Tuesday, April 17, 2012

Do not exit Fidelity MF in a panic

Jharna Bhiwandiwala stopped her monthly investments in Fidelity schemes through systematic investment plans after L&T Mutual Fund announced acquiring the assets under management of Fidelity MF in India. “I stopped my SIPs in Fidelity’s equity funds since its managemnt team was not part of the acquisition and the performance of equity schemes of L&T Mutual Fund did not provide me the desired comfort on its fund managers,” she said.

There are many others who are thinking on similar lines but going by the facts, taking such a decision in haste may not be a good idea. Express Money provides you five reasons why you should not exit from your Fidelity investment.

The Deal is yet to get Sebi approval

Before you decide to exit, keep in mind that the regulator (Securities and Exchange Board of India) has yet to approve this acquisition which involves the sale of assets under managemnt by a foreign fund house to a domestic firm without its equity management team. So, while you have your concerns, the regulator may also have some queries and hence you should wait till the approval comes.
Fund managers may be there for some time

While the equity fund managers are not part of the deal, they will actively be around for almost two years. The approval will come in three to six months and then the transition period may take another six to eight months.

“L&T MF has demanded that equity fund managers of Fidelity should stay for around one year after the transition is complete or till their own fund managers are comfortable with it. Taking everything in consideration, equity fund managers of Fidelity will manage the affairs for atleast two years from now,” said a source close to the development.

Existing processes may continue
Experts say that Fidelity will share its standard fund management processes with L&T in the transition phase and there is likelihood of continuity in the equity schemes for now and hence investors should not take a decision in haste. “There is nothing that should trigger redemption,” said Dhirendra Kumar, MD, Value Research. “Investors should wait how things evolve at L&T and past in not necessarily a reflection of the future. There is also a possibility that some equity fund managers of Fidelity join L&T MF.” Experts feel that L&T has got the money to hire good fund managers.

Be careful when your distributor asks you to switch
While investors are apprehensive, distributors may ask you to switch over to other fund house as it tends to benefit them.

A switch-over allows them to make some extra money on your investments and thus do not go by your distributor’s advice in this case. Market experts say that competitors would try to take advantage of the situation and try to lure Fidelity’s investors to them.

Wait for Fidelity to come out with exit option
Experts say that if you redeem your investments with Fidelity now, you may have to pay an exit load of 1 per cent and also capital gains tax (short term tax) in case the investment is not more than one year old. However, once the deal gets Sebi nod, then as per the regulations Fidelity will have to come out with one month exit option from their schemes without charging any exit load and that will be a good time to exit if one has decided to exit in any case.

Source: http://www.financialexpress.com/news/do-not-exit-fidelity-mf-in-a-panic/937080/0

Market will remain volatile this year too

The market might lack triggers for further rally unless the government delivers on better fiscal management and pushes reforms, says J Venkatesan, VP equity at Sundaram Mutual Fund, in an interview with Prasanna Deshpande. Excerpts:

How do you see the Indian equity market behaving during 2012-13? Are stocks attractively valued, and going ahead, do you see further rally?
The Indian capital market should continue to remain volatile in the current year also. Throughout last year, the market was worried about the European crisis, but with the infusion of about Euro 1 trillion into the system through LTROs, the huge global risk seems to have been averted in the short term. With the ensuing surge in global risk appetite, India also received good FII inflows, which moved the market by more than 10 per cent in this calendar so far. But the domestic risks still remain.

While we do expect the interest rate cycle to start reversing this year, there may not be a significant reduction. Inflation might start inching up again from June. Unless the government delivers on better fiscal management and further reform measures, the market might lack triggers for fresh rally despite being valued at around the long term average of 14 times FY13 earnings.

Which sectors and stocks you are betting on?
We cannot talk about stocks. But at this point of time, we continue to like defensive sectors like pharma, consumer stocks, including staples, discretionary items and autos. We believe the non-performing loan cycle might peak in about two quarters, hence financials could be a good medium-term play. We would like to remain underweight on commodities and real estate. We also remain underweight on the IT sector as we are apprehensive of their growth because of delay in global discretionary spending.

What do you expect from the January-March quarterly earnings season? Will corporate earnings improve in the coming quarters?
While overall growth for the year could be in the region of about 10 per cent to 13 per cent for this quarter, there would be earnings dispersion across sectors next year. While pharma, consumer goods and financials could see better earnings growth, materials could show de-growth. Further, we also feel that there could be earnings downgrades, though of lesser degree.

Do you think RBI will cut repo rate in its next credit policy announcement? How much do you expect the RBI to cut key rates this financial year?
We do expect RBI to signal a rate reversion cycle with a modest 25bps in the April policy. Having said that, we do not think overall rate cuts would exceed 75bps for the current financial year.

Do you expect inflation and fiscal deficit to decline in FY13?
It would be difficult for the government to meet the 5.10 per cent fiscal deficit target. They have slipped by 130bps for the FY12. We expect inflation to come down to around 7.30 per cent in FY13 from 8.60 per cent in FY12.

Will FIIs continue to infuse funds in domestic stocks or will they pause on macro-economic worries?
The Indian market was the second-worst performing market in dollar terms globally in calendar 2011. We have received decent flows in the current calendar so far. From hereon, their flows would depend on the relative attractiveness of our market and their risk appetite levels. But if domestic factors improve significantly, we can expect the flows to continue.

On the global front, do you expect the US to come out with QE3, and what, according to you, would be its implications for the global financial market?
We do not think QE3 is likely in our base case. But we may not completely rule out QE3 with the US presidential elections around the corner and should the US economy throw up negative surprises. Should that happen, there would again be a surge in risk appetite levels and commodity prices would move up in the short term.

Will commodities market turn volatile if more liquidity enhancing measures are adopted by the west? At what level do you expect crude prices to stabilise?
Commodities would turn volatile more on account of a slowdown in China's growth. China being one of the largest consumers of commodities, their slowdown would disturb the demand-supply dynamics and impact prices. In the short-term, crude price is more a function of political disturbance in West Asia, but in the medium term, we think it will stabilise at current levels.

Source: http://www.mydigitalfc.com/companies/market-will-remain-volatile-year-too-556

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