monthly markets update (india) - september 2011

September 2011

Prepared by: iFAST Research Team

Monthly Markets Update - India September 2011

Key Points

The month of August saw all the major global indices showing a downward trend

The major event during the month was the downgrading of US debt by S&P

Indian markets were also severely impacted by the global events

We believe that Indian markets are presently undervalued and hence, advise investors to invest

at the current levels

We expect RBI to increase policy rates in the 16 September meet, as inflation is still above 9%

In the Mutual fund space, all the categories from the Equity and Hybrid segment delivered

negative month-on-month returns, while the debt segment gave positive returns during the

month


Equity Markets Update

International Markets (As at August 2011 end)

2011 2011 2010 P/E P/E P/E Earnings Growth

Earnings Growth

MTD YTD Return (%) Yr 2011 Yr 2012 Yr 2013 2011 (%) 2012 (%)

Asia ex Japan (MSCI Asia ex Japan) -10.16% -9.17% 17.00% 11.5 10.0 8.9 14.50% 15.30%

Emerging Markets (MSCI EM) -9.19% -9.83% 16.40% 10.2 9.0 8.1 17.40% 13.70%

Europe (Stoxx 600) -10.49% -14.29% 8.60% 9.9 8.8 8.1 7.60% 12.20%

Japan (Nikkei 225) -8.93% -12.45% -3.00% 14.5 12.8 10.4 8.60% 13.80%

USA (S&P 500) -5.68% -3.10% 12.80% 12.2 10.9 9.8 17.20% 12.30%

Australia (S&P/ASX 200) -2.90% -10.31% -2.60% 11.7 10.6 9.8 7.90% 10.50%

Brazil (IBOV) -3.96% -18.48% 1.00% 9.4 8.4 7.3 13.00% 11.70%

China (HS Mainland 100) -9.32% -9.41% 2.20% 10.0 8.7 7.7 22.90% 15.10%

Hong Kong (HSI) -8.49% -10.72% 5.30% 10.9 9.7 8.7 17.10% 12.80%

India (SENSEX) -8.36% -18.21% 17.40% 14.0 12.0 10.9 13.10% 16.60%

Indonesia (JCI) -7.00% 3.73% 46.10% 15.1 12.5 10.9 23.70% 20.40%

Malaysia (KLCI) -6.56% -4.72% 19.30% 14.3 12.6 11.4 6.90% 14.20%

Russia (RTSI$) -13.37% -3.84% 22.50% 5.4 5.1 5.0 50.90% 6.00%

Singapore (STI) -9.53% -10.19% 10.10% 13.4 12.2 10.8 5.30% 9.40%

South Korea (KOSPI) -11.86% -8.33% 21.90% 9.5 8.3 7.4 15.10% 14.80%

Taiwan (Taiwan Weighted) -10.44% -13.10% 9.60% 14.0 11.5 10.3 -6.80% 21.40%

Technology Heavy (NASDAQ 100) -5.15% 0.69% 19.20% 13.5 11.8 10.5 26.30% 14.00%

Thailand (SET Index) -5.60% 3.61% 40.60% 12.1 10.6 9.6 25.40% 14.20%


Global Market Performance

Group 7 Countries

Events

US Unemployment rate fell to 9.1% in Jul 11, down from 9.2% in Jun 11

US producer prices rose by 0.2% m-o-m in Jul 11, after a 0.4% m-o-m decline in Jun 11

2Q11 US GDP growth revised downwards to 1% q-o-q annualised (+1.3% previously), following 0.4% growth in 1Q 11

Germany Industrial production fell -1.1% m-o-m in Jun 11, after a downward-revised 0.9% rise in May 11

Germany GDP q-o-q grew 0.1% in Q2 2011, down significantly from a downward revised 1.3% growth in Q1 2011

Germany PMI manufacturing remained flat at 52 in Aug 11, literally unchanged from 52.1 in Jul 11 (lowest since Jul 2009)

France Industrial production fell -1.6% m-o-m in Jun 11, after a downward-revised 1.9% growth in May 11

France PMI manufacturing fell to 49.3 in Aug 11, down from an upward-revised 50.5 in Jul 11

UK Core CPI rose 3.1% in Jul 11, up from 2.8% in Jun 11

UK ILO unemployment rate rose to 7.9% in Jun 11, up from 7.7% in May 11

UK PMI manufacturing fell to 49.1 in Jul 11, down from an upward-revised 51.4 in Jun 11

Bank of Japan (BOJ) held its target rate unchanged at a range between 0% to 0.1% in Aug 11

Industrial production dropped -1.7% y-o-y in Jun 11 following a decrease of -5.5% in May 11

Market Outlook

-22.00%

-20.00%

-18.00%

-16.00%

-14.00%

-12.00%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

Jap

an (

Nik

kei 2

25

)

USA

(S&

P 5

00

)

Can

ada

(S&

P/T

SX)

Ital

y (F

TSE

MIB

)

Ger

man

y (D

AX

)

Fran

ce (

CA

C-4

0)

UK

(FT

SE 1

00

)

Global Indices- G7 (MTD Returns)


August saw US lawmakers finally agree to raise the US debt ceiling, bringing an end to political bickering

which has resulted in heightened uncertainty among consumers, investors and businesses alike. Despite

this positive development, credit ratings agency S&P downgraded the US sovereign credit rating one

notch to AA+ on 5 August 2011, much to the chagrin of various high-profile investors like Warren Buffett

(who felt that the US should be a “quadruple-A”) and Bill Miller (who called the downgrade “precipitous,

wrong, and dangerous”). As per our comments on the issue when S&P first lowered its outlook on the

US sovereign debt rating in April 2011, we view the downgrade as largely symbolic, and see no

corresponding increase in default risk or any significant economic repercussions for the economy. Given

the weak growth seen in 1H 11 coupled with an anticipated slowdown in the Euro-zone, we now

forecast GDP growth to come in at just 1.6% for 2011.

