Wednesday, October 15, 2008

Equity Funds attacked by bears

I was curious to see what the year to date performance could be on mutual funds on 10/15/2008 and here is the snapshot of the query. Not one diversified equity fund has shown any gains over the past 1 year. Attached is the picture which says it all. You can run other queries on the Mutual fund screener tool and find out the top losers over the past year or two but the amount of money lost this year is over 30% so all the gains made over the 3 year horizon are wiped out in half. If someone had put the same amount of money in a fixed deposit, they wouldn't have done too bad. The FII's have scooted with the gains and the brokerages have to be squarely blamed for deceiving the common Indian investor of their life savings.


Anonymous said...

SENSEX is going to 8000 points very soon. All the money invested by foreign institutions is going to be withdrawn as people in western countries are wanting their money back.

The fake party is over, though it ran wild for 4-5 years. Thanks to globalization and false money that was flowing due to stupid policies of Alan GreedSpan all over the world.

Anonymous said...

If anyone has to be blamed, it is the regulators who let all this money coming in without even thinking of the consequences. Most importantly with a Harvard PhD as Prime Minister, it is a matter of shame that they didn't see it coming.

Even many bloggers on this blog knew what was coming and most of them don't even hold MBA degrees, forget Harvard.

Bankrupt Guy said...

No. 1 culprit is BBC. BBC was making such proaganda on India's economic miracle, many overseas investors including Indians fell in the trap and started pumping in money. Now this investors are in a hurry to exit.

Pakistan/iceland have reached bankruptcy and India is close to it. If this situation is not checked, some of us will be be forced to ration even food, forget about buying apartment house etc

Poverty bites and bites hard

Anonymous said...

The ball has started. Read below

MFs clamp down on redemptions
16 Oct 2008, 0036 hrs IST, Namita Devidayal,TNN

MUMBAI: Some mutual fund companies are not allowing investors to redeem their money freely.

On Wednesday, when a wealth manager tried to redeem a couple of ABN Amro Fixed Maturity Plans (FMP) because her client was panicking over the current market conditions, she was told that she could not take out more than Rs 1 lakh per day. For her client, who wanted to redeem more than Rs 10 lakh, this meant he would have to stagger the redemptions every day for ten days, even if the scheme's price keeps falling.

"My client is livid. When it comes to such large amounts, every day makes a difference," says the wealth manager, asking not to be named. "How can they hold back our money? Just as you can break an FD, you should be able to redeem an FMP." An FMP is similar to a fixed deposit, but within a mutual fund.

But nothing can be done. Relying on the fine print which allows mutual fund companies to restrain their redemption policies under extraordinary circumstances such as these, these funds are exercising their right to reduce huge outflows. While some fund companies are increasing the number of days it will take to get funds out, others are restricting the amounts that can be redeemed while some have suddenly introduced exit loads.

Duetsche Mutual Funds sent out a mass-mailer late yesterday saying, "Please be informed that with immediate effect for all redemptions booked in any of our fixed term funds wherein the tenure is more than 3 months, the payout would happen on T+9 business days." ABN Amro restricted redemptions to no more than Rs 1 lakh per day per folio, and not per scheme. (This means that if you hold six schemes, but they are all listed under one folio, you can still take out only Rs 1 lakh per day.)

Nikhil Johri, MD of ABN Amro Asset Management Company, said, "We are limiting the number of redemptions as a short measure. In a special situation, the trustees of the fund reserve the right to limit the redemption for a period of time, till market conditions stabilize." He added that this is in the interest of those investors who stick it out in the fund.

"We are limiting redemption to 5% of our portfolio per day to protect the interests of those investors who choose to stay on till maturity," said Johri.

Dhirendra Kumar, head of Valueresearch, a mutual fund tracking company, said, "While this kind of practice looks unethical at the outset, it may be ethical in the larger goal, particularly in the case of FMPs."

Anonymous said...

