Sensex (19,585.4)
Global jitters continued to take their toll on Indian stock prices and yanked the Sensex below the 20,000 mark in the first half of the week. Even as other markets stabilised towards weekend on hopes that Ireland was moving towards a bail-out, Indian stocks were subject to another round of battering on Friday, ostensibly caused by some creative rumour mongering.
The blue-eyed boys of foreign investors, India and China were the worst hit in the equity sell-off last week. Benchmarks in both the countries closed 3 per cent lower. Daily turnover in the derivative segment is reaching frenzied levels, close to Rs 2 lakh crore mark as the expiry day of the November series draws closer.
The low put-call ratio, close to 1 means that the cushion of short-covering will not be available if the correction continues. High open interest in stock futures is also another concern. FIIs took an ambivalent stance last week, buying in some sessions and selling in others.
Last week's sell-off has pulled the 10-day rate of change oscillator deep in to the oversold territory. The relative strength oscillator has also declined in to bearish zone. But there is no divergence or reversal yet in these indicators to indicate a possible reversal. There is, however, only a slight dent in the weekly chart with the weekly rate of change oscillator still above the zero line implying that the medium term trend continues to be positive.
The Sensex reversed lower from the intra-week high of 20,380 to fall to 19,504 on Friday. There is no room for doubt now that the move that began from May 25 trough is now complete. The index has already retraced one-third of this move when it hit the low of 19,504, completing the minimum retracement requirement. The movement of the Sensex over the ensuing weeks can be thus,
Upward reversal from 19,500 or 19,141 will mean that the medium-term outlook remains positive for the index. It can spend the rest of the year moving between 19,000 and 21,500 before attempting to move higher in the New Year.
The medium-term outlook will be marred on a close below 19,000. Such a move will mean that decline to 18,500 or 17,900 is possible before a rebound.
Since the Sensex spent an inordinate time struggling to get above 18,000, that is the level that long-term investors should concern themselves with.
Weekly close below this level will imply that the entire up-move from March 2009 is being corrected.
The Sensex is halting at short-term support at 19,500. Decline below this level can drag the index to 19,318 or 19,141 in the near-term. However it is likely that the index bounces in the early part of the week to 20,125, 20,315 or 20,500.
Short-term view will turn positive on a move beyond the third resistance while inability to move above the first will result in decline to 19,000.
Nifty (5,890.3)
The Nifty reversed lower from the intra-week peak of 6,144 and moved below our first medium term target.
We stay with the view that this correction can halt either at 5,872 or 5,745 and the index can spend few weeks in the sideways band between 5,800 and 6,400. The medium term view will stay positive in such a scenario.
However, we should account for a decline below 5,745 also since the index is currently nearing the lower end of its trading range.
In such a scenario, the correction could be a steep but short-lived one and decline to 5,562 or 5,378 becomes possible over the medium-term.
Since 5,300 was the major hurdle for Nifty since last October, long-term investors can stay sanguine as long as the index holds above this level.
For the week ahead, a bounce is likely in the early part of the week since Nifty is halting at an important support.
This can take the index higher to 6,045, 6,125 or 6,156.
Short-term trend will turn positive on a close above the third target, while failure to move above the first will denote short-term weakness and propensity to decline to 5,845, 5,745 or 5,659 in the days ahead.
Global equity took one more step lower in the first half of the week but the recovery towards weekend helped them recoup some of the losses.
The correction in the European and Latin American markets is not deep enough to cause worry. CBOE volatility index that spiked to 23 on Tuesday was quick to revert to 18 by the week's close implying that investors were feeling quite at ease.
The Dow recorded an intra-week trough at 10,979 on Tuesday before reversing to form a doji morning star in daily chart.
As indicated last week, the short-term trend will be seriously dented only on a close below 11,000.
However, the index is reversing down from important long-term resistance band between 11,250 and 11,450 so caution is necessary.
Resistances for the week would be at 11,220 and 11,275. Reversal from either of these levels would pull the index down towards the 11,000 mark again.
Surprisingly, many of the Asian indices such as the Nikkei, Philippines Composite and Seoul Composite closed in the green for the week.
— Lokeshwarri S.K.