Manufacturing PMI indices across Europe continued to show growing weakness, with the core nations

such as Germany, France and the UK showing manufacturing output is expected to contract following

several months of declining purchases. However, the same cannot be said for services which have seen a

broad-based rise in the continent.

Euro zone inflation for July maintained June’s pace of 2.5% on a year-on-year basis. Excluding volatile

components, core-inflation fell to a rate of 1.20% as compared to 1.60% year-on-year in June, within the

target range of the ECB. Following their interest rate hike on 7 July 2011, we believe that the ECB could

possibly be regretting its action as the rate hike now seems premature and worryingly reminiscent of

2008, when following a rate hike; the ECB was forced to retreat as the global financial system fell apart.

Japan’s ruling Democratic Party has chosen the present finance minister Yoshihiko Noda as its new

leader and the country’s sixth prime minister within five years. Noda has been widely regarded as a

fiscal hawk as he has consistently called for a painful fiscal consolidation in order to rein in the country’s

ballooning fiscal deficit. During the campaign, he had argued again that a tax rise is necessary if fiscal

resources still run short. Noda’s succession as prime minister could accelerate the consumption tax hike

which is negative to the economy.

The Japanese government could also accelerate its fiscal consolidation plan after Moody’s lowered its

credit rating to Aa3. The credit rating agency said large budget deficits as well as the highest debt-to-

GDP ratio in major countries are the crucial reasons that drive the downgrade. Besides, frequent

changes in administrations impeded the government to enact a long-term economic and fiscal policy.

Political deadlock is the major concern that could hinder the country’s long-term economic

development. In spite of the downgrade, the Japanese bond market is largely unaffected.


Asia Pacific (Ex Japan)

Events

Singapore’s Industrial production for Jul 11 increased 0.3% m-o-m, after an upward-revised 1.9% gain in Jun 11

Malaysia’s BNM may hold the Overnight Policy Rate at 3.0% for the rest of 2011 to accommodate economic growth

Malaysia’s GDP growth for 2Q 2011 y-o-y moderated to 4.0% from an upward revised 4.9% in 1Q 2011

Indonesia’s GDP second quarter y-o-y growth recorded 6.49%, marginally higher than first quarter, 6.47%

Indonesia’s Foreign reserves rose to $122.7 billion USD in July

Thailand’s 2Q 2011 GDP growth slowed to 2.6% y-o-y, down from an upward revised 3.2% growth in 1Q 2011

The Bank of Korea (BOK) held its benchmark 7-day repo rate unchanged at 3.25% in Aug 11

The Korean Consumer Price Index (CPI) grew at 4.7% y-o-y in Jul 11 compared to a 4.4% increase in Jun 11

Taiwan’s 2Q11 GDP grew 5.02% y-o-y, compared to 6.16% y-o-y growth 1Q11

Hong Kong’s 2Q11 GDP grew 5.1% y-o-y, compared to revised 7.5% y-o-y growth in 1Q11

Australia’s benchmark rate (RBA Cash Rate Target) stood at 4.75%

Australia’s Trade balance fell to AUD 2052 mil surplus in Jun 11 from revised upward AUD 2699 mil in May 11

Market Outlook

-14.00%

-12.00%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

Au

stra

lia

(S&

P/A

SX 2

00

)

Ho

ng

Ko

ng

(HSI

)

Ind

on

esia

(JC

I)

Mal

aysi

a (K

LCI)

Sin

gap

ore

(ST

I)

Sou

th K

ore

a (K

OSP

I)

Taiw

an (

Taiw

an

Wei

ghte

d)

Thai

lan

d (

SET

Ind

ex)

Global Indices- Asia Pacific (Ex Japan)

(MTD Returns)


Malaysia’s GDP growth for 2Q 2011 year-on-year moderated to 4.0% from an upward revised 4.9% in 1Q

2011, mainly due to the slowdown in investment and government spending. The sustained growth in

domestic consumption and the stronger growth in exports have mitigated the weaker growth in

investment and government spending. Going forward, exports growth and government spending may

fall as the global economic growth is expected to slow down and the government would like to reduce

its expenditure in order to lower the budget deficit.

Indonesia’s GDP second quarter year-on-year growth recorded 6.49%, marginally higher than first

quarter, 6.47%. Industry breakdown showed that the transport industry grew the fastest by 10.7%

followed by the hotel and restaurant industry and the construction industry which posted 9.6% and

7.4% respectively on year-on-year basis. Similarly, household spending expanded steadily, advancing

4.6% in the second quarter as compared to 4.5% in first quarter. GDP growth is expected to be sustained

in a strong pattern underpinned by the robust domestic consumption and rising investment. The risk of

heightened external uncertainties and slowdown in developed markets will feed into the real economy

going forward.

Thailand recorded a 2.6% year-on-year GDP growth in 2Q which is slower than the revised upward 3.2%

growth in the previous quarter and also missed the consensus forecast of 3.6% growth. This is mainly

due to the slower growth in exports resulted from the Japan natural disasters in March and the

slowdown in Europe and US economy. The economic growth in the Europe and US are expected to

further slowdown in the coming months which may further pressure Thailand’s economic growth. Let’s

look at some leading indicators for better judgment.