‘Housing units in Rs 45-50 lakh range are of concern’
Ashish K Tiwari
Thursday, October 16, 2008 03:45

The real estate market underwent correction from 1994-95 to the early 2000, but housing finance companies still managed to grow significantly though interest rates were considerably high. In the backdrop of ongoing global financial crisis and its impact on Indian businesses, Kapil Wadhawan, vice chairman and managing director, Dewan Housing Finance Ltd (DHFL) dispels all discomfort on the gloom. He says need-oriented activities will continue to happen irrespective of the adverse market conditions. In conversation with DNA Money’s Ashish K Tiwari, he speaks about the current scenario in the housing finance business. Excerpts:

How has the market turmoil impacted your housing finance business?
We have survived major downturns in the housing finance business in the past, but this combination of exorbitant prices and increased interest rates, I think, is the biggest so far. Overall we still continue to remain optimistic. In fact, 20% growth in incremental housing loans is something not far away. We still continue to disburse money. But, overall liquidity certainly is quite tight in the market and there is no denying that.

Where is this incremental growth really coming from?
The affordable segment is still very strong and people are not shying away from availing housing loans. And, there is significant development underway in this housing segment category. I think the problem is more so in the larger cities with increased speculation activities wherein luxury apartments were being sold at exorbitant rates. That segment is already seeing a correction. Going forward, we should see some more correction in that category. But tier II and III locations, the lower-middle income segments where we are currently focussed, we should be in a position to achieve 20% growth.

Could you elaborate further on the affordable housing segment being targeted by DHFL? And why affordable housing in particular?
A vast segment of the population today still cannot afford to buy houses in bigger cities like Mumbai. People are house-hunting in the outskirts, for example Kalyan, Ulhasnagar, Vasai, Virar and Thane district, where they can still find apartments in the Rs 10-20 lakh range. This apart, there are those constructing on their own plot/land in smaller towns and require money for it. So, we are facilitating/funding the construction cost on the loan-to-cost ratio basis.

With a shortfall of over 30 million houses, the demand far exceeds supply when it comes to affordable housing.

Which are the regions contributing to the growth?
It’s a pan-India phenomenon though West and South have been primary growth markets. We have started getting a little more active in the northern region now and have associated with the Punjab & Sind Bank to tap the market there.

So which are the challenging areas then?
I think the middle income and upper-middle income where the average price of the unit ranges Rs 40-50 lakh is where we are already seeing some concerns. People are holding back their decision to invest in housing as apartment prices have shot up considerably and so have the interest rates. I am of the opinion that even those in the higher income groups are holding their plans because the overall macro-economic situation is not looking very favourable for investments. With all the efforts by the government to dispel any uncertainties in the minds of the people, hopefully things should stabilise in the next couple of days. When the stock market stabilises, that should restore some confidence in the market.

How are your overseas operations - Dubai and UK - faring? Is there pressure on the real estate market as well?
We have been operating in the Middle-East with an office in Dubai for the last few years and have recently opened an office in London. The objective was to fund the non-resident Indians wanting to invest in a house back in India. The growth has been quite stable for the last few years particularly in the Dubai market. I think there should be a lot of resilience when things calm down globally from a financial system perspective.

How was your experience participating in the recently concluded MCHI property exhibition?
The pipeline as compared to last year was lower. But people who actually come in these times are the actual needy buyers. While there was a less number of visitors vis-à-vis last few years, the encouraging response was enough to instil confidence in the market.

Has the realty meltdown effect really started showing up in the rates being given out in the market so far?
I think one is putting up a bold face trying to state that things are prima facie OK. But there is no denying the fact that there has been a correction in the market. In our observation, there is a 20% correction on an average without any doubt. This, in a way, is good because the real estate prices had moved up exponentially over the last few years.

With realtors holding on to the inventory so far, is distress-selling in the offing?
In my opinion, holding on to the inventory is not a prudent thing to do. At the same time, I’m not suggesting that developers should resort to distress-selling. If the company’s overall cash position is comfortable, then looking at the state of the market and where the buyer is coming from, and also keeping in mind the interest rates, the respective companies should lower their own expectations on margins and conclude the sale.

What is the best possible option for realtors to raise money?
I think getting a PE firm to invest is very prudent. In fact, bringing them on board at the private or SPV level will improve transparency, better the fund sourcing situation and channel its utilisation in right direction.