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| Nifty has formed a "descending triangle" pattern suggesting correction Nifty started the week (15-19 November, 2010) on strong positive note backed by positive cues from global market. But it could not able to sustain its positive momentum and fell gradually throughout week, touched intraday low of 5,863.95 amid profit booking by FII's. Nifty crashed for the second consecutive week, led by fall almost in all sectors, shed more than 420 points in two weeks to settle below 5900.On daily chart Nifty exhibiting "descending triangle" which is bearish breakout pattern if lower trend line breaks. Nifty is currently hovering near to lower trend and expecting it to move within the triangle for some more time before it break lower trend line. Technically, the trend, which is now down, Stochastic is currently moving in oversold zone, on the brink of entering into deep oversold territory indicating profit booking. RSI is trading in neutral territory at 40 showing negative crossover. Another momentum technical indicator MACD is trading in negative zone, showing negative divergence, also indicating correction. Nifty could test its next major support around 5,840, and if Nifty breaches this level decisively, it can go down further to test 5,800 levels. On the upside, the levels of 5,960 will play major resistance and a rise above these levels can push up Nifty to 6,000 levels. Currently Nifty is trading below its 34 days exponential moving average on the daily charts, suggesting continuation of ongoing downtrend.
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Looking Forward During the week huge sell off was witnessed in Indian equity market which should be considered as a good buying opportunity. Foreign funds continue to aggressively mop up Indian shares. The appetite for Indian equities from foreign institutional investors is very high because of a good monsoon, improving fiscal situation and rising domestic consumption. Further, Fresh infusion of dollars into the US markets, by way of buying bonds, which will push up bond prices and bring down the yields, and the bond markets in India would react accordingly. Since economies like China and Singapore are at best cautious in their regulation of capital flows, India is likely to see a gush of capital flows, which is likely to push up the stock prices. Next week, buying is expected in , Healthcare FMCG, banking and Cement stocks from current levels or from lower supports of 5,850 levels of Nifty. On the global front, investors are likely to eyes on events out of Ireland and a possible China policy tightening to cool inflation.
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| US stocks were down during the week(till Thursday). Stronger than expected retail sales data boosted stocks early in the week but drop in treasury prices was one of the major reasons for sentiments to turn sour later. Meanwhile, in a strategic merger and acquisition deal the world's leading manufacturer of construction and mining equipment Caterpillar purchase Bucyrus for USD 92 per share. However, big sell off at China market sent jitters across Wall Street where traders anticipated that a rate cut to curb inflation might be in the offing. Other than that, there were economic reports that checked in mixed in nature. Though, hopes of finalization of a package for Ireland and General Motors successful IPO launch lifted markets sentiments, markets were still lower as compared to last week. Next week US third quarter GDP data along with the highly anticipated minutes of the US Federal Reserve's November policy meeting will likely steal most of the market's attention. Asian stocks ended mixed during the week. Investors were cautious early in the week over the prospect of further interest rate hikes in China. Broad based selling pressure further gathered pace in middle of the week as investors dumping large cap banks and energy issues amid concerns over more official steps to cool a liquidity-driven asset price rally. However, Japan's Nikkei 225 jumped to a five-month closing high above the closely watched 10,000 level as a fall in the yen against the dollar drew strong inflows from foreign and domestic investors. Though, markets tried to regain strength later in the week on the back of bargain-hunting following sessions of losses and some positive cues from world markets, talk of an interest rate hike in China prompted selling in the region. Next week, markets be subdued and will cautiously watch the Fed policy meeting while on economic front Japan's Trade Balance data is due next week. European stocks lower during the week. Markets started the week on a firm note as Eurozone's trade balance turned to surplus in September overshadowing euro zone debt worries and a rebound in commodity prices helped buoy mining and energy shares. However, growing tensions about Europe's debt problems and expectations of tighter credit in China weighed on investor sentiment. But, EU and IMF decision on Ireland debt problem to launch an urgent mission to Dublin to finalise emergency support for Ireland's devastated banking sector lifted markets sentiments. Further, the macro economic data scheduled to release next week along with the GDP data of UK will provide direction to the markets. | Weekly return on major Global Indices Data of US and European markets taken from Nov 04 to Nov 11, 2010 Data of Asian markets taken from Nov 05 to Nov 12, 2010 Weekly Change in the Composites of S&P 500
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| Open Interest in Nifty Future vis-Ã -vis Nifty  Most Active Contracts  Put-Call Ratio  Volatility Index  FIIs Cumulative trailing 5 day's data
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FIIs & MFs investment in Debt Market
Bond Yield (7.80% CG 2020)
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GoI borrowing Program - 2010-11
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Government borrowing calendar (Next four auctions)
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Inventories(Weekly Change)
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| Rupee fell during the week against USD on losses in domestic share market amid profit-taking by foreign funds ahead of the year-end. Further, weak Asian markets and dollar demand from oil importers also weighed on sentiment. However, later in the week Rupee pared some losses on speculation that Ireland will receive international aid, helping to prevent contagion from spreading. We expect the rupee is in a consolidation mode and likely to take support from 45.20 to 45.50 level against USD. Traders are looking cautious ahead of any new developments in Ireland and China rate hike.