2Q11 Taiwan’s GDP grew 5.02% year-on-year. Although it grew faster than market forecasts, the

economy grew at the slowest pace since 2009. A slower growth is mainly due to the disruptive effects of

Japan’s earthquake. Exports only expanded 14.6% year-on-year in the 2Q11 as compared to a 19.5%

year-on-year growth in the 1Q11. The Taiwanese government also cut its forecast for 2011 GDP growth

to 4.81% from 5.01%.

Hong Kong’s GDP grew by 5.1% year-on-year in the second quarter of 2011. However, in terms of

quarterly growth, Hong Kong reported a 0.5% contraction in the second quarter as compared to the first

quarter 2011. Slower growth in exports is the key reason of the economic contraction as exports posted

an 11.1% quarter-on-quarter (0.3% year-on-year increase) drop in the 2Q11.


BRIC (Ex India) Countries

Events

Brazil’s IPCA Inflation rose to 6.9% y-o-y in Jul 11, up from 6.7% in Jun 11

Brazil’s CNI Capacity Utilisation fell to 82.3% in Jun 11, down from an upward-revised 82.5% reading in May 11

China’s Industrial production grew y-o-y by 14.0% in Jul 11 as compared with 15.1% increase y-o-y in Jun 11

China’s Exports increased 20.4% y-o-y in Jul 11 as compared with a 17.0% increase y-o-y in Jun 11

China’s Imports increased 22.9% y-o-y in Jul 11 as compared with a 28.0% increase y-o-y in Jun 11

Russia’s Industrial production expanded 5.2% y-o-y in Jul 11, after a 5.7% y-o-y increase in Jun 11

Russia’s 2Q 11 GDP grew by 3.4% y-o-y, down from 1Q 11 GDP growth of 4.1%

Russia’s PMI Manufacturing dropped from 50.6 in Jun 11 to 49.8 in Jul 11

Market Outlook

Brazil’s economic activity decelerated amidst a challenging external environment. Capacity utilisation

fell to 82.30% in June, down from an upward-revised 82.5% in May, falling short of consensus estimates

of an 82.20% rate. The PMI manufacturing index declined further to 47.8 in July 2011 (a reading below

50 indicates a contraction in manufacturing activity), significantly lower than its average reading of 53.6

for Q1 2011 as manufacturers remained downbeat amidst a slowdown in developed market growth. The

economic activity index posted its first negative reading for the year with a loss of -0.26% in July after

growing by a downward-revised 0.05% on a month-on-month basis in June. The economic data is as our

-16.00%

-12.00%

-8.00%

-4.00%

0.00%

Bra

zil (

IBO

V)

Ch

ina

(HS

Mai

nla

nd

10

0)

Ru

ssia

(R

TSI$

)

Global Indices- BRIC (Ex-India)- (MTD

Returns)


house view expected with the economy slowing due to the various measures mentioned in prior months

and the rate hikes implemented. Looking forward, we expect further cooling of the economy as global

growth slows.

Initially, the market expected to see the Chinese headline inflation peaking in June at 6.4% year-on-year.

However, July’s CPI surprised the market by accelerating to 6.5% year-on-year. Food costs jumped

14.8%, compared to 14.4% in June. Similar to the last inflation cycle, the rising food prices were

primarily driven by higher pork prices which surged 33.6% in July compared to a year earlier. Non-food

price inflation continues to rise gradually at 2.9% year-on-year compared to 3.0% in June. While inflation

failed to see a peak in June, the consensus still believes that inflation is ready to peak. Therefore, we do

not expect a sharp deceleration ahead as China is likely to experience inflation brought by price

pressures from the non-cyclical service sector.

Russia reported 2Q 11 GDP growth of 3.4% on a year-on-year basis. The figure showed a decline in

economic activity from 1Q 2011 and missed consensus estimates of 4.0% growth. With declining

manufacturing PMI over the course of 2Q, the results do not come as much of a surprise as industrial

production grew by 4.8% year-on-year, down from 5.9% from Q1 2011. Further drags on GDP growth

were provided by weakened domestic consumption as a result of high inflation which eroded purchasing

power.


INDIA Equity Market Outlook


India-Equity

Events

India’s Manufacturing Purchasing Managers’ Index is at 53.6 in July as compared to 55.3 in June.

Production at factories, utilities and mines increased to 8.8% in June as against 5.6% in May.

WPI Inflation for the month of July stands at 9.22% as against 9.44% in June 2011.

The YoY 1Q FY2011-12 GDP is at 7.7% as compared to GDP growth of 1Q FY 2010-11 at 8.8% a

year ago.

Market Outlook

The negative performance witnessed in the last month has continued even in August. BSE SENSEX and S&P CNX NIFTY have both lost 8.36% and 8.77% respectively. All the sectoral indices of BSE have witnessed negative performance. The BSE Realty Index, fell the most at 14.78% while the BSE FMCG index fell the least at -3.51%.

The concerns in US and Europe are the primary reasons for which the Indian equity market has shown a negative performance. With the inflation still continuing to be above 9%, we expect that the RBI will go for a rate hike in September.

Currently, the estimated P/E for SENSEX as on 30 August 2011 stands at 14.37X for fiscal 2011 (Ending March 2012) and 12.30X for fiscal 2012 (Ending March 2013).Estimated earnings growth for the market is at 9.36% and 16.77% for these two financial years.

