Mental Web

                                                                                                                           

It is a deterrent;

A mental calamity;                 

Unknown to few, known to many;

Kills for certainty.

It knows no freedom;

Knows no joy;

You remain in a shell;

And mind is not productively deployed.

Shun the notions;

Kill the tumor;

Usher in fresh air;

And stick to humor.

The worlds massive;

With loads to explore;

Time is precious;

So let’s not waste any more.

Abandon it,

Loathe it;

Cause we have one life to live;

Let that ‘it’ not be ‘FEAR’.

Cafe by the beach

Man v/s Food…Well yes this story never ends. Most of us like exploring into this specific segment.

 Catching up on new restaurants and experimenting with cuisines..Well anything to pamper our pallets.

I too did the same for the last couple of years..Felt like catching up on the number of years that I missed out on. For someone as cynical as me, most restaurants seemed like the usual.

Today we chose to head to this place called ‘Café by the beach. Beaches are not typically my thing. But somehow got a very different vibe from this place. It was Sprawled over a large area and floored with sand all over. Overlooking the beach as it is, some sort of equanimity prevails. The ambience is the USP which is perfectly lit with these small caged lamps. They were hanging all over the place and it did captivate me. As it finally poured the weather seemed in tandem to the place.

Well what we ordered? Parpadelle pasta in saffron chili sauce, nachos and couple of mocktails. Like the look of the place, the presentation of the food matched it impeccably. I chose to highlight the presentation because that’s where it stopped. The taste was mediocre. Looked perfect but perhaps not something you would relish. The mocktails perhaps were a tad better than the food.

Somehow the food is something that most people who come here may not complain about…The ambience covers for it beautifully. For all those who look forward to a romantic outing this place may surpass their expectations. To top it there are these beautiful looking cottages with couches in there. People wanting more privacy may head there too* wink wink *.

Perfect place to end a stressful day and unwind. Certainly one of the places I liked most. I rate it a 3/5.

Suggest you go there and let me know..!

 P.S : Location ; Choupatty.

Equity and mutual funds....

Mutual Funds industry is in a tricky situation. This industry experienced a very positive inflow from the span of 2003-2008.However since 2008 this industry has seen a jerky ride.

FY 12 and FY 11 lost 1.6 million and 1.8 million equity folios respectively. The inflow was more into debt funds like the FMPS, liquid funds and short term MIP’s. Also the gold etf’s saw a major surge.

Although the top MNC’S are making a fair share of their profits, the retail investors over the span of last four years have gained nothing. We are at lower levels than what it was in the 2007.

Currently there are many issues in India and globally that is crippling the equity segment in general. The negative IIP ‘S, high inflation and low GDP numbers are the drivers of the negative sentiment in the equity markets.

Globally the Euro zone is on tenterhooks. Events like the Greece elections, G20 Meetings will help derive a conclusion. It becomes imperative for the Euro to sustain for the positive trend to begin. Also the QE3 in the US is an important event. The employment figures there look dicey.

These factors will have an impact but a temporary one. However the good news is that at this point the market looks fairly priced as all the negatives have been factored in. In the past few months the market has corrected significantly.

Also interest rates have peaked out, gold imports have been reduced and global crude prices have corrected quite a bit. The Rupee has seen 20% erosion in the year. There’s a strong buzz that RBI may further cut rates.

All these factors have placed a good possibility that the equity markets are bottoming out. The equity markets may gradually pick up from here on.

In turn the investors can be more positive about the equity mutual funds. If interest rates further slash and debt funds are unable to beat inflation, the obvious route is equity mutual funds.

The latest news declared that equity Mutual funds ended in a green led by positive market rally. All the funds in Equity and Balanced category advanced witnessing no decline. The same trend was followed even by sectoral categories. None of the funds in any category witnessed any decline.

Knowing there’s a good possibility the markets will be a better and if the funds are systematically chosen and actively managed, the equity mutual funds are definitely a good arena to invest in.