KUMAR said...

guys there are only things now possible...

world coming to an end or the world recoverring from the mess created by the MBA's of the world... relax boys.... chill out...

Anonymous said...

I think sensex will make a full circle by the time general elections are held to central. When UPA took over central sensex was somewhere at around 6000. It may reach there by next general elections. Now the Dow target is 5000, s&p 500.

Anonymous said...

Some days back there was a small article in the TOI Mumbai regarding registration of homes. It stated that the no of registration have gone done by more than half and the stamp duty guys are worried that they will not be able to meet their target collection for the year.

Correction is CERTAIN. Whether it is 20% or 50 % we do not know but surely more than 20%. As some one said. In mumbai even in far off suburbs like Borivali or Kandivali or Malad , the correct rate shoudl be in the range of 3000 to 4000 for the ultra high end projects.

Wait till prices correct to these level before buying property.

This is a cycle. But this cycle is with a lot of Negative news world wide . So the impact of Real estate cannot be missed. Its going down.

Anonymous said...

any NRI parking money in india will lose big as rupee plunge to dollar is coming (i see it at 60)
Real estate prices will plunge to 2001 level as bhnag drinking mungerilals syddenly realize the bubble and bolt for the door.
ha ha i hear jet airways firing 1000 folks is creating hare ram hare ram w/ indians. But injuns should realize that to enjoy capitalism, they should be willing to get fired or else go back to PSU days.
I am waiting for large scale layoffs in coolie companies of infosys/wipro/satyam/tcs etc and how that is handled.
Indian story? haha my foot.

Kannan Pothi said...

abbudulla.... your great thoughts ?

Anonymous said...

This is with regards to black money in real estate in particular and in the indian economy in general

Most businesses are run on black money. One estimate has that Indians have over 1456 billion US$ in secret swiss banks .

Another thing is this money helps the netas to get richer.

there will be no cure for this because it is done for the govt babus and politicans and netas and big biz.

In real estate every one knows that black and white component is to be paid. In fact there is a builder in south mumbai who asks for 70% black componenet.

What will be govt do about this . NOTHING

NOTHING AT ALL. because they are part of this rot.

Untill the economny goes into recession in India and govt will have to think about ways to get that black money into the white stream.

Till then there is no way out

Anonymous said...

Anon above:
These figures 1456 billion is 1.45 trillion USD. These figures are not correct and where did you get these numbers.

Even India's GDP is not 1 trillion.

Anonymous said...

India's black economy has assumed huge proportions and it keeps growing. It is estimated that it is worth a whopping US$1000 billion - almost the size of the official economy - but some say it is even larger and could be as high as 170% of the official economy, if parallel activities undertaken outside the country are considered.

"Don't forget that parallel economic activity pertaining to the Indian economy does not just happen within the [country's] borders, A lot of real-estate deals are struck in Indian rupees in Dubai, and rupee-denominated business deals are not unusual even in New York.

The deposits in foreign banks by Indian politician that may amount to $200 billion are mot included in the report

Asian Age

Shailesh said...

You keep mentioning about black money, but do you think all this black money will come to rescue sinking housing market. Netas will be the first one to sell quickly and take the money out of real estate. Anyway elections are coming next year, so they need money.

Shivaji said...

I tend to agree with anonymus

The difference between India and other third countries is that while most of the underground economy elsewhere in the world revolves around criminal or illegal activities, the major contributors to the black economy in India are legal businesses and the government.

Legal businesses controlled by the government, government expenditures and taxes have also been the "major source of black-money creation".

For instance, say officials from ICRIER, no real-estate deal in the country is done without the involvement of at least 50% unaccounted-for money, and a large portion of the billions of dollars in foreign-exchange inflows that India sees every year is actually the returning black money that went out of the country in the high-tax regime before liberalization began.

Corruption rules the roost

Abdulla said...

The last posts by shivaji ought to drive home the points I have been advocating. Dont assume that a low sensex figure reflects the whole picture of the economy.

The underground economy is alive and kicking well. My predictions of 80:30::black:white has already started. I have already started concentrating my business in slums/zopdas where the real money is active.

