IT Sector Out Look

Negative view is maintained despite marginal improvement in USD revenue

 USD revenue forecasts have raised marginally for most of the large cap stocks in the coverage universe. This is because of improving US macro data. However, checks suggest that IT services demand would continue to be soft in 1QCY12, but it would not be to the extent as expected earlier.
 On a sector basis, financial services and BPO are likely to slow down whereas utilities and telecom related services appear to be picking up.
 It seems that 19% depreciation in USD/ Rupee exchange rate since August 2011 could more than offset any foreseeable weakness in demand in FY13 because the street estimates probably factor in USD/ INR exchange rate of Rs.47 as against the current level of Rs.52. However, caution is advised before investing in IT stocks as uncertainty prevails in the exchange rate.
 It seems that Rs.52 level may prevail in FY12 and the exchange rate may return to the long term average level of Rs.45.50 beyond that.
 Rupee weakness is periodical whereas demand weakness is more sustainable. Therefore, the outlook on the sector continues to be negative and stock prices are likely fall in the coming months.
 Maintain ‘reduce’ rating on technology stocks. On a relative basis, TCS and Infosys are better placed because they are higher margin players in the coverage universe.

Birla Sun Life Capital Protection Oriented Fund

Birla Sun Life Capital Protection Oriented Fund is being launched from the 28th of Nov'11.
The NFO opens on 28th Nov’11 & closes on 12th Dec'11.

Key Features:

· This is a Close-Ended Capital Protection Oriented scheme having a duration of 25
Months.
· The Scheme will have Growth Option only.
· Minimum amount of investment is Rs 5,000/- and in multiples of Rs 10/- hereafter
· Entry Load /Exit Load: Nil
· NFO Applications would only be Date stamped
· Switch requests would be time stamped and would be accepted up to 3.00p.m. on
12th Dec 11.
· ASBA Facility has been made available for this NFO.
· Transfer Cheques & RTGS instructions would be accepted.
· Micr Cheques would be accepted for this NFO only till EOD of 08th Dec’11.

BNP Paribas Gold & Income Fund—is it worth investing?

Asset allocation schemes may claim that through one scheme you are able to invest in two or three asset classes. But this will always lead to sub-optimal returns

BNP Paribas Mutual Fund had filed an offer document with the Securities and Exchange Board of India (SEBI) to launch BNP Paribas Gold & Income Fund, an open-ended debt scheme. The objective is to generate income from a portfolio constituted of debt and money market securities, along with investments in Gold Exchange Traded Funds (ETFs).

Should you go for it? Returns from debt cannot keep up with inflation. And while it is a common belief that gold offers good returns over the long-term, this is simply not true. Since 1991, gold is up just 8.9% on a compounded annual basis. That hardly beats a fixed deposit (FD) scheme.

Suppose 65% is invested in debt and 35% in gold. If the debt part gives a maximum return of say 9%, the return from the debt part of the portfolio will be around 5.9%, and if gold goes not go up more than 9% compounded, the overall return would be less than what one can earn through bank FDs. You would also pay a 2% fee to the fund manager, with the only advantage that the return from the scheme may fetch a slightly higher if gold fetches a good return.

We think the fund is merely designed to attract safe money. Since gold prices are rallying, the fund house has decided to add it to the fund. But gold has been rising for years now. To extrapolate that trend into the future would be imprudent. Asset allocation schemes may claim that through one scheme you are able to invest in two or three asset classes. But this will always lead to sub-optimal returns. It's always good to invest in specific products based on your expectations from that particular asset class that is in line with your financial goals.

The scheme will invest 65%-90% in debt and money market instruments. The scheme shall also invest 10%-35% in gold exchange traded funds (ETFs). Debt instruments may include securitised debt up to 60% of the debt net assets.
Exposure to debt derivative instruments not more than 50% of the net assets is only for hedging and portfolio balancing. The scheme will not invest in foreign securities. The scheme will not invest in equity & equity related securities and foreign securitised debt.

