Volume 4, Issue 10 06—Oct—2012 The monthly newsletter from FundsIndia An action-packed month Inside this issue: Srikanth Meenakshi An ac ti on -pac ke d 1 Greetings from FundsIndia! m on th - Sri ka n th Me ena ks hi This past month has been an action-packed one for the financial markets in general and mutual fund investors in particular. The government unleashed a series of bold reforms that have spurred gains for the equity market and, probably more importantly, the Indian Rupee. SEBI The month ahead 2 provided more specifics in terms of the regulatory reforms for the MF industry and they went into - Equity recom- effect on October 1. mendations - B.Krishna Kumar The combined effect has been mostly net positive for mutual fund investors. The portfolios have seen some welcome upside as a result of the market movement. The regulatory actions have been mostly positive as well. Although there are some small cost increases to the expenses in the form of service tax pass through and incentivizing small town investing, Empower your- 4 there are tangible cost savings as well in the form of credit of exit load to schemes. self with fund f acts hee ts— Another welcome consequence of regulatory action has been the consolidation of multiple plans in schemes (such as Vi d ya Bala retail, institutional etc) into a single plan. This will remove the clutter of schemes, and will likely lower costs for inves- tors. However, the first few days of implementing this change will likely be chaotic – with many AMCs dropping or Consistent Per- 5 merging schemes to fit the mandate. We request your patience in this regard during this period of transition. f ormers At FundsIndia, these are exciting times – we are going into an overdrive in our effort to expand our customer base in the coming months. You may have seen our iPad promotions over the past couple of months – we have announced two Making the right 7 happy winners thus far – one from Pune and another from Rourkela. This will continue, so please keep those application c hoice — forms coming! Dhirendra Kumar Along with this promotion, we are also in the process of rebooting our referral system. It will be easier to refer and more rewarding than before, so please keep your eyes open for an announcement from us in this regard. And if you are reading this and you are one of our registered users who have not yet completed your account opening, now is a great time to do so. Across 54 cities in the country, we have an arrangement with a service provider to pickup account opening documents from your home. Please contact our customer support at [email protected] if you need more details. Happy Investing! Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. Volume 4, Issue 10 Page 2 The month ahead - Equity recommendations B.Krishna Kumar September turned out to be quite an eventful month as far as the stock markets were concerned. Nifty moved out of the trading range that it was confined to, for months together. The government’s sudden thrust towards reforms has had a positive impact on the stock market sentiment. The Rupee too has strengthened in relation to the US Dollar and this trend is likely to prevail in the near future as well. The cool-off in the international price of crude oil is also a positive development from an economic fundamentals perspective. While the 10-year bond yield has drifted in the past few weeks, it is still not factoring in the expectations of any meaningful interest rate cut by the Reserve Bank of India. Any signs of easing off interest rates would aid stock market sentiment further. From a technical perspective, the Nifty is in a strong uptrend and we maintain our target of 6,000 from a short-term perspective. A look at the daily chart of the Nifty indicates that the index is now charting out a bullish sequence of higher highs and higher lows if viewed from the Dec. 2011 low of 4,531. A breakout past 6,000 would impart mo- mentum to the uptrend and the index could then rally to the next resistance at 6,300. A look at the index heavyweights such as State Bank of India, Larsen & Tou- bro, Infosys and ICICI Bank lends cre- dence to the bullish market outlook. Last month, we had covered the outlook for a couple of stocks from the cement sector. Both ACC and Ambuja Cements have fared well in September and have hit their targets mentioned last month. This month, we cover the outlook for a couple of stocks from the banking sector. Given the strong case for the interest rate cycle having peaked out, the banking sector would be in focus when the interest rate starts easing. Besides, any improvement in the economic funda- mentals would have a positive rub-off on the banking sector. A look at the weekly chart featured above indicates that State Bank of India has a recovered off a cru- cial support recently. The short-term outlook is positive and we expect a rally to the immediate resistance at Rs.2,510. Investors may use price weakness to buy State Bank of India, with a stop loss at Rs.2,120, for an initial target of Rs.2,510. Those willing to play the waiting game may get opportunities to exit at Rs.2,675. Continued on page 3 . Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. Volume 4, Issue 10 Page 3 Continued from page 2 . Corporation Bank is another compelling portfolio candidate. A look at the weekly chart featured below indicates that the stock has recov- ered off crucial support levels. The outlook is bullish and we expect a rally to the short-term resistance at Rs.470. Investors may buy the stock with a stop loss at Rs.378, for a target of Rs.470. A move past Rs.470 could trigger a rally to the major resistance at Rs.580. Mr. B.Krishnakumar is the Head of Equity Research at FundsIndia. With extensive experience in tracking the stock market (over 15 years) he has worked with companies such as ’The Hindu , Business Line’ and ’Dow Jones Newswires. He will be contributing to our monthly newsletter with his stock market outlook which shall hold good for a month. Mr.B.Krishnakumar can be reached at [email protected] Mr.B.Krishna Kumar also hosts a weekly webinar that discusses the market outlook for the following week. You can register for the webinar by clicking here: https://www4.gotomeeting.com/register/927617871 Empower yourself with fund factsheets Vidya Bala—Head - Mutual Fund Research Even a quarterly review of the factsheets disclosed by your funds will equip you with information that can enhance the quality of your investment decisions. Have you been reading your fund factsheets? If not, you may be losing out on vital disclosure that will help you make an informed deci- sion in investing, holding or redeeming mutual funds. Information such as fund returns, portfolio and risk measures help you compare performance and investment style of the funds you hold. Here’s a list you can keep watch for. Gather the monthly factsheets for a Facts to note quarter/half year and compare them to get a better idea of how your fund performs over · Compare returns with benchmark time. and peers Compare returns · Check portfolio changes over qtr. Whether you hold an equity or debt fund, the performance of the fund against its own · Know how volatile your fund is benchmark is the first step to know whether your fund is an outperformer. Underperfor- · Is the risk you take justified? Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. Volume 4, Issue 10 Page 4 mance of benchmark over 1-2 year time frame is something that should worry you. Since the returns (other than returns since inception) will be the same across funds, you also can compare them, provided they are of the same category. For instance you can compare two mid-cap funds you hold. Fund houses also provide you with SIP returns. This will help you assess whether investing across market cycles has helped you outperform the market. Portfolio The stocks and sector holding of your funds help you know their investment strategy and style. For instance, if your mid-cap fund begins to add more blue chip stocks to its top holdings, you need to review if this fund can deliver a higher return which a midcap fund ought to. Sometimes, a fund may also take a bet on a single sector and hold high exposure of say over 8 per cent in it. This should be reviewed as you need to check if the higher risk taken delivers well. If you hold a debt-oriented fund then the characteristics of the fund portfolio is reflected through few other disclosures. The portfolio allo- cation will tell you whether your fund prefers to invest more in corporate bonds or government instruments. This together with the credit rating of these instruments will determine how risky your portfolio is. Also, the fund’s portfolio maturity will tell you whether your fund is holding a long-term or short-term portfolio (in line with its man- date). In other words, it highlights the maturity period of the underlying securities.