My advise to IT/MBA guys - try to get into the underground economy. Open small offices in chawls and start your consultancy sevices. You will never look back at the high rise offices in Mumbai as you will make more money in 5-10 years than working your entire life in posh localities.

'Rokda' is the key to happiness and prosperity.

sabbalseshu said...

For the people who deny the existence/importance of black money

US$ is traded at Rs.60 today in Mumbai market when the official rate is 49 and is in short supply.
Big shots are pledging crores of rupees to be converted in $ in countries like singapore/wellington/hongkong/NY/london/luxemburg etc etc to be deposited in their accounts. Because of global crisis, these deposits will be kept very secret by foreign banks

Now, the billions converted into rupees will remain here and will be pumped in the market, mainly real estate.

Those who dismissed my advice, better come to reality

mallapottell said...

Bring back Swiss bank money

By Kuldip Nayar

THIS is not grandma’s prescription. It is plain common sense. Whenever you are hard up you reach for the money you have hidden.

India, and all of South Asia for that matter, is facing a crisis of liquidity. And this is the time when politicians, industrialists and bureaucrats in India, Pakistan, Bangladesh, Nepal and Sri Lanka should bring back the money they have stashed away in Swiss banks.

The amount reportedly runs into billions of dollars which the corrupt elite have come to possess through dishonest methods. I do not want to argue the rights and wrongs of their deeds because that would start another kind of a debate. We need money to stave off the crisis we face. Even otherwise, if the corrupt feel even an iota of patriotism, they should not hesitate to bring back the much-required finance to bolster our sagging economies.

Since Switzerland maintains secret bank accounts, it is not possible for any intelligence agency, however resourceful, to trace the money. The account holders will have to do it themselves provided they feel the pain which their nation is going through.I do not know how much money is hidden by Pakistanis, Bangladeshis, Nepalese or the Sri Lankans. But the estimate for Indians is around $1,500bn which, translated into rupees, comes to some 675,000 crores (I have calculated it at the rate of Rs45 per dollar). Indeed, the figure is mind-boggling.

In a 2006 report on black money in Swiss banks, the Swiss Banking Association has put the deposits of five top countries as: India, the highest, with $1,456bn, Russia $470bn, the UK $390bn, Ukraine $100bn and China $96bn. If India’s deposits were to be distributed, 45 crore people would get Rs1 lakh each.

When I was at India’s High Commission in London, I met a bank manager from Switzerland at a party. He said that his bank alone had so much money deposited by Indians that their country could meet foreign exchange requirements for ten five-year plans. Those were the days when we were acutely short of foreign exchange and had even pledged our gold to the Bank of England as a guarantee.

The global financial situation is not getting better and India is bound to be affected sooner or later. The money in Switzerland would come in handy at this time. Yet, the question is how to persuade corrupt politicians, IAS, IPS and IRS personnel and industrialists to move their piles from abroad to India. Threats to them will not work because nobody except the Swiss banks knows how much they have. There has to be an appeal to their better senses and an assurance that they can possess most of the money legally.

It sounds immoral but there will have to be something like a tax holiday or some scheme where no questions are asked. If they were to give one-third of the amount they have abroad, they could retain the rest. I wish they realise that one-third is a small price to pay for legitimising their loot in which they have indulged since independence.

In fact, tax havens such as Switzerland are a drag on poor countries. They are part of the exploitation to which South Asia has been subjected to by the West for centuries. A book written by a western economist — entitled Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free-Market System — estimates that at least $5bn have been shifted out of poorer countries to the West since the mid-1970s.

Still the markets and several banks in the West have crashed. They are in fact responsible for ruining our measly financial institutions. Imagine what would have happened to them if they did not have the money which our corrupt industrialists, bureaucrats and politicians have deposited with them? Add to this the money they have stashed away in tax havens.

South Asia has been hit because it is part of the global economy which has caved in. Under pressure from the West, we have opened up several sectors to them. It has been seen during the last few weeks that they have been the first to sell their shares in various Indian companies, bringing the stock market tumbling down. It is estimated that in India alone they were withdrawing Rs2,000-3,000 crore in foreign exchange per week because they experienced hardship in their own country.