Looking at the valuations, we feel that the Indian equity market is undervalued and investors can consider investing into the market at the current levels. However, the investors are advised that there can be some downward correction due to unfolding of the global events. However, for long term

-16.00%

-14.00%

-12.00%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

BSE

Sen

sex

Nif

ty In

dex

BSE

MID

CA

P

BSE

SM

ALL

CA

P

India Indices (MTD Returns)

-16.00%

-14.00%

-12.00%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

BSE

FM

CG

BSE

AU

TO

BSE

Oil

& G

as

BSE

-HC

BSE

CD

BSE

CG

BSE

Po

wer

BSE

IT

BSE

Ban

kex

BSE

MET

AL

BSE

Rea

lty

Sectoral Indices (MTD

Returns)


investors, the market is currently undervalued and investors can consider doing SIP to even out the volatility as seen in the equity market.


INDIA

Debt Market Outlook


India-Debt

The 10 year benchmark yields were on a downward trend until 10 August 2011; however, post 10 August 2011 the yields have risen a bit. Overall, the 10 year yields have fallen by 14 basis points in this month. This is unlike the past few months, where in the 10 year benchmark yields have gone up on a month on month basis. The drop in yields has led the Gilt category funds to deliver good returns in August. However, the liquidity condition in the system has improved but still continues to be in the deficit mode. With the inflation still above 9% in July, we expect the RBI to go for a rate hike in September policy meet. In this scenario, we advise:

Investors with a time horizon anywhere from 3 months to 24 months can lock-in their FMPs (available with varying maturities) at the prevailing high rates.

Investors with idle cash in the savings account should look at Ultra-Short Term Funds. Recommended Funds in this category include DWS Cash Opportunities fund and Birla Sunlife Ultra short term Fund .The suggested investment horizon for such instruments is about 3 months.

8.05

8.1

8.15

8.2

8.25

8.3

8.35

8.4

8.45

8.52

9-J

ul-

11

31

-Ju

l-1

1

2-A

ug-

11

4-A

ug-

11

6-A

ug-

11

8-A

ug-

11

10

-Au

g-1

1

12

-Au

g-1

1

14

-Au

g-1

1

16

-Au

g-1

1

18

-Au

g-1

1

20

-Au

g-1

1

22

-Au

g-1

1

24

-Au

g-1

1

26

-Au

g-1

1

28

-Au

g-1

1

30

-Au

g-1

1

10 Year G-sec Curve

Yields


Mutual Funds


Fund Category Returns

Fund Category Returns (as of August 2011)

1 Month 1 Year

Equity: Large Cap -7.88% -7.70%

Equity: Multi Cap -7.94% -9.47%

Equity: Mid Cap -7.66% -9.12%

Equity: ELSS -7.48% -8.33%

Equity: Index -8.45% -6.74%

Equity: Global -5.57% 4.66%

Hybrid: Balanced -5.64% -4.11%

Hybrid: MIP -0.66% 3.98%

Debt: Income 0.87% 6.55%

Debt: Gilt Short Term 0.79% 5.87%

Debt: Gilt Long Term 1.17% 5.63%

Debt: Floating Rate 0.78% 7.82%

Debt: Ultra Short Term 0.74% 7.43%

Debt: Short Term 0.83% 7.52%

Liquid 0.71% 7.49% Source: ACE MF, iFAST Compilations

(Excludes Institutional Plans)

All the categories from Equity and Hybrid segment have delivered negative month-on-month

returns; Debt segment on the other hand has given positive returns this month. Index funds

category has delivered highest negative returns across the three segments i.e. equity, debt and

hybrid for second consecutive month.

All three actively managed large cap, multi cap and mid cap categories have delivered negative

month-on-month returns. When compared to the performance of broader indices like Sensex

and Nifty, these actively managed categories gave slightly better negative returns with both the

broader indices delivering negative returns close to 8.36% and 8.77%, respectively.

In the Hybrid segment, performance of both the categories i.e. Monthly Income Plans and

Balanced funds was weighted down by negative performance of the equity part in the portfolio.

Global funds category has delivered negative returns for fourth consecutive month. However,

on a 1 year basis it is the only category in the equity segment which has delivered positive

returns.

Among the Debt segment performance of all the categories is seen in the positive territory from

quite some time. This is the fourth consecutive month where all the debt categories have


delivered positive month-on-month returns. Gilt Long term category has been the star

performer delivering highest positive returns of around 1.17% in the month of August.


Top and Bottom Performing Equity Funds in August

Top Performing Equity funds on our Platform in August 2011

Sector 1 Month 1 Year

BNP Paribas Equity Fund Large Cap -5.15% 0.00%

DSP BlackRock Top 100 Equity Fund Large Cap -5.80% -3.86%

CNX Nifty Index (Benchmark) -8.77% -7.43%

AIG India Equity Fund Multi-Cap -3.42% 0.46%

UTI Opportunities Fund Multi-Cap -5.26% 0.34%

CNX 500 Index (Benchmark) -8.72% -11.00%

IDFC Premier Equity Fund Plan A Midcap & Small Cap -3.09% -2.86%

Magnum Global Fund Midcap & Small Cap -5.06% -1.69%

CNX Midcap Index (Benchmark) -9.01% -15.96%

BNP Paribas Tax Advantage Plan (ELSS) ELSS -4.76% -2.62%

Edelweiss ELSS Fund ELSS -5.02% -6.73%


DSP BlackRock World Gold Fund Overseas 8.35% 18.01%

AIG World Gold Fund Overseas 6.87% 18.50%

MSCI World Index (in INR) (Benchmark) -4.49% 8.38%

Source: ACF MF, iFAST Compilations

Large Cap Funds

All the large cap funds have delivered negative returns on month-on-month basis. BNP Paribas Equity

Fund was the top performer in the category which delivered least negative returns close to 5.15%. This

fund continues to be among the top two funds for second consecutive month.

Multi Cap Funds

Both the funds in this category i.e. AIG India Equity Fund and UTI Opportunities Fund have delivered

negative month-on-month returns close to 3.42% and 5.26% respectively; they were the top two

performers in the previous month as well. UTI Opportunities Fund is our recommended fund in the multi

cap category.

