Do you prefer fund managers who eye daily NAVs?

Dec 28, 2010

In this issue:
» Indian pharma is in for a treat
» Government keeps dilly dallying on oil prices
» Indian markets have lesser breadth and depth
» What is driving commodity prices?
» ...and more!!

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Gone are the days when being a fund manager was a career aspiration for many. With the landscape of the Indian mutual industry having gone a sea of change, fund managers seem to be a dying breed. Fathom this. As per a leading daily, in the past two years, at least 65 fund managers have moved out of the industry into other financial services. In 2010 alone, this number stood at 35. So what has compelled fund managers to quit and look at greener pastures?

The reasons are plenty. But intense pressure is at the core for most of them. For starters, ban on entry loads has had its impact in the form of falling margins and profits. SEBI has also become stricter with a view to protecting investors. And so, disclosure requirements have become more elaborate. Plus, SEBI has also tightened rules for the approval and launch of new fund offers. Then there is the added pressure of constantly keeping track of the NAV in a bid to generate maximum returns to investors. All this seems to have piled on the pressure on fund managers. They are finding it increasingly difficult to balance the demands of the regulators and expectations of the investors. The fact that salaries are also not as good as they once were seems to have further led to their disillusionment.

As far as we are concerned, the scenario has really left us a little bemused. Of course, there has been a sea change in the manner in which the mutual fund industry has operated the past few months. But make no mistake, most of the changes had the investors' best interests at heart. The mass exodus of fund managers gives us the impression that these people had a wrong notion about the functioning of mutual funds. For them, it seemed like a business where they could make money at the expense of investors in the fund. And when this practice was stopped by the regulator, they found it more worthwhile to put in their papers and move to greener pastures. We believe that the mutual fund industry is indeed better off without such people.

What do you think? Do you feel that the mass resignation of fund managers will hurt the industry in the long-term or benefit it? Share your views.

 Chart of the day
Indian pharma companies, especially the ones focusing on generics, have a lot to cheer about. This is because of the surge in the number of big branded drugs losing patents. As today's chart of the day shows, the average value of drugs losing patents is way ahead in the coming 4 years as compared to the last 2 decades. That said, competition has also increased and it will be interesting to see what each player does to keep one step ahead of the other.

Data Source: Biocon annual report

The rampaging crude oil is working like cold water these days. For the Indian Government that is. For it is really hurting their plans. As per a leading daily, the committee that was to decide on price revision of sensitive petroleum products will now meet a week later than the earlier schedule. The postponement certainly was along expected lines. Government is already under fire for failing to tackle inflation. And hence, the idea to increase both petrol and diesel prices at the current juncture would be akin to lighting up a bomb under its seat.

Not doing so would mean further pressure on the already stretched balance sheets of oil marketing companies. What more, it could also scuttle Government's plans of mopping up money through FPOs of refiners like IOC. Knowing its track record, we think the Government will play it safe and not tinker with prices at the moment. The burden of higher crude prices could thus be shared between the OMCs, upstream companies and the Government. What this will do is that it could increase the fiscal deficit further and hurt the long term prospects of the economy. Whoever believed India could grow at a double digit rate in the future might well have to do a serious rethink? As long as these structural problems are not solved, we will meander along and not really gallop.

Food crops have had their fair share of media attention in recent days thanks to their sky rocketing prices. Now it's time for the cash crops. The prices of cotton for instance are threatening to shut down a vast majority of textile manufacturing units in India. This commodity too, like the palatable ones, has seen prices nearly double in the past 5 months. Most of it being the outcome of artificial scarcity. The impact of this key input becoming unaffordable to garment manufacturers could play havoc with India's trade balance. Apparel exports pegged at US$ 25 bn for FY11 declined by 6% YoY in the first half of the fiscal. The scenario has not improved in the second half. But not everyone is complaining. Farmers who paid lower costs for imported cotton seeds have seen their income swell. But such lopsided benefits are uncalled for, even in an agrarian economy. It seems that India is in dire need of an exchange that can keep closer eye on manipulation of commodity prices.

There is no denying the fact that the Indian markets are largely driven by foreign activity. If the foreigners are buying, stocks rise. And if they are in a mood to liquidate, stocks crash. One big reason foreign capital has such a big influence has to do with the shallowness (less breadth and depth) of the markets here. This can be measured by what is known as the share turnover velocity or STV. STV is the ratio of traded turnover to market capitalisation. Higher the ratio better is the liquidity and deeper are the markets.