Benchmark: CRISIL Short Term Bond Fund Index + Price of Gold (neutral allocation: 75:25).

L&T INFRASTRUCTURE BONDS

Issue Opens on : 25 Nov 2011
Issue Closes on : 24 Dec 2011

Rate of Interest : 9:00%

Face Value (1 Bond) : Rs 1000
Minimum Application Size-5 Bonds & in Multiples of 1 Bond thereafter

Modes Available : Physical & Demat
Tax Savings under section 80CCF

IRDA issues draft guidelines for bancassurance

According to IRDA’s draft guidelines, banks will be able to tie-up with multiple insurance companies (life, non-life and health) across the country

IRDA’s new draft guidelines on bancassurance say that banks will be able to partner with multiple insurance companies in a controlled manner. Presently, a bank can sell products of only one insurer in the life and non-life segments.

According to the draft guidelines, a bank would be allowed to sell insurance products of one life, one general and one standalone health insurance company in a particular state. However, in another state, the same bank can sell the product of another set of insurance companies.

The draft guidelines have categorized the states in three Zones. Zone A includes metros like Delhi, Mumbai, Chennai and Bangalore. Zone B has states like Uttar Pradesh, Rajasthan, Bihar and Madhya Pradesh and Zone C includes north-eastern states along with Goa and Uttarakhand. An insurance company can’t tie up with any bancassurance agent in more than nine states and Union territories (UTs) in Zone A and six states and UTs in Zone B. The guidelines are quiet about Zone C.

Explaining further, the IRDA draft guidelines suggests that I Bank can be bancassurance agent for A Life Insurance co in the nine states of Zone A can partner with but for the rest of the states in the Zone, I Bank will have to tie-up with other insurer.

“This is clearly a step in the right direction as banks will be able to monitor insurance companies’ service levels and would be able to offer customers better service through optimal products,” said P Nandagopal, MD and CEO, India First Life insurance.

Partnering one state :

Additionally banks can tie up with a specialized insurance company. Also, a specialized insurer can tie up with any bancassurance agent across the country. However, ‘the specialized insurance company’ has not been defined.

“A number of changes are expected from IRDA to take the insurance industry in a right direction. We are hoping these guidelines will help us to deliver satisfactory customer service,” said Krishnamoorthy Rao MD & CEO, Future Generali India Insurance.

Gold ETF - A smart way to Invest

About Gold ETF :

Buying Gold ETF is purchasing gold in electronic form. You can buy them just like you buy the stock of any company from your broker. Gold ETF makes it easier for you to invest in gold. The investment objective of Gold ETF is to provide you with returns that closely correspond with the domestic price of real gold. Each Gold ETF unit that you buy is roughly equal to the price of 1 gm of gold.

They are easy to purchase since you can buy even just one gram at a time. Over time, you can build up your gold portfolio to the level you want.

Gold ETF Benefits :

Gold ETF is a smarter way to invest in gold.

NO PREMIUMS OR MAKING CHARGES

Gold ETF is in many ways, a superior value for money investment vis-à-vis gold jewellery, as the cost of the latter includes making and depreciation charges which often amount to as high as 17% of the total charge, whilst brokerage charges for ETF comes to only 0.5%. Additionally, you end up paying a premium for gold coins & bars purchased from banks and jewelers charge extra as making charges. With GOLD ETF, you don't have to pay any premium, making or delivery charges. Yet whenever needed, you can exchange them in multiples of 1kg units for 0.995 purity.

NO WORRIES OF THEFT

You always worry about the safety of your gold and also end up paying for bank lockers. Buying Gold ETF is purchasing gold in electronic form. With Gold ETF, since your gold is now in demat form, there are no worries of theft and you also save on locker charges.

EASY TO SELL

Unlike gold coins and bars, which the banks don't buy back and most jewelers only offer to exchange but not buy back, Gold ETFs can be sold anytime through your broker at transparent prices. Plus, unlike other forms of gold, you get the same price for your Gold ETF across India. On Gold ETF, you pay no sales tax, securities transaction tax, VAT or wealth tax.