Present and Future King :FMCG Sector

The staggering population of 1.2 billion is generally considered to be a bane .However if seen from the FMCG sectors’ perspective, then it’s a rooster that lays golden eggs.

This I am saying because an unexplored market is awaiting the FMCG sector to dawn upon it. When I say unexplored I am implying the rural markets of India.68% of the Indian economy resides here and accounts for 40% of Indian Economy. Obviously the Corporates can’t afford to neglect this segment. More so about 50% of the population is below the age of 25 years. So to the youth with additional disposal income is another segment that needs to be tapped.

 If statistics are to be believed then the Indian organized retail is just a mere 5% of the US $450 billion market. Thus being the second most populous country in the world we have immense scope for growth.

Let me put forth a gist of why there will be momentum in this sector:-

• Rapid increase in the rate of urbanization.
• Rise in disposable incomes enabling the companies to focus on premium product brands.
• Constant innovation in existing products from customer feedback.
• Penetration to rural markets with strong distribution channels.
• Rise in rural non-agricultural income and benefits from government welfare programmes contribute to top-line growth for FMCG companies.
• Investment in this sector stocks also attracts investor’s attention because the demand for FMCG products is throughout the year.
• Media playing an important role in creating awareness of products in rural areas.

Further let me add on to further figures why investing in FMCG stocks is worth it.

SENSEX Vs BSE FMCG Index

FMCG sector is performing well due to strong characteristics and dependence on consumption in domestic market. The returns table (above) portraits that it registered lower drop in 2008 i.e. during slowdown in the economy. The performance of FMCG sector was laggard in 2009 when economy was recovering and major sectors started performing well contributing to growth in SENSEX. However, performance of BSE FMCG index in 2010 was outstanding on back of fiscal stimulus but got hit again in 2011 due to European debt crisis and domestic reasons. In 2011, SENSEX was volatile and gave negative returns of ~25% at end of year whereas; FMCG is the only sector which gave strong returns of ~9% in 2011.

Also according to the Economic Times, The FMCG Sector has been the best performing asset class against Nifty.

The past five-year average returns by the category of Equity FMCG funds have been about 19% against a meager 3.5% returns by the Nifty. In fact, over the past three-year period, average returns by the equity FMCG funds turn out to be as high 35%, surpassing even the returns of Gold ETFs that gave 25% during this period. The three-year returns by the Nifty, on the other hand, are as low as 2.9%.

Why FMCG is top performer among other sectors?

In last 15 months, FMCG sector attracted many investors and gave strong returns to them. The other sector indices gave negative returns in the range of 2% to 38% due to slowdown in the economy, high interest rates and rising inflation

Let me venture into something more captivating. They say all that glitters isn’t gold. But FMCG sector outshone the metal by a decent margin.

Gold may have outstripped other asset classes after the financial meltdown of 2008. However, there is one segment in equities which has surpassed the returns of even the yellow metal - the Fast Moving Consumer Goods or FMCG sector. This sector, has in fact emerged as one of the top performing assets over the past three years.

In 2009, for instance, while gold returned about 24% in terms of absolute gains, the BSE FMCG index generated more than 40% gains in that year alone. Similarly in 2010, the BSE FMCG Index generated returns of close to 32% while gold delivered returns of 23% that year

And even as the year 2011 may have been a bit subdued for the FMCG sector, with the BSE FMCG having clocked just about 9.5% returns against 32 % for gold, this year so far has been another spectacular year for this defensive sector. Since January this year, the BSE FMCG has generated a gain of about 16% against returns of 5% from the yellow metal.

Although a lot of investors would have participated in the gold rally, not many would have realized that while their investment in gold since 2009 till date may have fetched them absolute gains of about 113% an investment in FMCG stocks (BSE FMCG) would have generated about 136% during the same period.

Investments can be done by direct equity mode or via mutual funds.

