Volume 6, Issue 09

06Sep2013

Markets Whats happening, and what to do

Vidya Bala

Inside this issue:

MarketsWhats
happening and
what to doVidya
Bala

2
FAQs on investing
in the current volatile market
- Vidya Bala
Equity Recommendations
- B. Krishna Kumar

Financial Planning
Education Series

Equity investing
why it pays to go
globalICICI Prudential AMC

[A note: The markets have not been kind to investors these past weeks, and this has
been uppermost in the minds of our customers. I requested Vidya Bala, our head of
mutual funds research, to provide her perspective on the situation and place the
events in context. Please read her take in the editorial essay below. Also, please dont
miss out on reading her broader essay later in this issue as well Srikanth Meenakshi]
Greetings from FundsIndia!
Low single-digit GDP growth, poor production numbers, tight monetary policies,
depreciating rupee and more fiscal pressure thats what we carry forward from
August. And clearly, the pressure on the current account deficit and modest GDP
numbers and earnings growth expected in the September quarter only says it gets
worse before it gets better.
Now that might sound gloomy on the face of it, but look at it this way: it provides you with an opportunity, perhaps one that you did not have in 2008, to strike it rich during a gloom. Yes, volatile equity markets can be your best friend if you are a long term investor. SIPs continued in the whole of
2008 reaped rich harvest, just a quarter after the market bottomed out in March 2009. This was
true of SIPs not stopped in the down market of 2011 and carried through the up-market of 2012.

Our article FAQs on investing in the current volatile market will provide you will some cues on what strategies you can use and when
not to get swayed away by market-favourite investing strategies.
Losing sight of the opportunity and moving away from equity would simply result in mismatch in your asset allocation.
For those starting to invest, If you have set your eyes on long-term wealth building for your goals, now could be a good time to enter
the equity markets using the mutual fund route. Yes, market valuations are cheap for a reason, no doubt. But there are always companies that bounce back in style because their fundamentals are sound otherwise. So if you view the current market as a discount sale of
some premium brand, then you know there is value in the offering. After all, as Warren Buffetts saying goes the time to get interested
in stocks is when no one else is.
Happy Investing!

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Volume 6, Issue 09

Page 2

FAQs on investing in the current volatile market

Vidya Bala Head, Mutual Fund Research at FundsIndia
With equity markets in turmoil, you may have plenty of questions on what to do with your equity portfolio and whether you could look
at strategies to make your portfolio returns look better. In this article, we attempt to provide answers to some of your frequently asked
questions:
My SIPs are sporting terrible returns. Should I stop them?
Stopping your SIPs in a market downturn could be the worst thing you can do to your portfolio. By not allowing your fund to average
during the falls, you cannot expect it to deliver returns when the bounce back happens.
Just to illustrate, take a look at the NAVs of Franklin India Bluechip in 2008. Had you simply continued the SIPs, in no time would
you have seen a bounce back in your portfolio (with an annualized return of 27%), the next year.
In the same example, had you stopped your SIPs say in June 2008, then your returns as of June 2009 would have been a sad -4.9%!
This is for a less volatile fund like Franklin India Bluechip. You would actually average much more in a fund that is more volatile.
So long as your fund choice is good, keep your SIPs chugging. But use the opportunity to sell some laggards too. Prolonged down markets will clearly differentiate the stable performers from the laggards.
Franklin India Bluechip
NAV DATE

NAV (Rs)

SCHEME
UNITS

SIP (Rs 1000)

01-Jan-08

193.8282

5.1592

-1000

01-Feb-08

169.731

5.8917

-1000

03-Mar-08

156.1249

6.4051

-1000

01-Apr-08

145.8057

6.8584

-1000

02-May-08

160.7478

6.2209

-1000

02-Jun-08

150.3004

6.6533

-1000

01-Jul-08

121.1644

8.2532

-1000

01-Aug-08

136.1852

7.3429

-1000

01-Sep-08

138.1573

7.2381

-1000

01-Oct-08

129.6204

7.7148

-1000

03-Nov-08

105.1351

9.5116

-1000

01-Dec-08

92.7931

10.7767

-1000

01-Jan-09

102.4124

9.7644

-1000

02-Feb-09

94.8182

10.5465

-1000

02-Mar-09

91.0156

10.9871

-1000

01-Apr-09

103.0514

9.7039

-1000

04-May-09

123.4058

8.1033

-1000

01-Jun-09

148.2212

6.7467

-1000

30-Jun-09

151.4629

143.8778

21792.15

Yield

26.70%

Should I invest as lump sum now, as the market is falling?