Mid Cap Funds

In the Mid cap space, both the top two performing funds despite delivering negative returns have

performed better than their benchmark CNX Midcap Index. IDFC Premier Equity Fund Plan A and


Magnum Global Fund have given negative returns of around 3.09% and 5.06% whereas the benchmark

CNX Midcap Index has given negative returns close to 9.01%.

ELSS Funds

In the ELSS funds category, BNP Paribas Tax Advantage Plan (ELSS) and Edelweiss ELSS Fund are the top

two performing funds delivering negative returns close to 4.76% and 5.02% respectively.

Global Funds

Both the global funds i.e. DSP Black Rock World Gold Fund AIG World Gold Fund have delivered positive

month-on-month returns close to 8.35% and 6.87% respectively. With most global equity markets

witnessing a downfall this month, gold played its part of the safe haven asset. Out of 25 global funds on

our platform, only the top 3 funds i.e. DSP Black Rock World Gold Fund, AIG World Gold Fund and Birla

SunLife Commodity Equities Fund -Global Precious Metals Plan have delivered positive returns close to

8.35%, 6.87% and 5.36% respectively.


Bottom Performing Equity funds on our Platform in August 2011


Reliance Equity Fund Large Cap -9.85% -19.81%

Sundaram India Leadership Fund Large Cap -9.94% -7.66%

CNX Nifty Index (Benchmark) -8.77% -7.43%

Reliance Regular Savings Fund -Equity Option Multi-Cap -10.46% -13.76%

Birla Sun Life India Opportunities Fund Multi-Cap -11.32% -14.59%


Reliance Growth Fund Midcap & Small Cap -10.17% -15.32%

HSBC Midcap Equity Fund Midcap & Small Cap -14.28% -28.98%

CNX Midcap Index (Benchmark) -9.01% -15.96%

JM Tax Gain Fund ELSS -9.38% -21.10%

Reliance Tax Saver (ELSS) ELSS -9.59% -9.99%


Mirae Asset China Advantage Fund Overseas -10.99% -1.27%

HSBC Emerging Markets Fund Overseas -15.03% -5.26%

MSCI World Index (in INR) (Benchmark) -4.49% 8.38%


Large Cap Funds

In the large cap space, Reliance Equity Fund and Sundaram India Leadership Fund were the bottom two

performers delivering negative returns close to 9.85% and 9.94% respectively. The funds

underperformed their benchmark CNX Nifty Index which delivered slightly lower negative returns of

around 8.77%.

Multi Cap Funds

In the multi cap funds segment, both the bottom performing funds Reliance Regular Savings-Equity Fund

and Birla Sun Life India Opportunities Fund have underperformed its category average as well as the

benchmark i.e. CNX 500 Index. Both the funds have given negative returns of 10.46% and 11.32%

respectively.


Mid Cap Funds

In the mid cap space, both the bottom performing funds Reliance Growth Fund and HSBC Midcap Equity Fund have delivered negative return of around 10.17% and 14.28% respectively. Both the funds have underperformed their benchmark CNX Midcap Index which delivered negative returns close to 9.01%. ELSS Funds With respect to ELSS funds - JM Tax Gain Fund and Reliance Tax Saver (ELSS) were the bottom performers for August. While the former appeared to be among the bottom performers in the previous month as well, Reliance Tax Saver (ELSS) was among the top two performing ELSS funds in the previous month. Global Funds Both the global funds Mirae Asset China Advantage Fund and HSBC Emerging Markets Fund delivered

negative returns close to 10.99% and 15.03% respectively. Both the funds have underperformed the

benchmark MSCI World which delivered a negative return close to 4.49% in August.


Top and Bottom Performing Debt / Hybrid Funds in August

Balanced Funds

Both the top performing funds Canara Robeco Balance and Birla Sunlife Freedom Fund despite

delivering negative returns of 3.91% and 4.31% outperformed their benchmark Crisil Balanced Fund

Index, which delivered a negative return of 5.48% on a month-on-month basis.

Monthly Income Plans

The best performing funds in this category - Birla Sun Life MIP II-Savings 5 Plan and HDFC Multiple Yield

Fund Plan 2005 have delivered positive returns close to 0.52% and 0.28% respectively. Out of 39 funds

on our platform, only top 5 funds have delivered positive returns on month-on-month basis.

Income Funds

All the funds in this category have delivered positive month-on-month returns. Religare Active Income

Fund Plan A is the top performer among the income funds delivering positive returns close to 1.53%.

Top Performing Debt funds / Hybrid on our Platform in August 2011


Canara Robeco Balance Balanced -3.91% -1.30%

Birla Sunlife Freedom Fund Balanced -4.31% -5.14%

Crisil Balanced Fund Index -5.48% -2.61%

Birla Sunlife MIP II-Savings 5 Plan MIP 0.52% 6.84%

HDFC Multiple Yield Fund Plan 2005 MIP 0.28% 7.61%

Crisil MIP Blended Index -0.67% 3.98%

Religare Active Income Fund Plan A Income 1.53% 8.84%

Reliance Income Fund Income 1.34% 6.25%

Crisil Composite Bond Fund Index 0.79% 5.86%

DWS Gilt Fund Gilt - Long Term 1.78% 5.25%

DSP BlackRock Government Securities Fund Gilt - Long Term 1.77% 3.90%

I-BEX (I-Sec Sovereign Bond Index) 1.47% 6.94%

Religare Short Term Plan-Plan A Short Term 1.41% 6.99%

Principal Income Fund Short Term 0.96% 6.75%

Crisil Short-Term Bond Fund Index 0.81% 6.75% Source: ACF MF, iFAST Compilations


The fund also outperformed the benchmark Crisil Composite Bond Fund Index which delivered close to

0.79% in this month.

