see growth accelerating in India that would result in superior returns over the long term.
Which is your best and worst pick?
Our best pick has been TRF which had generated significant returns for us. As mentioned earlier TRF was a value play when we had entered into the stock. Our call on the aviation sector did not work out too well for us despite our call on falling crude prices. The call went wrong largely on account of the fact that demand fell sharply due to the slowdown. Moreover, most carriers were not quick enough to reduce capacity and the industry still has some amount of over capacity which needs to be brought down.
What should investors do at this point in time?
In the current scenario, investors need to define their returns expectations as well as risk appetite based on which an overall asset allocation strategy could be arrived at.
Given the fact that markets have run up significantly since March, investors should tone down their return expectations from equities over the short to medium term. They should be careful while selecting stocks and focus on buying stocks which are capable of generating superior returns on equity on a sustainable basis.
| AMAR AMBANI Vice President (Research), India Infoline | ||||
| Top Holdings | % of assets | Cost (Rs) Price | Current price (Rs) | Value (Rs lakh) |
| Indiabulls Real | 13.04 | 217.85 | 214.65 | 1.80 |
| Essar Oil | 5.83 | 166.05 | 161.25 | 0.81 |
| Cadila Healthcare | 4.21 | 381.50 | 388.15 | 0.58 |
| Texmaco | 4.09 | 110.45 | 113.05 | 0.57 |
| Reliance Cap | 4.07 | 971.25 | 938.75 | 0.56 |
| Total investments | 78.96 | 10.92 | ||
| Cash | 21.04 | 2.91 | ||
| Net worth | 13.83 | |||
| Returns (%) | 38.27 | |||
| SADANAND SHETTY Vice President, Kotak Securities | ||||
| Top Holdings | % of assets | Cost (Rs) Price | Current price (Rs) | Value (Rs lakh) |
| Reliance Cap | 6.12 | 835.36 | 938.75 | 0.79 |
| McLead Russel | 5.92 | 100.31 | 116.10 | 0.76 |
| BHEL | 5.64 | 2050.22 | 2201.50 | 0.73 |
| GVK Power & Infra | 5.43 | 36.30 | 41.80 | 0.70 |
| ICICI Bank | 5.15 | 684.57 | 754.35 | 0.66 |
| Total investments | 90.37 | 11.64 | ||
| Cash | 9.63 | 1.24 | ||
| Net worth | 12.88 | |||
| Returns (%) | 28.85 | |||
| KASHYAP PUJARA Fund Manager, ENAM Direct | ||||
| Top Holdings | % of assets | Cost (Rs) Price | Current price (Rs) | Value (Rs lakh) |
| Reliance Cap | 15.02 | 855.03 | 938.75 | 1.88 |
| Aditya Birla Nuvo | 14.42 | 694.83 | 900.75 | 1.80 |
| SBI | 13.99 | 1434.69 | 1748.95 | 1.75 |
| Century Tex | 13.2 | 273.35 | 412.40 | 1.65 |
| Oriental Bk of Com | 7.39 | 165.43 | 184.75 | 0.92 |
| Total investments | 92.08 | 11.51 | ||
| Cash | 7.92 | 0.99 | ||
| Net worth | 12.50 | |||
| Returns (%) | 24.97 | |||
Tuesday, June 23, 2009
Fund managers skip the block window
Open Up Front Running Options
The number of trades taking place through the 'block deal' windows of stock exchanges is on the decline, even though the quantum of big-ticket transactions is on the rise. Market watchers say when it comes to inter-institutional block trades in midcap stocks, many fund managers prefer to route the trades through the regular window on the trading terminals, even though there is a risk that the buyer may not get the entire chunk of shares that he has bid for.One reason is that the buyer may want to keep his identity a secret. This is not possible, if the trade has been done through the block deal window, as the identity of both the buyer and seller has to be disclosed. Another reason is the duration and pricing restrictions. The block trade window is open only for the first half an hour of the session, and cannot be priced more than plus/minus 1% of the previous day's closing price (if the deals are struck right at the start of the session) or plus/minus 1% of the prevailing market price once trading commences.
But one more reason, allege market watchers, is that bypassing the block deal window facilitates front running — an illegal activity in which a trader takes a position in an equity, based on advance information of an impending trade.
In 2007, there were on an average 52 block deals every month. This dropped to 33 in 2008, and for the first six months of 2009, it has further dropped to 21.5. "Front running usually happens when large deals are struck at a significant discount to the prevailing market price," says a dealer, who is familiar with the dubious dealings on Dalal Street.