If you have enough surplus and have a 5-year view then it may not be a bad idea to invest in lump sum in the equity market. But then
what if the markets fall another 10-15% from here? Thats where using triggers helps you invest in a staggered manner.

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Volume 6, Issue 09

Page 3

Consider splitting your surplus into 3 parts and set your own triggers in your FundsIndia account to invest them. Read our article
Should you wait for the economy to bottom before you invest? to build yourself a strategy to invest.
But ensure you do not go on averaging indefinitely if the market fall is prolonged. Set aside a surplus and be done with the staggered
investment. With a 5-year view, it does not matter if you do not bottom fish, till the very bottom that is.

The markets are swinging every day. Will daily SIPs work better for me than monthly SIPs?
If you are a long-term investor, you really dont need a daily SIP. Over longer periods of 5 years or so, IRR from daily SIPs in equity
funds have actually shown to be lower than monthly SIPs.
That said, if you have enough cash and wish to capitalise on every single fluctuation, then using daily SIPs for short spurts, say for 3-6
months, during volatile markets can be one strategy.
During 2008, daily SIPs done for about 6 months or so, actually delivered marginally higher returns than monthly SIPs. But the benefit was lost if the daily SIP was continued for longer periods.
Also, you need enough cash (to be able to do the minimum investment every single day) for this and should also make sure that you
switch to monthly SIPs, once such volatile market is done with.
Otherwise, you will be better off simply using triggers to invest occasionally, along with regular monthly SIPs.

IT and pharma stocks are doing well despite the turbulence. Should I invest in these sector funds?
You may, only if you understand the sectors. IT and pharma sectors in India are export-oriented and have therefore benefitted from
the rupee depreciation. It is for this reason, these stocks and their sector funds have done well. Yes, with rupee continuing to be volatile, these sectors may be treated as a hedge to your portfolio.
But then, they should simply be used as diversifiers (together up to 10% of your portfolio) and nothing more. Also, avoid long-term
SIPs in sector funds. There is no point averaging when a sector is in an uptrend.
When the market tide turns, chances are that the beaten down sectors will do well. By holding to much exposure to these defensive
spaces, you may miss the rest. Besides, diversified equity funds themselves have been upping their exposure to these sectors and you
are likely to get some exposure through your non-sector funds as well.
Indian economy and market is underperforming and US looks all green. Should I invest in international funds?
Just as theme funds cannot be your core portfolio, nor can international funds be. International funds offer flavours of different markets and economies and are therefore best used as diversifiers.
While the short- to medium-term returns of markets such as the US do seem captivating, remember such developed markets have not
offered more than 5-6% returns annually over a decade. Growth markets like India are likely to surpass.
Also, the current rupees depreciation against the dollar and other major currencies has made international fund returns look more
attractive than their real performance-based returns.
Yes, use these funds, if you must, to hold stocks/sectors that you may never get in the Indian markets. But be judicious in your exposure. Also, do not forget that there could be other emerging markets, which although equally volatile like India, can deliver superior
returns compared with U.S in the long term. Hence, decide where you should place your eggs.

Vidya Bala is the Head of Mutual Fund Research at FundsIndia. She writes for our monthly newsletter on topics including mutual fund, personal
finance and equity markets. Vidya Bala can be reached at vidyabala@fundsindia.com