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Reliance Industries (Rs 996.8)
Prolonging its correction, the stock tumbled 6 per cent last week. This fall has conclusively breached both its 50- and 200-day moving averages at Rs 1,045 and Rs 1,035 respectively, which were important supports. RIL is testing its next key support band between Rs 990 and Rs 1,000 from which it had rebounded many times in the past. A rebound from this support can lift the stock higher to Rs 1,035 and then Rs 1,050. However, this move could be a corrective up move as long as the stock trades below Rs 1,080. Key resistance above Rs 1,080 is Rs 1,100. But a conclusive break through of Rs 990 will accelerate the stock's short-term downtrend and it can reach Rs 950 and then Rs 925 in the near-term. Hence, short-term traders should tread with caution and initiate fresh short positions only if the stock breaches Rs 990 with stop-loss at Rs 1,000.
The stock's intermediate-term trend is sideways in the broad range between Rs 900 and Rs 1,200.
State Bank of India (Rs 2,991.8)
After bouncing higher on Monday, the stock reversed subsequently from around Rs 3,150, in line with our expectation. The stock slipped 1.3 per cent last week. It is hovering well below its 21- and 50-day moving average. The stock's daily indicators and oscillators have entered bearish territory. Since its life-time high of Rs 3,515, the stock has been on a short-term down trend.
Short-term traders can prolong holding their short positions with stop-loss at Rs 3,070. The downside target is Rs 2,890. The next key support below this level is at the Rs 2,730- 2,750 range. Short-term resistances for the stock are at Rs 3,150 and Rs 3,200.
In the medium-term, the downward targets for the stock are Rs 2,730 and then Rs 2,500. Thus investors with a medium-term perspective can take the profits off the table in rallies.
Tata Steel (Rs 605.3)
The stock was volatile and moved sideways in the zone between Rs 595 and Rs 626 during the week and closed almost unchanged. The stock continues to be in a short-term downtrend. We reiterate that traders can initiate fresh short-position while maintaining stop-loss at Rs 625. Short-term downside target is Rs 580. Strong close below Rs 570 will drag the stock lower to Rs 550 or Rs 538 in the weeks ahead. Medium-term support for the stock is at Rs 450.
For a favourable bullish outlook, an emphatic move above Rs 650 is required. Significant resistance above this level is pegged at Rs 700.
Infosys Technologies (Rs 2,966.4)
The stock fell by Rs 32 last week and is conclusively trading below its 21- and 50-day moving averages. The stock has been on a short-term downtrend from its October peak of Rs 3,249. It achieved our first target of Rs 2,944 on November 16. However, the stock is testing support around Rs 2,950 levels.
Traders can initiate fresh short position if the stock declines below this support level with stop-loss at Rs 2,985. Downside targets for the stock are Rs 2,920 and Rs 2,885.
On the other hand, a bounce from Rs 2,950 will lead to sideways consolidation in the range between Rs 2,950 and Rs 3,060. Key resistance above this level is at Rs 3,105. — Yoganand D
Unitech (Rs 67.9)
Unitech nose-dived 16 per cent, emphatically penetrating its 200-day moving average around Rs 80 and key intermediate-term support at Rs 75. The stock has completely retraced its previous up move that commenced from May low of Rs 65 that ended at the resistance at Rs 98 in early October. Since then, the stock is on a medium-term downtrend that accelerated on November 11.