Let us look into some company financials that have performed spectacularly in this sector.

The table comprise of some best listed FMCG companies in India. The outperformers among these companies are HUL and ITC with strong revenue Rs 199,390 mn and Rs 221,598 mn respectively in FY11. The EBITA margin across the sector has remained in the range of ~15% to ~26.5%. However, EBITDA margin for ITC in FY11 was 37.5%. The companies HUL and ITC registered PAT of Rs 23,066 mn and Rs 50,700 mn in FY11.

Investing through Mutual Fund Route

There are two sector funds available in market which invests mainly into FMCG stocks. So, you can opt to invest in these schemes considering historical returns, portfolio and risk analysis. The returns from mutual fund schemes have outperformed benchmark index from 2009 onwards till date

SBI Magnum FMCG Fund

Fund background: This sectoral fund was introduced from July 1999. The asset management company holding this scheme is SBI Funds Management Ltd. The minimum investment amount required is Rs 2000 and minimum SIP investment is Rs 500. The fund manager is Mr Saurabh Pant since June 2011.

Objective: To achieve maximum growth opportunity through investments mainly in FMCG stocks.

Top Holdings in portfolio: SBI Magnum FMCG Fund invests ~95% fund amount in FMCG stocks. The portfolio has 14 stocks from FMCG and consumer durable sectors. Top holdings of this scheme are ITC (~30%), HUL (~12%), VST Industries (~9%), Marico (~8%), Agro Tech Foods (~7%), Glaxo Consumer Healthcare (~7%), Emami (~6%), etc.

Investment style: Invests mainly in large cap stocks with top down approach.

ICICI Prudential FMCG Fund

Fund background: This scheme was introduced from March 1999. The asset management company holding this scheme is ICICI Prudential Asset Management Company Ltd. The minimum investment amount required is Rs 5000 and minimum SIP investment is Rs 1000. The fund managers are Mr Punit Mehta and Yogesh Bhatt since February 2012.

Objective: To generate long term capital appreciation by investing predominantly in equity and related securities of FMCG companies.

Top Holdings in portfolio: ICICI Prudential FMCG Fund invests ~80% fund amount in FMCG stocks. The portfolio has 9 stocks from FMCG, textiles and chemicals sectors. Top holdings of this scheme are ITC (~35%), HUL (~16%), VST Industries (~8%), Marico (~8%), Britannia Industries (~7%), Page Industries (~6%), Pidlite Industries (~4%), Dabur India (~3%) and Tata Global Beverages (~3%).

Investment style: Invests mainly in large cap stocks with top down approach.

To conclude, I would like to say FMCG sector is a safe bet if invested at least for the period of 3-5 years. Companies are getting into innovative modes to penetrate into rural areas. There could be a slight constraint due to factors like inflation due to which margins may come under strain. However volumes will be the deciding factor. Also HNI segment is on a rise and is so is the general income levels on the whole. If risk needs to be minimized then fmcg sectoral funds are a better bet.

To reaffirm, Nielsen’s research report entitled “Consumer 360”, the Indian FMCG market is estimated to grow to USD 100 billion by 2025 from USD 13 billion in 2012.Hence enter when valuations are cheap and reap excellent returns.

Small Cap Funds :Lucrative or Ludicrous?

In the planet called financial markets, mutual fund segment is a continent. It’s a gamut of funds which may seem endless to most of us. However categories like blue-chip, sectoral and small-mid cap funds simplify it for us. This specifically helps us to filter, until we boil down to the requisite fund.

Let us further delve into what the general sentiments while investing are, especially in context with small cap mutual fund.

When the rains are good, prosperity reins. So when the markets are all gung –ho and its high flying, small and midcap funds flourish. But when markets tank these funds are butchered. Thus it is important to analyze, at this juncture, how investment in small cap stocks or small cap focused mutual funds has done so far and also expound on how the future looks.