In India, the Left which had supported the Manmohan Singh government has saved us from further disaster by not allowing some financial sectors opening up to global players. We also owe it to the Left that western institutions were not allowed to enter insurance to the full extent. The Left also put in place some regulatory measures for banks.

The economic crisis, triggered primarily by western wasteful living, brought all of Europe, America and others together the other day in Washington to discuss how to overcome the situation. I wish New Delhi had taken the initiative to get the countries of South Asia around the same table to discuss a joint action for facing the problem.

Poor countries have a lot of resilience. They may therefore weather the storm. But it will be again at the expense of the lower half. In a capitalist economy, the upper half loses luxuries, not comforts. The poor have to cut down on necessities. One per cent of the world population is said to be holding more than 57 per cent of the total global wealth.

Manmohan Singh, who authored a South-South Commission report, proposed close commercial and economic cooperation among the countries of the third world. The suggestions never took off. He should wash off the stigma by grouping the countries in South Asia into a common market. The world financial crisis can be turned into an opportunity for the region to lessen dollar transactions. We can meet most needs from our own resources. We have the men and material, technology and manpower to do so.

We have lost enough to the West before and after independence. Let us at least start depending on ourselves and do away with such foreign goods that are available in the region. And it becomes all the more necessary for civil societies to band together with national and international experts to put moral and legal pressure on Swiss banks to reveal the identities of account holders. This money belongs to the people of South Asia and it should be available to them when they need it. We should also develop confidence to borrow from one another instead of looking towards the West.

The writer is a leading journalist based in Delhi.

Anonymous said...

US has been able to pressure Swiss banks to reveal the holdings of US citizens.

India should also be able to do it provided it is not led by thieves. Most top people who have the power to get this done already have accounts there.

But, housing will still go down by 50% soon in India. Lot of people will lose money, black or white.

Sanjay said...

Sivaji, sabbalseshu and Abdulla,

I cannot really make any sense out of what you guys are trying to make.

A) Do you intend to say that People buy the stupid flats in india only using black money?? If thats the case the home loan businesses of ICICI, LIC finance wouldn't have grown this bigger

B) If the flat prices come down by 40 - 50 % the black money will rush to arrest the fall!! IF they do that there black will come as white and makes the process complicated as they need to hold these properties using benomies...

C) using so much of black money they could have helped the ailing builders by providing required cash flows/bought their stocks using the P note route...

d) the stupid builders would still buy lands at astronomical prices... why did they stop? They should still have black money with them as not all builders are listed...

The housing boom in india is because of IT/ITES salaries / Low interest rate (Copying the Alan greenspan idea) and most importantly greed of the young people....

Now when these factors go away there has to be a natural drop in the price... Its a law of the nature....

Dont do Day deaming thinking prices will go down....

ICICI bank / direct are now selling flats on behalf of builders... This tells the seriousness of the problem... Why do they need to do?

Apply your mind... Else it will get rusted....

Still you may choose not to apply... In that case your own black money (Billions of $) and by all the unsold flats and still if you need some more people like me can sell our flats and still if you have more money ask your builders to launch new projects..

Observer said...

If people think about it for just a couple of minutes, they will immediately know why this angle does not make any sense. Black money was also present ten years ago in the 90s, when a similar property price boom and bust happened. After all, someone with black money can only buy a few properties, even with benami transactions, in the name of a few trusted relatives/friends. The number of such people are much fewer than the real number of end-users.

The market is always determined eventually by end-users. Someone has to live in those flats! Also, black money owners will act like any other businessmen. They will not want their wealth to go down in value. So if the property market stalls because of eventual lack of end-users, they would prefer to send the money abroad where it can at least be preserved and earn some interest.

Anonymous said...

Black or WHite, property prices will see a a sharp decline upto 60% in the coming year. People will lose black money more than white money. Paisa jaise aata hai, waise he chala jata hai.

Shame on people who use black money and hoard it as their progress. This is money of India's common man and should be returned or pay proper taxes. Nation of thieves.

Swiss banks are thriving on stupidity of Indian thieves. Once a person who has say 100M USD in a swiss account dies, the money goes to the swiss bank and even next to the kin of the accountholder cannot claim it.

These bastards are just draining India's wealth.