Following a sharp fall, the stock is currently testing significant long-term support band between Rs 65 and Rs 68. A reversal from this support band will lift the stock higher to Rs 73 and then to Rs 77. Inability to move above Rs 73 will signal resumption of the medium-term downtrend that can make the stock decline below Rs 65 in the medium-term. Strong fall below Rs 65 will pull Unitech lower to Rs 60 and then to Rs 50.
RCom (Rs 148.4)
The stock plummeted 12.6 per cent as investors turned nervous about the 2G spectrum scam. Since June 2009 peak of Rs 359, the stock has been on an intermediate-term downtrend. Moreover, its long as well as short-term trends are also down. It is trading well below its 50 and 200-day moving averages. On Friday, the stock tumbled 3.5 per cent decisively breaking through the intermediate-term support level at Rs 155.
The stock's downtrend can prolong until it reaches the long-term support at Rs 131 (March 2009 and May 2010 trough) in the weeks ahead. Fall below this support will result in the stock recording life-time lows. Keys resistance for the stock are at Rs 155 and Rs 170. — Yoganand D.
| Nifty has formed a "descending triangle" pattern suggesting correction | |
 | Nifty started the week (15-19 November, 2010) on strong positive note backed by positive cues from global market. But it could not able to sustain its positive momentum and fell gradually throughout week, touched intraday low of 5,863.95 amid profit booking by FII's. Nifty crashed for the second consecutive week, led by fall almost in all sectors, shed more than 420 points in two weeks to settle below 5900.On daily chart Nifty exhibiting "descending triangle" which is bearish breakout pattern if lower trend line breaks. Nifty is currently hovering near to lower trend and expecting it to move within the triangle for some more time before it break lower trend line. Technically, the trend, which is now down, Stochastic is currently moving in oversold zone, on the brink of entering into deep oversold territory indicating profit booking. RSI is trading in neutral territory at 40 showing negative crossover. Another momentum technical indicator MACD is trading in negative zone, showing negative divergence, also indicating correction. Nifty could test its next major support around 5,840, and if Nifty breaches this level decisively, it can go down further to test 5,800 levels. On the upside, the levels of 5,960 will play major resistance and a rise above these levels can push up Nifty to 6,000 levels. Currently Nifty is trading below its 34 days exponential moving average on the daily charts, suggesting continuation of ongoing downtrend. Technical Pick 1. Educomp: Buy 2. Gitanjali Gems: Buy 3. Punj lloyd: Sell 4. On mobile Global: Sell |
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| Catch the dips as a buying opportunity | |
 | During the week heavy sell off was witnessed in Indian equity market which should be considered as a good buying opportunity. Foreign funds continue to aggressively mop up Indian shares. The appetite for Indian equities from foreign institutional investors is very high because of a good monsoon, improving fiscal situation and rising domestic consumption. Further, Fresh infusion of dollars into the US markets, by way of buying bonds, which will push up bond prices and bring down the yields, and the bond markets in India would react accordingly. Since economies like China and Singapore are at best cautious in their regulation of capital flows, India is likely to see a gush of capital flows, which is likely to push up the stock prices. On the global front, investors are likely to eyes on events out of Ireland and a possible China policy tightening to cool inflation. Fundamental Pick 1.Ahluwaila Contracts (India) Ltd. Buy 2. Unichem Laboratories Ltd. Buy |
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| Global markets will closely eye on US Federal Reserve"s November policy meeting | |
 | Global markets were mixed during the week. Markets started the week on a subdued note after some mixed macro economic data but big sell off at China market sent jitters across the markets where traders anticipated that a rate cut to curb inflation might be in the offing. Further, sentiments were worsen over the anxiety about the outcome of Ireland"s debt crisis. However, later markets gain momentum after the debt-ridden nation reportedly agreed to work jointly with European Union officials and the International Monetary Fund towards a solution. General Motors successful IPO launch and better economic data also supported the markets. Moreover, looking ahead markets are likely to be firm after Europe and the International Monetary Fund have announced the launch of an urgent mission to Dublin to finalise emergency support for Ireland"s devastated banking sector. Further, US Federal Reserve"s November policy meeting would attract most of the market"s attention. Though on economic front, along with a spate of economic indicators from around the world, GDP data of US and UK is due to come which will provide further direction to the markets. |
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| Call rates are likely to be driven by RBI"s move to infuse liquidity | |
 | In near term, call rates are expected to remain flat with negative biasness as central bank was looking at additional ways to ease the liquidity crunch such as rescheduling or restructuring bond auctions and open market purchases of bonds. Further, there is no auction due in the coming week which will provide some support to call rates. |
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| Crude oil prices likely to pick up, gold prices may stay flat with positive bias | |
 | Following the heavy drop in the crude oil prices during this week, it can be expected that prices may pick up in the coming week on speculation that Ireland will accept a European Union-led financial bailout, therefore reducing concern regarding region's debt crisis. This will further help increase investors appetite for riskier assets and commodities, thereby pushing crude prices higher. Gold prices are likely to stay flat with a positive bias in the coming week. Irish debt woes are likely to spur demand for protection of wealth. But, he Ireland bailout speculations may make the investors shift to the riskier assets, thereby keeping gold prices flat. |
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Unitech (Rs 67.9)
Unitech nose-dived 16 per cent, emphatically penetrating its 200-day moving average around Rs 80 and key intermediate-term support at Rs 75. The stock has completely retraced its previous up move that commenced from May low of Rs 65 that ended at the resistance at Rs 98 in early October. Since then, the stock is on a medium-term downtrend that accelerated on November 11.