As per an Economic Times report, the STV for Indian markets stand at around 60% and 20% for the BSE and NSE respectively. This is much lower as compared to the 100% number for the markets of Australia, Korea, and China. In fact, most European markets have an STV of around 200%. This suggests a lesser depth for the Indian markets, and thus the high impact of foreign buying and selling.

A couple of reasons cited for low STV are - high promoter holding and thus a lesser free-float, and low retail participation. Taking a call on the former is a bit tough. But with improving reforms, if the retail participation in the stock markets were to increase, our relevance on the moody FIIs will reduce for sure. And that will be good for the overall long term health of the markets.

Commodity prices have been touching new highs. One of the reasons cited for this has been the flow of investor money that has boosted prices. The quantum of money has increased multi-fold thanks to the two rounds of quantitative easing undertaken by the US. This money has been invested into commodities and emerging markets due to their investment attractiveness and has thus sent the prices soaring. However, noted economist Paul Krugman thinks differently. As per him, it is the growth in demand that is leading to the price surge. He thinks that growth in demand from countries like China has led to higher commodity prices. Holding US responsible for this is ridiculous.

So is Mr. Krugman right? Doesn't seem so. The global demand has actually diminished due to the crisis. In fact, China is stepping on every single measure to cool down its super-hot economy. Therefore blaming it for 'increased demand' just does not make sense. As far as other economies are concerned, most of Europe is still reeling under crisis. The demand from the emerging markets has remained stable too. On the supply side, things have remained pretty much constant. So the surge can only be attributable to increased investor interest, which in turn is fuelled by easy money. And we all know who is printing this easy money.

In the meanwhile, volatility marked today's trading as the Indian markets oscillated to either side of yesterday's close. The BSE-Sensex was trading flat at the time of writing. Banking and auto stocks were not in favour today, while FMCG and healthcare stocks were trading firm. Asian markets ended on a mixed note today.

 Today's investing mantra
"Mathematics is ordinarily considered as producing precise and dependable results; but in the stock market the more elaborate and abstruse the mathematics, the more uncertain and speculative are the conclusions we draw therefrom." - Benjamin Graham

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39 Responses to "Do you prefer fund managers who eye daily NAVs?"


Jan 2, 2011

The MF Industry will be, I feel, better off without the 'Make hay while the sun shines ' type of Fund managers.



Jan 2, 2011

It is better if such self-centered fund managers quit.


Harshal Shah

Jan 1, 2011

Mass resignation is good for the industry as long as good fund managers do not exit the business. It is better for the small and marginal investors that such self-interest managers give in their papers. Good job SEBI for keeping the rights of the investors as the topmost priority.


Abdus Salam

Dec 31, 2010




Dec 30, 2010

Yes. I subscribe to your view. In this country the civil society is still to gain maturity and hence the regulatory interventions are in the best interest for a common man (investor) like me. Having said that the investors also should not expect windfall profit through MF but a reasonable capital appreciation to beat the high inflation and make a neat safety net. Mediocrity is plaguing this great country and MF fund management in most cases suffer from that so it is good that such people get out faster than latter if they do not want to be transparent and customer oriented. Why only customers (I say Kast se Mar!!) should bear the brunt when everyone else is after fast bucks. Thanks regulator for having saved hapless investors (not Corporates parking their money in MF schemes) from getting swindled. Alas they don't even disclose their name/numbers/email in all related communication. Smart way to block / filter any grievance; then why depend on them.



Dec 30, 2010

hi, why do we draw conclusions that the fund managers left because of regulations? every individual has the freedom to do what he or she wants. i feel this conclusion is too far-fetched. some of them might have joined the insurance industry. some might have opted for a different profile.


Capt Ajit Singh Yadav

Dec 29, 2010


Let them put in a dime for a dime and then see them perform



Dec 29, 2010

If adequate compensation is not given to fund managers for their experience as per comparable industry standards in other financial services they are bound to leave. All fund managers are not bad so we cannot generalize the issue. Making entry load zero has killed the industry.


Kumaran Rahavan

Dec 29, 2010

SEBI has done a good thing for investors. In fact I have stayed away from from the MF for quite a long time due to so many much publicised ones failed miserably or produced low returns. There were so many charges apart from entry loads which makes one crazy. It is good that the vultures have left the scene. It is a business you can find always somebody to fit into its shoe and need not to worry.



Dec 29, 2010

Most of the Fund Managers and their Companies care a damn for the investors who help them earn FAT SALARIES irrespective of their Performance. Thanks to SEBI, now only the Best will continue.

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