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Volume 6, Issue 09

Page 4

The Month Ahead - Equity Recommendations

B. Krishna Kumar
August turned out to be a quite an eventful month for the stock as well as the currency market. While the stock markets continued to drift
lower, much of the damage was visible in the currency market where the Rupee almost hit the 70-mark to the US Dollar. The Rupee depreciated by almost 10% in August before there was some semblance of recovery towards the fag end of the month.
The economic fundamentals in the meanwhile have deteriorated further. The first quarter GDP growth was below expectations and the IIP
numbers did not portray a bright picture of the economy either. Consumer price inflation remains at lofty levels with the price of petrol
being hiked again a few days ago, things can probably get worse from a consumer inflation front.
The government at the centre has been accused of inaction and policy paralysis. Ahead of the general elections, it remains to be seen how
eager the government is in terms of implementing reforms and addressing the economic crisis that the country is stuck in. One can only
hope or pray that the government does not come up with more populist measures that could worsen the countrys fiscal deficit.
The major hope for the stock market participants is the impending general elections scheduled next year. There is a widespread expectation that the new government would usher in a slew of reforms to get the economy back on track. The Reserve Bank of India too has a new
governor and the early indications are that the new governor means business.
As observed last month, we advise investors to tread with caution and avoid big ticket exposures to economy-related sectors. We remain
cautious on the Nifty and the Sensex and advise long-term investors to use the SIP route to buy index funds or ETFs in a staggered fashion.
Technically, the Nifty has recovered from the key support level of 5,100-5,150 range and has seen a sharp recovery in the past few trading
sessions. We sense that the recent recovery process could continue and expect a rally to 5,800-,5850 in the Nifty.
Sector wise, we are positive on the FMCG space. The likes of Hindustan Unilever and Dabur are our top picks, followed by ITC. The IT
sector has seen buying interest on account of the Rupee depreciation and better-than-expected performance of IT companies. We believe
that the IT stocks are overbought from a technical perspective and expect a healthy correction or consolidation in frontline names. We
would not suggest accumulation of IT stocks at such lofty levels.
From the daily chart of the Nifty featured below, it is evident that the fall in the index was arrested right at the lower parallel of the downward sloping red pitchfork. The smart recovery off that line is a sign that there is buying interest at lower levels.

We expect the Nifty to rally to the immediate

resistance at 5,800-5,850. A fall below 5,110
would invalidate this view. Price weakness
may be used to buy high-beta names such as
Reliance Capital, Tech Mahindra, Reliance
Communications, IndusInd Bank and Reliance Industries.

The month, we discuss the outlook for Reliance Communications and Tech Mahinda. We are bullish on
both the stocks and would recommend investors to buy
accumulate them on weakness.
From the daily chart of the Reliance Communications
featured, it is evident that the stock is in a strong uptrend. After a brief downward correction, the next leg
of the rally seems underway.

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Volume 6, Issue 09

Page 5

Investors may buy the stock at or below Rs.130, for an initial target of Rs.155. The stop loss for long positions may be placed below Rs.110.
While the stop may be a little rich, investors may use a SIP kind of approach if the stock were to fall below Rs.130. Once the price moves
5% in your favor, move the stop then to breakeven. This is an effective way to control risk.
As far as Tech Mahindra is concerned, the stock is in a strong uptrend. After a brief consolidation, the next leg of the rally seems underway in Tech Mahindra. Investors may buy this stock with a stop loss at Rs.1,330 and target of Rs.1,550. Investors may buy the stock on
declines, in a staggered fashion,, so that the average cost of acquisition.

A breakout past Rs.1,550 would be a sign of strength and

the stock could then rally to the major resistance at
Rs.1,700. Always use a trailing stop loss when the progresses towards the target. A major chunk of the unrealized profits can be protected by using the trailing stop
loss.

Mr. B. Krishna Kumar also hosts a weekly webinar that discusses the market outlook for the following week.
Just click on the link below and click on the FOLLOW button to register:
http://new.livestream.com/accounts/4749821?query=fundsindia&cat=account

Tailor-made investment solutions that stay

with you UNTIL you achieve your life goals!
FundsIndia Smart Solutions

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Volume 6, Issue 09

Page 6

Future PlanningChildrens Education

S.Shridharan Head - Financial Planning

Children Future planning

Part of being a responsible parent is to ensure your child gets the best education there is. This might be a little worrisome to a few
parents. However, taking the right financial decisions today can result in a planned future for your children. To do this, one has to
identify and evaluate the best possible way to reach this goal. Always ensure that you take into consideration Inflation while planning
for your future goals.
Lets take the example of Mr. Atuls son who is 4 years old. He is set to graduate in another 13 years. Mr. Atul wants his son to graduate from an engineering college which today costs him Rs.10 lakhs. After his engineering, Mr. Atul wants to send him abroad for his
post-graduation which costs Rs.25 lakhs currently.
So, how much does Mr. Atul need to send his son to engineering college in 13 years?

