Prajna Capital - An Investment Guide

HDFC Life is likely to be the first private sector insurer to come out with initial public offer with the company saying that it will bring its maiden share sale offer after June 2011. HDFC Life is the only company in the insurance sector to complete 10 years in operation, the minimum condition required for IPO. We want to improve our margins to get better valuations when we go public. We expect our profitability to improve in the next six months and then come up with an IPO in second half of next year, HDFC Life MD and CEO Amitabh Chaudhry said. The IPO guidelines of SEBI require a three-years track record of profit for a company to float a public issue.HDFC Standard Life has recently been rebranded as HDFC Life. Chaudhry said the life insurance joint venture partner of HDFC UK's Standard Life is waiting for Parliament approval for amendment in Insurance Act to up its stake to 49 per cent from the 26 per cent at present. The amendment Bill, which would allow foreign inv...

Fund manager's contrarian calls give ICICI Prudential Infrastructure an edge over its peers Launched in 2005, it showed promise the very next year followed by a great back-to-back performance. To trounce the competition in 2007 and restrict its fall in 2008 is an extraordinary feat.   Naren's calls have worked in his favour, mostly. In 2007, it was Metals that clinched the deal for him. As he says: "We captured the run in utilities and got out at the right time." In 2008, it was his conservative stance of cash and debt allocations, bets on the Nifty, derivatives exposure and an overall large-cap equity tilt that saw the fund through. Neither does he leverage his derivatives exposure by investing in equity, instead the surplus cash (balance amount after making the margin payment) is deployed in debt. Come 2009, the fund slipped in rankings because Naren continued with his cautious stance. In the initial leg of the rally (March 9 to May 31, 2009), it delivered a m...

Franklin India Bluechip delivers superior returns without taking undue risk An excellent pick for investors who want to beat the Sensex over the long term without taking undue risk. By and large, this fund delivers returns superior to the category average and occasionally astounds, catapulting it to the top slot. Fund manager Anand Radhakrishnan does not follow the crowd or play the momentum game, and is relentlessly focused on long-term value. During the 2008 downturn, his cash exposure averaged just 5 per cent. So periods of relative under performance will come with the territory but are not a reflection of the fund's character.   In 2007, the fund's sector bets backfired as it stayed away from Metals, Power and Real Estate. "We are bottom up investors, so the sectoral exposures reflect our fundamental analysis over market cycles, rather than top-down views. In 2007, valuations along with ballooning subsidy burden made us uncomfortable about PSU oil companies. Wi...

Since July 2008, when new fund managers under Canara Robeco took over, Canara Robeco Balanced has been transformed into a stable and conservative offering This fund has a long and complicated history. It is the product of three balanced funds and two asset management companies - Canbank Mutual Fund (now Canara Robeco) and GIC Mutual Fund. In 2008, the fund was merged with Canara Robeco Balance II and the final entity has been named Canara Robeco Balanced . Due to the lack of continuity in management, it's tough to nail down this one's style. Also, since December 2007 there have been three fund manager changes with the current one taking over in July 2008, when Robeco took a stake in the AMC.   Historically, the fund has been a bit too bold. A 41 per cent allocation to just one sector, or a 20 per cent allocation to one single stock are two instances. Yet there have been times when the fund has moved to the other end of the spectrum.   There have been periods when the eq...

Banks propose closing accounts with insufficient balance You may need to be extra careful while writing cheques in future. Bank regulator Reserve Bank of India ( RBI ) as well as banks are becoming more strict about individuals issuing cheques. Very often, individuals sign cheques irrespective of the balance in their savings account, to keep away from the creditors. Or, for electronic clearing services or auto debit bill payments or investments, if they do not have sufficient balance. Insufficient balance The State Bank of India (SBI) plans to close the savings account if cheques are issued without sufficient funds in the account. "If four consecutive cheques bounce due to unavailability of funds, we may close your savings account," confirms a senior SBI official. This move will act as a deterrent for account holders, who will be more careful when transacting through cheques, he adds. Private sector banks may soon follow suit. "We deal with cheque bounces on a...