The reason being, the stock price usually bounces back after the deal has been executed. So, if an operator has picked up a position based on that information, it can be offloaded for a quick profit the same day itself, or at a later date. "Sometimes, it can be the dealer at the broking house who leaks out the information before the deal is struck, and, at other times, it is the fund manager who leaks the details to some friendly operator," he says. WINDOW OF OPPORTUNITY
BLOCKED OFF
Trade through the regular window helps a buyer remain anonymous Block window has duration and pricing restrictions. It's open only for the first half an hour of the session. The deal has to be struck within a specified price band Regular trade window allows a trader to engage in front running
TIP-OFF TRADE
Front running is when a trader takes a position in an equity, based on advance information of an impending trade
It usually happens when large deals are struck at a significant discount to the prevailing market price
These deals typically happen in mid-cap stocks, and within minutes of opening Small trade size prevents detection of shady deals THE Modus Operandi Large deals, which are reported under bulk deal
disclosure requirements, are negotiated trades. The broking houses, executing the buy and sell orders, negotiate the price on the phone. In a bid to ensure that their orders are exactly matched, dealers follow what is commonly known as the 1-2-3 method, whereby both sides count 3 over the phone, before punching the 'enter' button on their trading terminals.
Suppose fund A wants to sell 10-lakh shares of a company and fund B agrees to buy it. It can so happen that the fund manager, who is purchasing the stock, may tip off a market operator, and ask him to bid for a small chunk alongside him, but at a price marginally better than that of the fund house. So, if the fund house has placed a bid for 10 lakh shares at Rs 100 per share, the operator will bid for 1 lakh shares at Rs 100.05. The prevailing market price may be Rs 110. Once the order is punched in, the system will match the seller's offer with the best quoted bids, which include the 1-lakh shares at Rs 100.05 placed by the operator. The result will be that the fund house will get only 9 lakh shares against the 10 lakh shares it has bid for (it will also pay only for 9 lakh shares, but there is clearly an opportunity loss, if the stock price rises).
Details of deals involving more than 0.5% of a company's equity have to be disclosed by the respective broking houses, if a single client (either on the buy or sell side) exceeds this limit. But the operator will never figure on the radar, since his deal size is too small compared to the overall size of the deal.
Market watchers say these deals typically happen in mid-cap stocks, and that too minutes after trading starts. "If there are too many orders in the system, this operation becomes difficult, as many shares will go to those buyers who are offering better bids," says the dealer.
Sunday, May 31, 2009
No rush for exit anytime soon, say brokers, fund managers
government got a stable mandate, brokers and fund managers told SundayET.
What has further acted in favour of a rising market is the investor's fear that they would miss the bus if they fail to enter the market now.
Executive director at Benchmark Asset Management Company Rajan Mehta confirmed the trend. "We were expecting some redemption pressure to come once the market inches upward but on the contrary we are getting decent inflows," he said.
The situation could also provide an outlet to mutual fund companies which have been sitting on high cash mainly to meet the anticipated redemption. Sanjay Sinha, CEO at DBS Cholamandalam Asset Management, says, "Generally speaking, most of the mutual fund companies are still sitting on high cash level partly on anticipation that investors who were sitting on losses, will probably exit once markets touches higher levels. The industry has not, however, seen any major redemption in the past couple of months."
There is a general tendency among the investor community that when market goes down people sell either to book profit or to minimise losses and whenever the markets take the reverse turn, investors begin to buy. "We are seeing a change in the general sentiment of investors and many of the expected sellers have become buyers," says Mr Sinha.
In fact, new fund offers (NFOs) in equity segment, which was completely dry for the last several months, have begun to see some action. Recently, ICICI Prudential Mutual Fund and IDFC MF garnered more than Rs 1,300 cr through two of their NFOs. Target Return Fund of ICICI Prudential MF received around Rs 800 cr, whereas, Hybrid Infrastructure Portfolio of IDFC MF has mobilised almost Rs 500 cr till date. In addition, there are a number of NFOs which are still open for the subscription. Also, BSE Sensex and Nifty, which have been heading towards north for sometime, have proved that the demand is now more than supply.
Also, the institutional investors have started putting money in the equity market. In the last three months, mutual fund community invested more than Rs 3,000 cr in the shares. In fact, in the last one month, foreign institutional investors (FIIs) invested about Rs 18,000 cr.
According to Prasanth Prabhakaran, Sr VP & all India head for broking at Kotak Securities, the rally of Sensex from 10,000 to the current level of over 14,000 was unexpected. Also, the outcome of the elections surprised many, and consequently on Monday, May 18, 2009, no major trade could take place as trading was halted after the indices touched upper circuit twice. "Now, since we have a stable government on the driver's seat, investors expect economic condition to improve gradually, and hence prefer to remain invested. Yet the Budget is the next big event coming up," he said.