Following a sharp fall, the stock is currently testing significant long-term support band between Rs 65 and Rs 68. A reversal from this support band will lift the stock higher to Rs 73 and then to Rs 77. Inability to move above Rs 73 will signal resumption of the medium-term downtrend that can make the stock decline below Rs 65 in the medium-term. Strong fall below Rs 65 will pull Unitech lower to Rs 60 and then to Rs 50.
RCom (Rs 148.4)
The stock plummeted 12.6 per cent as investors turned nervous about the 2G spectrum scam. Since June 2009 peak of Rs 359, the stock has been on an intermediate-term downtrend. Moreover, its long as well as short-term trends are also down. It is trading well below its 50 and 200-day moving averages. On Friday, the stock tumbled 3.5 per cent decisively breaking through the intermediate-term support level at Rs 155.
The stock's downtrend can prolong until it reaches the long-term support at Rs 131 (March 2009 and May 2010 trough) in the weeks ahead. Fall below this support will result in the stock recording life-time lows. Keys resistance for the stock are at Rs 155 and Rs 170. — Yoganand D.
| Reason: Profits expand 3% versus asset growth of 40% in March 2008-2010. |
M.V.S. Santosh Kumar
BL Research Bureau
The stock market is assigning a much lower value to India Inc's assets today than it did two years ago.
India Inc has managed to expand the 'book value' of its assets (net assets on companies' books at cost) by nearly 40 per cent between March 2008 and March 2010. Not without some justification, it would seem.
Corporate profits during this period increased only 3 per cent. Consequently, the 'Price-to-Book Value' ratio — a parameter that stock markets have historically tracked — is much lower than in January 2008 when share prices were at about the same level as now.
The current Price-to-Book Ratio for the CNX 500 index is at 3.55 times compared to 6.28 times at the earlier market peak. Stocks look much more expensive when measured by the criterion of price-to-earnings ratio.
The key implication of this is that the assets that India Inc has added in the past two years may yet pay off in the form of higher profits over the next few years.
Fixed assets drive growth
The analysis shows that the expansion in the book value for the non-banking companies in the CNX 500 came mainly from additions to fixed assets that grew 45.5 per cent between 2008 and now. Capital work-in-progress, which shows the funds locked up in ongoing expansion projects, has soared 46.5 per cent since March 2008.
Understandably, it is companies that have tapped the market for fresh equity over the last couple of years that have seen a significant jump in their net worth or book value. Adani Enterprises, Unitech and Sesa Goa are some examples of this trend.
Companies where investments involve long gestation periods such as in infrastructure, especially power sector, and a few real estate outfits have all seen rise in capital work-in-progress.
Part of the increase in the book value has also come from swelling cash balances that have grown 36 per cent in the past two years. Sesa Goa, Hero Honda, GlaxoSmithKline Pharma are some companies whose cash balances improved more than 90 per cent during the two-year period — an indication perhaps of the paucity of viable projects on hand.