High returns, low risk and a diversified portfolio make this a worthy fund   This one's a winner. If compared with the benchmark, it has just one year of underperformance (2003) in seven years. From a relative point of view, it began to beat the category average only from 2006, a result of Patil taking over the fund in November 2005. In 2009, it delivered 90.45 per cent (category average: 80.29%). Patil puts it down to many factors. "We got into good quality stocks at distressed valuations. We bought into certain stocks when the de-leveraging story began to play out and firms were able to raise money as liquidity eased. Prior to elections, we reduced cash and took a call that Infrastructure is one sector that will get a thrust, irrespective of who is at the Centre. We are diversified across sectors, and when the market picked, all moved up," he says. Its performance has not gone unnoticed. As assets under management (AUM) swelled, the outcome has been a more diversi...

The penalty for late filing is actually not much. But it is important that the details are all there and without error Now a day, I get lot of queries on this. So we have made an attempt to bring all those in the post As we all know, the last date for filing the tax return is July 31. What if you were unable to file your return in time? Even then, there is no cause to panic — this year, though July 31 was the due date, one can still file ones return till March 31, 2012. What is important is not this due date of July 31 but the fact that the return should be filed with accurate information, where neither the income is inadvertently under-reported nor any expense or deduction overlooked due to lack of time. If any tax is due, the tax payer should arrange this without delay; the return can then be filed in due course. In terms of repercussions, an interest of one per cent per month will be levied on any tax due. Also, the tax official has the option of imposing a penalty of ' 5,0...

Why this large-cap fund deserves being core of an equity portfolio   With a large-cap bent, this fund can be core holding. Apart from 2005 and 2009, the fund has outperformed its category every year and has build up a decent track record with a 5-year annualised return of 22 per cent (January 31, 2010), a tad higher than the category average of 20 per cent.   When Inamdar joined in June 2007 he made some notable changes in the portfolio. He moved up the exposure to Energy from 9.43 per cent in May to as high as 28 per cent in October and added stocks like Gujarat N R E Coke , NTPC and Cairn India along with Diversified sector stocks like Grasim Industries and Aditya Birla Nuvo , Sintex Industries . The weightage to Metals doubled from 5.61 per cent in October to 10.17 per cent in January 2008 while Technology and Chemicals dropped. The result was a performance of 67 per cent in 2007, ahead of the category average by 15 per cent margin.   When the market tanked in 2008, the...

HDFC Index Sensex Plus is passively-managed fund which invest 80-90 per cent of the portfolio in Sensex stocks If you want to play it safe by being contented with the returns of the Sensex, and a little upside, then this one is for you.   The fund's strategy is to passively manage around 80-90 per cent of the portfolio which will be allocated to Sensex stocks in nearly the same proportion as that of the index. The balance 10 to 20 per cent will be actively managed enabling the fund manager to pick stocks that have the potential to outperform the Sensex.   Ever since inception, on an average, 82 per cent of the portfolio has been allocated to the 30 stocks of the Sensex. However, the actual allocation has ranged between 67 per cent and 100 per cent of the portfolio. And within the Sensex allocation, the fund manager uses his discretion. For instance, in 2009, the fund had an average exposure of 15 per cent to the Energy sector while that of the Sensex was 25 per cent. Curren...

ICICI Prudential Discovery stays with the category average in downturns & rewards long-term investors's   Last year this fund, surprisingly, was one of the best performing equity funds. So why are we surprised? Because its value-based approach has historically been a letdown during bull runs. In fact, 2007 was a black eye in the fund's performance history. "From mid-2006, the infrastructure boom picked up," says fund manager Naren. "I ran the infrastructure fund the way it was to be run and this value fund according to its theme. At that time growth stocks were booming, not value." Barring FMCG and Healthcare, rarely did a sector account for more than 10 per cent of the fund's portfolio in 2007.   This time around, it was the re-rating of stocks in the small- and mid-cap space that led to his value picks playing out superbly. Launched in July 2004, the fund was more of a multi-cap player till 2006. From 2007 onwards, it resembled a mid- and sm...

Birla Sun Life 95 has been a long-term performer for the past 14 years, underperforming peers only thrice during this period Over the past 14 years, this fund has underperformed its peers in just three. From 1997 right till 1999, it had a fabulous run. Since then, it has evolved into a middle-of-the-road performer that rewards investors who hang in for the long term. Its 5-year annualized return of 21 per cent (category average: 16%) as on July 31, 2010, bears testimony to that.   Last year, the fund once again had that sporadic bout of brilliance. It delivered 70.20 per cent while the category average was just 61 per cent. The bias towards mid-cap stocks clearly worked in its favour. Till 2002, the fund tilted more towards large caps but when the rally started in 2003, it changed tack and gave in to smaller fare. Having said that, the fund has been flexible in moving across capitalisation as per the market conditions. It had an allocation of around 70 per cent to mid and small c...