An amount of Rs.9275 approximately every month will help Mr. Atul meet his Sons graduation expenses and an amount of Rs.34,000
approximately every month will help Mr. Atul to meet his sons post graduation expenses. The illustration given above takes into consideration 10% as rate of inflation and 12% as rate of return from equity based investments.
When investing for both goals, Mr. Atul has to keep in mind that he must invest into the right investment products for his personal
risk profile. When planning for any goal, it is important to invest based on your risk appetite and goal time horizon. It is essential to
understand the risks associated with equity investing.
When a goal is drawing nearer, the goal corpus can be de-risked to protect it from equity volatility and invested into debt to provide
fixed returns and capital safety.

Mr. S. Sridharan is the Head of Financial Planning with FundsIndia. You can reach Mr. Sridharan at sridharan@fundsindia.com

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Volume 6, Issue 09

Page 7

Equity investing why it pays to go global

The last few years have turned out to be a disappointment for the countrys economy with global and domestic reasons conspiring to
put a spoke in the smooth running wheel of Indias rapid progress. Indias growth prospects which seemed a given at about 8 to 9%,
even quite recently, looks troubled today.
On the other hand, the developed economies which narrowly missed the abyss in 2008 and seemed neck deep in trouble till recently,
are breathing a little easier of late. Countries on the verge of bankruptcy in the recent past are making a determined attempt at recovery.
The need to diversify beyond Indian equities
While it is inappropriate to write the obituary on Indias economic prosperity, it is quite obvious that no country will continue to perform well forever. In general, while emerging markets are considered high potential, it is also equally true that they are more volatile.
Many of the emerging markets fell more than the developed markets, the originators of the 2008 crisis.

Similarly, while the BSE Sensex handsomely outperformed both the MSCI World Index and the MSCI EM Index in the 2002-2007
period, it has been quite the other way round in the 2008-2013 (YTD) period.
It is in this light that we need to continually review and re-evaluate our investment beliefs and practices in a dynamic world environment. We must also appreciate the risk of betting too much money on only one story.
There are many excellent businesses globally that are making lives easier and better for people. And in your daily life, you are very
likely to come across many such products and services that have become such an integral and increasingly indispensible part of our
lives. By keeping your money only within India, you are effectively ignoring 98% of the global equity market. While some countries
thrive on minerals and resources, there are others who have an edge in manufacturing or services.
Benefits of global investing
Access to global industry leaders: You can participate in the wealth creation of the best and the biggest businesses globally,
many of which do not have a presence in India. The largest retailer in the world, largest social networking company, largest
software business and many more of your favorites can find a place in your portfolio.

Portfolio diversification: By adding global investments which have low correlation with Indian equities, the overall risk of
your portfolio is reduced.

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Volume 6, Issue 09

Page 8

Currency diversification: By spreading your investment across currencies, you are minimizing a very potent risk. The recent
sharp depreciation of the Indian rupee is a good wake up call.
Geo-political diversification: By spreading your investment across the globe, your investment will be less impacted by the
political and geo-political risks of investing.

Heres an example of how a 20% exposure to international equities enhanced performance even while reducing risks. The risk/return
too improves, especially in bear markets.
Global investing now made easy
Yes, scouting the global equity markets and picking from the thousands of stocks is indeed quite a task. But with mutual funds offering
access to global equities through the feeder fund route, you can effortlessly invest abroad without any additional documentation or
KYC procedures.

This article is contributed by ICICI Prudential AMC

Wealth India Financial Services Pvt. Ltd.,

H.M. Centre, Second Floor,
29, Nungambakkam High Road,
Nungambakkam,
Chennai - 600 034

Phone: 044-4344 3100

Email: contact@fundsindia.com

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.