Investments of companies (at cost), including that in associate companies as also other quoted and unquoted investments, grew at 26 per cent with the majority of the investments made during 2009-10.
Lokeshwarri S.K
Investors constantly look to the flow of overseas money to gauge the movement of stock prices. The Indian equity market is reported to have received over $28 billion of such flows so far this year; lifting the benchmark Sensex above 21,000. This figure surpasses the previous yearly record of $17.7 billion in 2007.
Though the inflow thus far is awe-inspiring, the above reported figure of $28 billion understates the actual FII inflow into the country. This fact is borne out by the recent public issue by Coal India. If the entire FII subscription in this issue is taken into account, inflows into the country this year will be more than $50 billion.
The data that everyone in India tracks to estimate FII investments is sourced from the market regulator SEBI that, in turn, collates the data submitted by the custodians on the primary and secondary market transactions of these investors. The lacuna in this data is that it captures FII transactions only when stocks are bought and sold, not when funds enter or leave the country. FII transactions in the derivative segment are also outside the ambit of this data.
Excess funds after IPO subscription
FIIs bid for about $27 billion worth of shares in Coal India's offer between October 18 and 21. They were allotted shares worth only around $1.1 billion and SEBI's data on FII inflows includes only this amount. In other words, about $26 billion of inflows is not captured in the popularly watched data. If we assume that FIIs brought in fresh funds to invest in this IPO, the year to date net inflow rises to about $54 billion. A better understanding of FII flows in and out of the country can be gained by the International Investment Position (IIP) report, published by RBI every quarter. This report shows FII funds held by custodian banks as portfolio investments at the end of every quarter. Since this report captures the money as it enters and leaves the country, the Coal India oversubscription, to the extent still lying in FII accounts, will be reflected in this report.
However, this report is published with a lag of one quarter. The inflow and outflow in the last quarter of this calendar will be made available only on March 31, 2011. According to this report, FII investment with custodians at the end of June 2010 was $110 billion while FII investment in stocks, according to SEBI, was $79.5 billion. FII portfolio investments, according to the RBI, are always higher than that shown by SEBI since it also accounts for derivative margins. Again, idle un-invested funds and profits booked and not re-invested are reflected only in RBI data. Some of the $27-billion subscription could have been funded by cash already held in these accounts. But major portion of the subscription amount appears to be fresh money that was brought in. The rupee breaching the 48 mark against the dollar and the RBI's intervention in the forex market while the Coal India issue was in progress, are signs of this.
The inflows in the first six months of this year, according to the IIP report, were $16.7 billion. If we add the inflows between July and September and the Coal India subscription, the actual inflow this year could easily have crossed $50 billion.
Where will the inflows go?
The confidence with which Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia, said that India can handle capital inflows even up to $55-75 billion this year without having to let the rupee appreciate can be better understood when the above figures are taken into account. The previous record for annual inflows, as per the IIP report, was in 2007, when Indian equities received $43.6 billion. The moot question is whether the oversubscription is likely to be reinvested in Indian stocks or if it will exit the country. Given the relatively stronger growth prospects of Indian stocks and stability in the economy, it is likely that overseas investors would not be in a rush to take their money out. They could, instead, wait for a decent correction that takes valuations to a more acceptable level and plough it back into stocks.
The risk to this fairy-tale ending stems from the fact that much of the recent inflows could be leveraged. If another credit crisis, akin to that after the Lehman debacle, emerges, freezing the credit market and leading to forced deleveraging, that would lead to an exodus of these funds with a seriously detrimental effect on stock prices. We will, of course, have to wait another four months to get a true picture of the drama currently unfolding.
| Applying for MF units. |
Filling up the bank details in the form is mandatory while applying for units in a mutual fund.
However, there could be a change in bank details as an investor's bank may have installed core-banking solutions.
In addition, banks have an IFSC code which could be updated in the folios to facilitate electronic credit. We discuss these issues in this article.
What is core banking?
Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and conduct simple transactions from any of the member branch offices.
Most banks use core banking applications to support their operations where CORE stands for "Centralised Online Real-time Exchange". It allows customers to operate accounts from any branch if it has installed core banking solutions. The account number of investors whose bank has installed core banking solutions may undergo a change and this should be updated in the folio.
How can I update my new Account Number in my folio?