Gilt- Long term Funds

Gilt- Long Term Funds as a category outperformed all other categories in the debt segment. All the 26

Gilt- Long Term Funds on our platform delivered positive returns on month-on-month basis. DWS Gilt

Fund was the top performer in the month of August delivering a return of 1.78%.

Short Term Funds

In this segment, Religare Short Term Plan-Plan A and Principal Income Fund were the top performing

funds during the month delivering returns close to 1.41% and 0.96% respectively . Both the funds have

managed to give better returns than their benchmark Crisil Short-Term Bond Fund Index which

delivered 0.81% returns.


Balanced Funds

Reliance Regular Savings Fund-Balanced Option and Magnum Balanced Fund are the bottom performing

balanced funds for August delivering negative returns close to 7.79% and 7.81% respectively. Both the

funds have underperformed the Crisil Balanced Fund Index which delivered negative return of 5.48%.

Monthly Income Plans

In the MIP category, UTI MIS Advantage Plan and ICICI Prudential MIP 25 are the bottom performers on

month-on-month basis delivering negative returns close to 1.59% and 1.70% respectively. Both the

funds have underperformed their category average as well as the benchmark i.e. Crisil MIP Blended

Index which delivered a negative return of 0.66% and 0.67% respectively.

Income Funds

In the income funds segment, both the bottom performing funds i.e. Sundaram Bond Saver and Birla

Sun Life Medium Term Plan have delivered returns close to 0.27% and 0.08% respectively. They

underperformed the benchmark i.e. Crisil Composite Bond Fund Index. which delivered a return of

around 0.79% on a month-on-month basis.

Bottom Performing Debt / Hybrid funds on our Platform in August 2011


Reliance Regular Savings Fund-Balanced Option Balanced -7.79% -9.68%

Magnum Balanced Fund Balanced -7.81% -10.33%

Crisil Balanced Fund Index -5.48% -2.61%

UTI MIS Advantage Plan MIP -1.59% 4.05%

ICICI Prudential MIP 25 MIP -1.70% 4.22%

Crisil MIP Blended Index -0.67% 3.98%

Sundaram Bond Saver Income 0.27% 4.83%

Birla SunLife Medium Term Plan Income 0.08% 7.76%

Crisil Composite Bond Fund Index 0.79% 5.86%

Religare Gilt-Long Duration Plan Gilt - Long Term 0.47% 4.16%

JM G-Sec Fund Gilt - Long Term 0.42% 3.76%

I-BEX (I-Sec Sovereign Bond Index) 1.47% 6.94%

Mirae Asset Short Term Bond Fund Short Term 0.60% 5.39%

Goldman Sachs Short Term Fund Short Term 0.57% 5.86%

Crisil Short-Term Bond Fund Index 0.81% 6.75%



Gilt- Long term Funds

Both the bottom performing Gilt long term funds Religare Gilt-Long Duration Plan and JM G-Sec Fund

underperformed their benchmark which is I-BEX (I-Sec Sovereign Bond Index) on a month-on-month

basis. JM G-sec Fund continues to be the bottom performer for second consecutive month.

Short Term Funds

In this category, both Mirae Asset Short Term Bond Fund & *Goldman Sachs Short Term Fund continue

to be the bottom two performers for the second consecutive month as well. They delivered returns

around 0.60% and 0.57% respectively this month.

*Goldman Sachs Asset Management (India) Private Limited (GS AMC) has taken over the rights to

manage the Schemes from BAMC (Benchmark Asset Management Company )and has become the

investment manager of the Schemes with effect from 22 August 2011.


Recommended Portfolios Update


Recommended Portfolios Update

1. Conservative Portfolio:

Portfolio Objective:

The portfolio aims to achieve long term capital appreciation by investing 90% into bond funds and 10%

into equity funds. The target allocation may change depending on our views on financial markets.

Currently, we hold a neutral position in equities and we target to have an exposure of 90% to bond

funds and 10% to equity funds.

Total Investment: INR 1,00,000 Portfolio Absolute Return since inception: (Inception Date: 26 Feb 2010)

11.81%

Portfolio Value:

INR 1,11,807

August 2011 Portfolio Return:

-0.09%

Portfolio Commentary:

The Conservative portfolio gave a negative return of 0.09% in August. After delivering positive returns

for five consecutive months the portfolio fell into negative territory this month.

In the Debt segment, the short term funds have attributed close to 45% of the debt portfolio returns,

while the floating rate funds accounted for over 32% of the debt portfolio returns. Reliance Short Term

Fund with 16.95% returns followed by Canara Robeco Floating Rate Fund with 16.52% returns

accounted for most of the debt portfolio returns.

In the domestic equity funds, both HDFC Top 200 Fund and UTI Dividend Yield Fund gave negative

returns. However, HDFC Top 200 Fund accounted for 62% of the negative equity portfolio returns

followed by UTI Dividend Yield Fund.

2. Moderately Conservative Portfolio:



into equity funds. The target allocation may change depending upon our views on financial markets.




10.72%

Portfolio Value:

INR 1,10,720

August 2011 Portfolio Returns:

-1.96%



The Moderately Conservative portfolio gave a negative return of 1.96% in August. The portfolio returns

were negative on account of negative performance of the equity funds despite the positive performance

of debt funds.