   The Federal Reserve's second round of quantitative easing of USD 600 billion to support the struggling US economy was announced. This announcement by the Fed is almost in line with market expectations. The Fed announced it will buy treasury bonds of around USD 75 billion per month for the next eight months to increase money supply in the system as part of this quantitative easing.    This increase in money supply by increasing the excess reserves of the banking system is expected to keep the interest rates very low, and stimulate the borrowing and spending activities in the economy. Need for quantitative easing     The US economy has come out of the 2008-09 recession but the economic growth rate has been very slow over the last few quarters. This is evident from various economic data points released month over month. On the other hand, new job creations are also very slow which is evident from the high jobless rate (hovering around 10 percent).    Economists believe there a...

The right sectoral calls have helped this fund's performance in recent years   As the name implies, the fund has accomplished what it stated it would do. And in the bargain, has made money for its investors.   Launched in July 2005, it got off to a weak start. It delivered a meagre 11 per cent in 2006, underperforming both, its category and benchmark by huge margins. One of the reasons being the high allocation to mid cap stocks when it was large caps that rallied that year. Coupled with sector picks that went wrong, such as being overweight on Auto (BSE Auto was among the worst performing indices that year).   Come 2007, the fund began to make up for lost ground. Upadhyaya took over in March 2007 and since then the fund's performance has been more than impressive. Over the 3- year period ended February 28, 2010, it was the best performing fund in its category with an annualised return of 20.01 per cent, double than that of its benchmark (10.30%) and category average (...

Flash In The Pan: You must have read about stocks hitting the upper circuit of 10% or 20% in a day in the stock market. But you may have seldom heard about mutual fund schemes doing the same. In fact, if it does, you should be worried, not the other way around. A mutual fund scheme's portfolio comprises various stocks, ideally reputed companies with longterm track records. These stocks are unlikely to hit the upper or lower circuit, unless something extraordinary has happened to the company. Mutual funds are meant to deliver over a long period of time, and not overnight. To make the best of the investments in mutual funds, its is better to invest in a diversified equity fund with a good long-term track record. A classic example is HDFC Equity Fund that has multiplied the initial investments 30 times over the past 16 years since its inception. This must be seen in the light of approximately five times growth in S& P CNX Nifty over the same period of time. Thematic funds may, in ...

With home loan lending rates easing out, many borrowers are considering home refinance as an option to minimise their liability    Home loan borrowers have always been concerned about their financial outflow while repaying debts. With interest rates easing out in the recent past, many borrowers are considering home refinance as an option to reduce this burden. So what is home refinance and how can you capitalise from it? Understanding refinancing.     Refinancing in simple terms means replacing your existing loan, with a new one, under fresh terms and conditions. So when you talk of home loan refinance, you will be repaying your existing home loan before its final tenure, with a new loan possessing different terms.    A home refinance option could prove to be beneficial for many borrowers. However, it is important to understand its procedure and the various costs that are associated with it before considering the option.    Whether it's for personal requirements or chang...

   THE very mention of financial products invokes yawns from most people. This category is the least engaging and most, given a choice, would put off wading through boring information and tables to the last minute. If it's insurance, there is even more gobble-degook, which means that most would want to get over with it, in the least possible time.    Now, insurance is a security net that once creates for oneself and the family. Most people have, however, looked at insurance products as tax-saving devices and investment products. Insurance companies have been launching product after product, to appeal to the instinct to save, rather than as something that provides security to the family.    Now, unit linked insurance plans ( Ulips ) have changed for the better and charges have come down. Many people call me to know if the present-day Ulip has become a good investment product overnight. The answer is yes and no. Yes, because the charges have come down. The first year charges have...