In general, investors should send a written request duly signed by the unit holder(s) along with a cancelled cheque leaf reflecting the investor account number and name.
What is IFSC code and how does it help?
IFSC or Indian Financial System Code is the electronic address of the bank branch to which funds have to be transferred.
It is an alpha-numeric code containing 11 characters, allotted by RBI to uniquely identify bank-branches in India.
Investors who have registered their IFSC codes in their folios will be eligible to register for and get electronic payouts through NEFT / RTGS.
What are NEFT, RTGS?
National Electronic Funds Transfer (NEFT) is a nation-wide electronic funds transfer system to move funds from a bank branch in any part of country to any other bank branch.
This service is used mainly to transfer funds below Rs 1,00,000. Settlement is done in batches throughout the day.
Real Time Gross Settlement (RTGS) is also an electronic funds transfer system. However in RTGS, funds are transferred instantaneously. RTGS is used for payments of amounts greater than Rs 1,00,000.
What is the benefit of receiving payment through electronic mode?
Many Mutual Funds encourage investors to register for electronic credit of dividends and redemption. The benefits are many.
Speed: Payment would be credited directly to the registered bank account eliminating the physical instrument delivery and realization process completely.
Definite Delivery: An electronic credit would mean no more cheques/DDs returned undelivered by the courier for various reasons.
Lower Cost: This will lower Demand Drafts and courier expenses to the Fund ultimately leading to lower costs deducted from the NAV!
How can I know my IFSC Code and register the same in my folio?
The cheque leaf usually contains the IFSC Code.
In general, investors may send a simple letter, duly signed by the unit holder(s) requesting the mutual fund to update the IFSC Code in their folios and register them for electronic payouts.
A cancelled cheque leaf showing the IFSC code should be attached with the letter.
B. Venkatesh
Readers of this column would know that we prefer significant exposure to index funds. We have discussed in the past why such funds should form part of a core portfolio. Yet, many continue to believe that exposure to index funds are sub-optimal.
This article shows why index funds are behaviourally optimal. Specifically, it discusses how index funds moderate certain biases that investors suffer from. This and the cheap beta exposure offered by index funds make them an important part of the core portfolio.
Loss and regret biases
Psychology plays an important role in the investment process — during portfolio construction and at the time of rebalancing.
Consider this. Suppose an investor buys an active fund benchmarked to the Nifty Index. If the fund outperforms the index by 5 percentage points on a risk-adjusted basis, the investor would be happy with her choice. The investor would be, however, unhappy if the fund underperforms the index by 5 percentage points.
The fact is that the investor's unhappiness from the five percentage point underperformance is likely to be more than her happiness from five percentage point outperformance. This is because the pain due to losses is more than the pleasure from gains. Exposure to index funds moderates this bias. How?
The pain of loss or pleasure of gain is typically relative. The investor will no doubt feel the pain if her portfolio losses 10 per cent in value.
But her pain will be even more if her portfolio underperforms the market by 5 percentage points. In other words, performance relative to the market benchmark is important. And index funds moderate this pain by mirroring the market return.
This is not all. The feeling of regret of investing in equity is lower during market downturns if the investor has exposure to index funds than to active funds. The reason is that choosing an active fund requires an active decision by the investor. And with active decision comes the responsibility of choice. A bad choice leads to higher regret.
Risk psychology
Exposure to index funds also impacts risk psychology. Investors often tell us that active funds are better, as the market has managers with superior skills. We agree. What we wish to reiterate is that such superior managers are not easy to find.
The reason is that fund performance cannot be an indicator for a manager's skill, as outperformance can be due to good luck and underperformance can be due to bad luck. And the problem is that good or back luck can persist for a longer time than investors can be solvent!
Suppose investors choose an active fund purely on past performance. The superior past performance could prompt the investor to undervalue the risks associated with the investment. This is because the fund manager's past performance prompts the investor to make unrealistic expectations. But the fund could underperform the next year even if the fund manager possesses superior skills. And underperformance, in turn, leads to regret.
Investors' perception of risk is not so skewed when it comes to market expectations. That is, investors realise that markets cannot continually climb up. This translates into more realistic expectations from the market than from the active managers.
In other words, investors do expect asset prices to reverse direction, but do not expect outperforming managers to turn underperformers. And since index funds merely tail the market, the returns expectations from passive funds will be more measured. Realistic risk perception also helps in effective asset allocation.