In the Debt category, the short term funds attributed close to 43% of the debt portfolio returns, while

the floating rate funds accounted for close to 28% of the debt portfolio returns. Reliance Short Term

Fund with 22% returns followed by Birla Sunlife Dynamic Bond Fund with 16% returns accounted for

most of the debt portfolio returns .

In the domestic equity funds, all the three funds have given negative returns. However, the two large

cap funds i.e. HDFC Top 200 Fund and ICICI Prudential Focused Blue Chip Equity Fund together

accounted for 75% of the negative equity portfolio returns.

3. Balanced Portfolio:







10.63%

Portfolio Value:

INR 1,10,627


-3.66%


The Balanced portfolio gave a negative return of 3.66% in August. The portfolio gave positive returns for

two consecutive months before appearing in the negative territory in the month of August.

Among the Debt funds, the short term funds have attributed close to 50% of the debt portfolio returns,

while the floating rate funds was the next best category accounting for close to 29% of the debt

portfolio returns. Reliance Short Term Fund with 30% returns followed by Birla Sunlife Floating Rate

Fund- Long term Plan with 19% returns accounted for most of the debt portfolio returns.


In the domestic equity funds, all the equity funds in the portfolio have given negative returns. Out of

three large cap funds, two of them i.e. HDFC Top 200 Fund and ICICI Prudential Focused Blue Chip Equity

Fund have lost the maximum of all the equity funds in the portfolio. Both the funds together accounted

for 58% of the negative equity portfolio returns. UTI Dividend Yield Fund has lost the least of all the

equity funds in the portfolio.

4. Moderately Aggressive Portfolio:







10.74%

Portfolio Value:

INR 1,10,737


-5.95%


The Moderately Aggressive portfolio gave a negative return of 5.95% in August. The returns were

negative on account of negative performance of the equity funds in the portfolio.

In the Debt funds category, Birla Sunlife Floating Rate Fund- Long term Plan with 29% returns and ICICI

Prudential Gilt Fund- Investment Plan with 23% returns accounted for most of the debt portfolio

returns.

In the domestic equity funds, the mid cap category accounted for 30% of the negative equity portfolio

returns followed by sector funds which accounted for close to 28% of the negative equity portfolio

returns. Reliance Banking Fund alone accounted for 22% of the negative equity portfolio returns. The

UTI Opportunities Fund has lost the least of all the negative performing funds in the portfolio accounting

for only 4% of the negative equity portfolio returns.

5. Aggressive Portfolio:





Currently, we hold a neutral position in equities we target to have an exposure of 10% to bond funds

and 90% to equity funds.


12.40%

Portfolio Value:

INR 1,12,398


-7.63%


The Aggressive portfolio gave a negative return of 7.63% in August. The negative portfolio returns is

owing to higher weightage to equity part in the portfolio which has delivered negative returns.

In the debt category, both the funds delivered positive month-on-month returns. ICICI Prudential Gilt

Fund- Investment Plan alone accounted for 58% of the debt portfolio returns.

In the domestic equity funds, the sector funds category i.e. Reliance Banking Fund, ICICI Prudential

Infrastructure Fund and Reliance Pharma Fund followed by the midcap oriented funds i.e. HDFC Midcap

Opportunities Fund and DSP Blackrock Small and Midcap Fund have accounted for 34% and 33%

respectively of the negative equity portfolio returns.

6. Moderately Aggressive (Global) Portfolio:


The portfolio aims to achieve long term capital appreciation by investing 30% into bond funds, 46% in

domestic equity funds and 25% in global equity funds. The target allocation may change depending

upon our views on financial markets. Currently, we hold a neutral position in equities and we target to

have an exposure of 30% to bond funds, 46% to domestic equity funds and 25% to global equity funds.


10.85%

Portfolio Value:

INR 1,10,847


-5.53%


The Moderately Aggressive (Global) portfolio gave a negative return of 5.53% in August. The returns

were negative on account of negative performance of the domestic and global equity funds in the

portfolio.


In the Debt funds category, Birla Sunlife Floating Rate Fund- Long term Plan with 30% returns and ICICI

Prudential Gilt Fund- Investment Plan with 22% returns accounted for most of the debt portfolio

returns.

In the domestic equity funds, the midcap oriented funds i.e. HDFC Midcap Opportunities Fund and DSP

Blackrock Small and Midcap Fund have accounted for 30% of the negative equity portfolio returns.

In the global equity funds, both the global funds i.e. Mirae Asset China Advantage Fund and Principal

Global Opportunities Fund have given negative returns. However Mirae Asset China Advantage Fund

alone accounted for 66% of the negative global equity portfolio returns.

7. Aggressive (Global) Portfolio:


The portfolio aims to achieve long term capital appreciation by investing 10% into bond funds, 59% into

domestic equity funds and 31% into global equity funds. The target allocation may change depending

upon our views on financial markets. Currently, we hold a neutral position in equities and we target to

have an exposure of 10% to bond funds, 60% to domestic equity funds and 30% to global equity funds.


11.07%

Portfolio Value:

INR 1,11,070


-7.22%


The Aggressive (Global) portfolio gave a negative return of 7.22% in August. The returns were negative

on account of negative performance of the domestic and global equity funds in the portfolio.

In the debt category, both the funds delivered positive month-on-month returns. ICICI Prudential Gilt

Fund- Investment Plan alone accounted for 56% of the debt portfolio returns.

In the domestic equity funds, the sector funds category i.e. Reliance Banking Fund, ICICI Prudential

Infrastructure Fund and Reliance Pharma Fund followed by the midcap oriented funds i.e. HDFC Midcap

Opportunities Fund and DSP Blackrock Small and Midcap Fund have accounted for 31% and 29%

respectively of the negative equity portfolio returns. .