When the markets are falling, ICICI Prudential Dynamic is the fund to go with   The very nature of this fund ensures that it will have excellent defending capabilities during market downturns. Its market strategy causes it to reduce exposure to equities when the stock market is high and get fully invested when valuations are low as the risk return trade off is better and opportunity is greater.   The fund manager has the discretion to go fully (100%) into equity or liquidate his holdings to zilch (0%). Over the past few years, his equity holdings dropped to a low of 76 per cent. And, true to mandate, that was not in 2008 when the market collapsed but in July 2009 when the rally began to gain in momentum.   Besides the asset allocation, this portfolio stands out with regard to its defensive nature. "As the valuation of a theme expands and enters into a bubble territory, we tend to be underweight in it which helps the fund mitigate downside risks well," explains Naren...

    Considering the strong position enjoyed by Blue Dart Express in the logistics sector, investors could consider this stock on a long term basis   BLUE DART Express is a leading player in South Asia for courier and integrated express package distribution. The recovery in the domestic economy and other emerging markets has helped the company post better performance in the past few quarters as it saw a rise in volume of goods transported across its networks.    The company was started in 1983 by three promoters Clyde Cooper, Tushar Jani and Kushroo Dubash. In 2005, DHL Express (Singapore) took a majority stake in the company.    We had recommended this stock in our issue dated March 29, 2010, and since then the stock has gained nearly 54.4% compared to a 18% rise in the Sensex. And despite the jump, its valuations do not appear stretched on a historical basis. For instance, this stock is currently trading at 5.9 times its book value for the year ended December 2009. And during...

Though not a leader in its category, the fund has put up a respectable performance   This fund will not typically show up as a leader of its category, but is a respectable offering. The fund started off with a bang before turning out to be a fairly average performer. Once Sridhar took over, it put up a respectable performance in 2007 and 2008. But in 2009, it did deliver less than the category average and the benchmark.   Its size and name would imply a portfolio laded with mid caps. In reality, nothing could be more misleading. While it resembled a mid-cap offering in its initial years, that's no more the case. This fund has displayed a penchant for larger stocks and over the past three years the large-cap allocation has averaged around 85 per cent of the fund's portfolio and has not dipped below 65 per cent in any month.   Typical to Sridhar's style, he takes huge cash positions should the need arise. There have been occasions where the allocation has even exce...

Given SBI Bluechip Fund's past performance and shrinking asset base, the fund has neither been able to hold back its investors nor enthuse new ones   LAUNCHED at the peak of the bull-run in January 2006, SBI Bluechip was able to attract many investors given the fact that it hails from the well-known fund house. However, the fund so far has not been able to live up to the expectation of investors. This was quite evident by its shrinking asset under management. The scheme is today left with only a third of its original asset size of Rs 3,000 crore. PERFORMANCE: The fund has plunged in ET Quarterly MF rating as well. From its earlier spot in the silver category in June 2009 quarter, the fund now stands in the last cadre, Lead.    Benchmarked to the BSE 100, the fund has outperformed neither the benchmark nor the major market indices including the Sensex and the Nifty. In its first year, the fund posted 17% return, which appears meager when compared with the 40% gain in the BSE 1...

Reliance Regular Savings Balanced fund has shown great resilience during market crash After a shaky start, this fund has established itself as a strong contender in this space. In the past three years it has ridden the market well by not only delivering during the market run-ups but also displaying resilience during the crash. In 2008, it witnessed the second lowest fall among its category and last year it was amongst the top three performers with a return of 76 per cent (category average: 61%).   The poor underperformance in 2006 can well be credited to the low equity allocation of the fund, which stood at just over 10 per cent for only four months that year. Though the fund has the leeway to go up to 75 per cent in equity, it has never touched that limit. In fact, it has exceeded 70 per cent in just five months in its entire history. During the crash of 2008, the fund managers had no problem going right down to 54 per cent (equity exposure). Fund managers Omprakash Kukian and A...

   A few days ago, a senior citizen was asking if he could dabble in the equity markets to earn extra money. Having retired more than a decade ago, this investor is sitting on a corpus which is attractive from an equity point of view. But the problem for the investor is that he needs a regular cash flow for living and hence any threat of capital erosion is completely avoidable.    When told that the investment amount of Rs 10 lakhs has the potential to even become Rs 8-9 lakh in the short term through equity investments, he was utterly disappointed. He was viewing the equity markets with the hope of converting his one million into 1.5 millions. After all, that's what all equity-related news indicated with a return of 40-50 percent.      First, let us understand why our retired investor is considering the option of investing in equity. A decade ago, immediately after his retirement, he would have been happy to get a fixed return from his money as it ensured regular cash flows ...