Gold ETF Features :

1. Cheapest form of pure physical gold with no premium or making charges
2. No issues of wastage or impurities like in the case of physical gold
3. Tax efficient way to hold gold, No Securities Transaction Tax or wealth Tax
4. Can be easily purchased or sold anytime at transparent real time price
5. Can track your investment value in real time
6. Easy to buy in small lots, 1 unit at a time. (1unit=1gm of gold price in spot)
7. No worries of theft and also save on locker charges
8. Benefit on long-term capital gains

Bundling products can help you increase your business

Nowadays, a majority of IFAs portray themselves as ‘Investment Supermarkets’ as they stock all products. It’s rare to find an IFA selling a single product. However, in spite of positioning oneself as an advisor, it is generally seen that the business focus keeps on changing periodically from one product to other.

When we look at client needs, then most clients need these three products – mutual funds, life insurance and health insurance. Yet, when an IFA meets client for selling a life insurance product, he/she doesn’t talk generally about mutual funds or health insurance and vice versa.

Though these products are complementary, we prefer to talk about them separately unless we are actually preparing a comprehensive financial plan. But let us face it - when it comes to retail clients, it’s difficult to make them understand the importance of financial planning either because they don’t see any need for it or IFA is not prepared for it.

Anyway, plan or no plan, there is no getting away from the fact that the client does indeed require these three basic products for his financial stability - mutual funds for his future financial goals, life insurance for the financial security of his family and health insurance for protection against medical contingencies.

An effective way to sell all these three products together is packaging and bundling the features of all three products and representing them as one product. Let us say, your client’s age is 30 years and you want to sell him/her a term plan for the sum assured of Rs. 25 lakh – approx premium 10000, health insurance family floater policy of 5 lakh of risk cover – approx premium 9000 and Rs. 5000 of SIP in equity MF. Now if you individually pitch this product to client, then it could take a couple of months to sell all these three products. On the other hand, if you club all these into one, you can pitch all three in a single meeting.

In the above case, the total annual investment and premium amount which you are targeting is Rs. 79000 (premium of LI + Health Insurance + 12 MF SIP). Rather than convincing client for buying all three products individually, you can convince him to pay Rs. 79000 for which he/she would get life insurance of 25 lakh on his own life, 5 lakh of mediclaim for his/her family and wealth creation of X amount. Once the client is convinced then you can explain him in detail about how he/she would get all these benefits from the combination of three products in detail.

Before you start marketing any bundled product, you should prepare your own marketing material such as your own presentation giving a brief about the benefits of the bundled product, product note with the illustration and if possible a dynamic excel calculator to give the different permutation and combinations for different age groups.

Benefits to the IFAs for adopting this kind of strategy are many. It saves time as IFA is trying to sell all three products in one single call. It increases productivity per sales call. Instead of meeting client again and again for different product, you are able to pitch more than one product in a single call. So the time saved per client can be utilized for new client acquisition. It increases the business and earning per client for IFA.

Finally, it gives you an advantage as you are pitching your own combination of products as your client will not find any readymade product in market which matches the benefit and features of your bundled product.

Long Term Investment Only Large Cap is Good

Investing for 15-20 years will achieve best results when done through SIPs and you can hope to build a sizeable corpus for your child. Rs 2,000 every month earning an annualised 12 per cent return will accumulate Rs 10 lakh or Rs 13.5 lakh if it earns an annualised 15 per cent return. For such a long tenure you can consider investing in large-cap funds such as DSPBR Top 100 Equity or Franklin India Bluechip and large- and mid-cap funds such as HDFC Top 200 or Fidelity Equity which are all highly rated with a proven track record and performance history. Also make sure that you invest regularly and track the performance of the funds that you invest to build wealth for your child’s future needs.