Conclusion
Our objective was to show why passive exposure is optimal. Readers may also recall from our earlier discussion that index funds also offer cheap market exposure, making it an important part of equity core portfolio. We wish to emphasise that an optimal portfolio should contain both active and passive exposure to the market. Index funds are important. So is alpha return.
DEJARGONISER
A fund's benchmark serves as a reference point to evaluate the performance of a fund manager in delivering returns.
Rajalakshmi Sivam
Once you have made investments in mutual funds, it is only prudent that you keep track of their performance. The fact sheet that you ponder over to know the returns of your fund also gives the benchmark's return for the period. What are these 'benchmarks'?
A fund's benchmark is its comparable set. It serves as a reference to evaluate the performance of a fund manager in delivering returns. In absolute terms, the return does not make any sense. Sample this:
DSPBR Top 100 Equity fund delivered an eight per cent return over the last three years.
Now, how does an investor interpret this? Has the fund managed a better-than-market return or is it a disappointing performance? Here, a comparison is needed to weigh the fund's performance. The benchmark universe for the above fund is the BSE 100 index. This index has delivered 3 per cent CAGR over three years. Very clearly, the fund has delivered an outstanding performance.
Choosing a benchmark
When comparing the performance of one fund against another, it will be incorrect to compare their returns if their portfolios are structured differently. Holding a balanced fund with exposure to debt, one can't grumble that the fund didn't match up to the mark of an equity-focussed fund or a benchmark like Sensex. So, while choosing a benchmark for comparison, one has to pick a relevant universe.
Fund houses normally specify the benchmark index in the fact-sheet. In cases where it is not specified or where you aren't comfortable with the fund's choice, you can choose one from the established indices in the market. CRISIL, a leading rating agency, has standard indices for fixed income and hybrid (debt and equity mix) funds. CRISIL Balanced Fund index (represents S&P CNX Nifty — 65 per cent and CRISIL Composite Bond Index — 35 per cent) for example, is used as benchmarks to compare returns of equity-oriented balanced funds. For diversified equity funds, which invest in a mix of large and mid-cap stocks, one can pick up broader market indices such as the BSE 500 or CNX 500.
Fund managers who work on broader equity market themes generally benchmark themselves against the Sensex or Nifty (or the other S&P CNX equity indices). Those with a unique investment theme, however, construct their own benchmarks with a combination of indices. To rightly assess a fund's performance, an investor needs to understand the structure and composition of benchmarks too.
Outgrowing the benchmark
Every fund has a mandate to adhere to. Taking leeway within the defined limits for equity and debt exposure or within limits set for mid-cap and small-cap exposure, fund managers churn their portfolios to outdo their benchmarks. In such circumstances, sometimes, the benchmark becomes an inappropriate universe for comparison.
For example, a balanced fund with a mandate to have a minimum 65 per cent equity exposure with the balance in debt can choose CRISIL Balanced Fund index as a benchmark. But over a period when the equity-debt proportion of the fund goes to 80:20, the returns will be in sharp contrast to the benchmark.
Outdoing the benchmark
Well, if you ask, ''Should I be happy if my fund meets the benchmark return?'' The answer lies in whether the fund is actively managed or not. For a fund that is actively managed by the fund manager, beating the benchmark is the minimum criteria. An actively managed fund comes at a higher fund management fee and looks to actively churn the portfolio to achieve a return higher than the benchmark. The additional fee is for the fund manager's promise to deliver superior returns to the benchmark. A sustained underperformance of the fund here calls for a re-look at the choice of funds.
However, keeping up with benchmark is good enough in case of a 'passively' managed fund, which
duplicates an index, that is, invests in the same constituents of the benchmark index in exactly the same proportion. In other words, tries to mirror the returns of the benchmark. . . While choosing an index fund, look for funds that have relatively low tracking.
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| *LTP stands for Last Traded Price as on Friday, November 19, 2010 4:04:31 PM | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#1R1 stands for Resistance level 1 @1S1 stands for Support level 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| #2R2 stands for Resistance level 2 @2S2 stands for Support level 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#3R3 stands for Resistance level 3 @3S3 stands for Support level 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The levels given above are with respect to previous closing price on the NSE / BSE. |
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