In the global equity funds, both the global funds i.e. Mirae Asset China Advantage Fund and Principal

Global Opportunities Fund have given negative returns. However, Mirae Asset China Advantage Fund

alone accounted for 57% of the negative global equity portfolio returns.


Fund Focus


Fund Focus: ICICI Prudential Infrastructure Fund

Infrastructure is a key sector for any economy. Infrastructure is a broad sector consisting mainly of

transportation (land, air and water), telecommunication, energy (Oil and Gas and Power) and finance

sub sectors. Good public infrastructure not only directly contributes to robust economic growth but also

indirectly enables other sectors contribute more towards economic growth; therefore, good public

Infrastructure sector is an enabler for economic growth.

Lack of public infrastructure is one of the key reasons hampering the economic growth of India.

However, the government has woken up from its lethargic attitude towards public infrastructure. The

focus on infrastructure spending is seen in the budget speech of 2011-12. However, certain bottlenecks

remain and the government is working to resolve them from the policy perspective.

Infrastructure as an investment

India is expected to invest $1 trillion in public infrastructure development in its 12th five year plan

between 2012 and 2017. The economic survey for 2011-12 states that atleast 50% of this $1 trillion is

expected to be made from the private sector. Since, most of the infrastructure projects are mostly

monopolistic in nature (ports, roads, etc) investors can expect good returns from Infrastructure

investments.

Government has enabled higher inflows directly into the infrastructure space on the debt side in order

to meet the huge investments demands in the sector. The government has raised the limit for FII

participation into infrastructure debt space from $5 billion to $25 billion in the budget for 2011-12.

This sector holds potential to generate long term returns for the patient investor as infrastructure

projects has long gestation periods. Our recommended fund in infrastructure space is ICICI Prudential

Infrastructure fund.

Investment strategy of ICICI Prudential Infrastructure fund

The ICICI Prudential Infrastructure fund invests across market cap, but has a high concentration towards

large caps. Between February 2008 and July 2011, the fund on an average had over 68% exposure of the

portfolio to large cap stocks. Exposure to mid cap stocks was on an average close to 8.3%, while

exposure to the small cap stocks was limited to around 4.7% between February 2008 and July 2011 .

Cash holding on an average was close to 8.4% between February 2008 and July 2011. The fund does take

exposure to derivatives. However, much of the exposure is in futures while the use of options is

sporadic. The exposure to futures was on an average of 5.7% between February 2008 and July 2011.

Banking, Refineries, Power generation/distribution, telecom and Oil exploration sectors are the top five

sectors to which the fund has exposure to. Between February 2008 and June 2007, Banking has an

average exposure of 12.7% of the portfolio, followed by Refinery at 10%, which is further followed by

power sector having 9.7%, telecom 8.1% while Oil exploration sector having 6.4% exposure.


Performance

Infrastructure sector’s performance as a whole has been continuously lagging since the greater part of

2010 till today. This can be seen in chart 1. CNX Infrastructure is the benchmark for this fund. If you had

invested INR 10,000 into this fund on 30 April 2008, this INR 10,000 would have been worth INR 8870 as

at 30 August 2011.

This laggard performance is actually an investment opportunity in disguise for the long term investor.

The prospects of this sector are bright as huge investments are made into the infrastructure space by

both private investors and government.

Chart 1: Performance of ICICI Prudential Infrastructure fund, other top performing infrastructure

funds and CNX Nifty.

30

40

50

60

70

80

90

100

110

120

130

30

-Ap

r-0

8

30

-Ju

n-0

8

31

-Au

g-0

8

31

-Oct

-08

31

-Dec

-08

28

-Feb

-09

30

-Ap

r-0

9

30

-Ju

n-0

9

31

-Au

g-0

9

31

-Oct

-09

31

-Dec

-09

28

-Feb

-10

30

-Ap

r-1

0

30

-Ju

n-1

0

31

-Au

g-1

0

31

-Oct

-10

31

-Dec

-10

28

-Feb

-11

30

-Ap

r-1

1

30

-Ju

n-1

1

AIG Infra & Eco Reform DSPBR India T.I.G.E.R

ICICI Pru Infrastructure CNX Infrastructure

Performance of ICICI Prudential Infrastructure Fund


Table 1: Performance of funds in percentage

Scheme Name 6 Months 1 Year 3 Years 5 Years

AIG Infrastructure & Economic Reform Fund 6.46 -5.59 9.52

DSP Black Rock India T.I.G.E.R Fund -5.05 -19.17 3.47 8.71

ICICI Prudential Infrastructure Fund -6.88 -13.58 1.39 11.70

CNX Infrastructure -1.08 -18.07 -8.40 2.75

Source: iFAST Compilations, performance above 1 year is in CAGR terms and performance below 1 year is in absolute terms. Performance as on 30 August 2011

Our take on the Fund

The growth in the infrastructure sector is a must for our economy to continue to grow at high current

growth rate. With the 12th plan expecting about US$ 1 trillion being invested into the infrastructure

space and atleast 50% of this US$ 1 trillion being invested by the private investors, there are good

opportunities for patient investors in this sector.

ICICI Prudential Infrastructure fund is the best performing infrastructure fund despite the lack luster

performance of this sector in the past year. However, investors can use the laggard performance to

enter into this fund. Moreover, we recommend the investors to hold their investments into this fund for

atleast five years to realise the growth benefits of the sector.

monthly markets update (india) - september 2011

Economy & Finance

spindian markets

germany gdp qo

2q11 us gdp growth

germany pmi manufacturing

uk pmi manufacturing

downgrading of us debt

us debt ceiling

manufacturing pmi indices