Believe in SIPs For Create Wealth

Is it worthwhile to invest a lump sum amount of Rs 5 lakh in one mutual fund at this point in time? Can you recommend a single fund?

In our view investments in equity mutual funds should be done systematically and regularly through SIPs irrespective of the market conditions to benefit from averaging costs on acquisition and the power of compounding over time. Moreover, when investing in mutual funds you should have a financial goal which will determine the type of funds to invest in to achieve your goal in the time frame that you have in mind. Although it is convenient to manage investment in a single fund, it is not necessary that a good performing fund today may remain to be good forever. It is for this reason that we recommend investors to invest in a portfolio of funds to gain over market cycles to achieve their long-term financial goals.

Equity Market and fixed income Outlook

Equity markets bounced back in October on hopes of a resolution to the EU crisis and investors found valuations reasonable. Sensex rose almost 12% from the lows it touched on October 5. Markets may give back some of these gains on concerns about global and domestic macro environment. News flow from Europe would continue to drive sentiments for the time being. While higher volatility may persist for some time, investors should take advantage of it by increasing allocation to equities in a gradual manner as long term prospects remain intact.

Bond yields rose after the government increased the borrowing amount for the 2nd half last month. Markets may remain volatile but these levels should be used as an entry opportunity as medium term outlook has turned positive. Policy rates have almost peaked out and global environment is positive for the bond market. We expect RBI to absorb a part of excess government borrowing to support the reserve money creation and ease liquidity pressure. We recommend dynamic bond fund for investors with risk appetite and an investment horizon of at least up to an year. We also recommend short term fund with horizon of at least 6 months as money market and short term yield curves are attractively priced.

investing in gold ETFs or Gold Coin

It is never a bad time to invest as long as you are aware of what your investments are for. Buying gold can be in the form of gold coins if you are looking at converting the metal into jewellery. However, if you are looking at investing in gold, the option of taking the gold ETF route is a more safe and convenient. Investing in gold ETF is like investing in paper gold that invests in physical gold with 99.5 per cent purity. You can buy the gold units from the stock exchange for which you need a demat account to buy and sell the units on the stock exchange. In recent times AMCs have come up with an option of investing in a gold fund of fund, which is a passively managed fund of fund that invests in the open-ended gold ETFs of the same fund house. This structure is convenient for those who do not have a demat account and want to start a systematic investment plan in gold. Depending on your convenience and investment needs; you can consider any of the options to invest in gold.

Dividend Yield fund Performance better at good and also bad time

UTI Dividend Yield has navigated through good and bad times to emerge with impressive numbers.

The mandate demands an investment of at least 65 per cent of the portfolio in equity shares that have a high dividend yield at the time of investment. Kulkarni claims to have always been steadfast. “Almost always 70 per cent of the portfolio will be in stocks qualifying as high dividend yield,” she says. “Even at the peak of the bull run in January 2008 we were within these limits and never deviated from our mandate.”

In 2009, the results of the elections and the rally caught Kulkarni on the wrong foot. She began to seriously up the equity allocation only from June 2009 onwards. “In hindsight, I can say that we were slow in deploying cash and our cash holding was a drag on portfolio performance for a while,” she says. She also increased large-cap exposure despite mid-cap stocks performing better in 2009. In 2010, the fund was able to stay ahead of its category peers but lagged behind its dividend yield peers who were betting high on mid-cap stocks. Currently, the fund has the highest large-cap exposure among dividend yield funds. “The fund has about 30 per cent exposure to mid and small caps,” says Kulkarni. “Depending on the investment opportunities from time to time, the allocation may vary 5 per cent on either side.” The increased exposure to large caps has led the fund to move out from the ‘Multi Cap’ category into the ‘Large & Mid Cap’ category this year.

The intrinsic nature of this portfolio is to pick up good dividend yield stocks which bring support on the downside. Kulkarni look for companies which have sustainable cash flows and also at capital appreciation potential. “Analysis of future earnings prospects, competitive strengths, regulatory controls and management quality” are the other parameters applied.