                  BSE SMALL CAP V/S BSE 200                                  Are small caps bottoming out?                                                  

    

As the graphs above indicates the BSE 200 index is far more stable in comparison to the bse small cap. The small caps are known to be more volatile stocks.

 The graph on the left hand side shows that if one had invested a sum of Rs. 10,000 in BSE Small cap in May, 2007, five year later the investment would have returned just Rs. 8,500 - destruction of wealth. Similar investment in BSE 200 done on the same day would have fetched Rs. 11,500 in May, 2012. The graph on the right hand side again highlights the violent nature of the small caps. Investment done in BSE Small cap even at the market bottom in March 2009 would have performed only at par with BSE 200 if one were to hold it till May, 2012. Those who could sell in November 2010 would have made huge profits; but which is very unlikely in the case of retail investors. 

Trends:

From 2003-2008 when the bulls were feasting, the small cap mutual funds went into frenzy. However Small cap funds which were launched in 2007-08 went spiraling down with the downfall.

Certain data highlights it.                                                                                                          (%)

Name of fund.	NFO DATE	1 Year	3 Years	5 Years	SINCE INCEPTION.
DSPBR Micro-Cap (G)	20-Jun-07	0.1	25.4	-	7.5
Religare Mid N Small Cap (G)	18-Mar-08	-2.0	23.4	-	7.5
IDFC Sterling Equity (G)	7-Mar-08	-0.4	19.8	-	14.3
DSPBR Small & Mid Cap (G)	16-Nov-06	-5.0	18.5	7.7	8.8
JPMorgan India Smaller Cos (G)	27-Dec-07	-4.4	16.7	-	-7.1
Franklin India Smaller Cos (G)	13-Jan-06	-7.5	12.7	2.5	4.0
Sundaram S.M.I.L.E Fund (G)	16-Feb-05	-8.9	8.6	7.5	14.6
HSBC Small Cap (G)	31-Mar-08	-18.8	6.2	-	-4.5
Reliance Small Cap (G)	21-Sep-10	-9.7	-	-	-7.3
BSE SMALLCAP	20-Jun-07	-22.6	4.2	-2.9	-

This table implies:

The table above reveals that small cap funds have fared better than the BSE small cap Index on different time frames. This is mainly due to the asset allocation these funds have broadly followed. By and large, small cap focused funds invest minimum 65% of assets in small cap companies; however, they have a flexibility to invest about 35% of assets in stocks other than small caps. In other words, these funds can invest about 1/3rd of their portfolio in large caps or larger midcaps. This provides them some stability when the small caps are shunned by the market.

The small cap fund varies with the % of small cap stock allocation. This table below gives an approximate range of small cap stocks in the fund.

Scheme Name	Total AUM	% in small cap	Small Caps (in %)
DSPBR Small & Mid Cap (G)	1205.04	319.82	26.5%
DSPBR Micro-Cap (G)	454.04	316.29	69.7%
Reliance Small Cap (G)	436.00	287.92	66.0%
Sundaram S.M.I.L.E Fund (G)	468.93	168.42	35.9%
IDFC Sterling Equity (G)	1097.74	143.18	13.0%
Franklin India Smaller Cos (G)	333.91	88.49	26.5%
HSBC Small Cap (G)	20.53	17.45	85.0%
Religare Mid N Small Cap (G)	17.31	3.36	19.4%

Risk Component

Smaller companies are more vulnerable to external shocks. Such companies may go under water if the crisis situation persists for longer than anticipated period. Small cap companies may not have the muscle to sustain losses for long or they may fall drastically if the revenue growth becomes flattish and they have a high debt to service ratio. Smaller companies often find it difficult to invest in research and development and they go completely out of flavor if the technology which made them successful becomes out dated. These risks are fundamental in nature and directly affect the return potential of your investments. 

Also fund managers cannot offload a huge chunk of shares of the company at one go. It has to offloaded and bought systematically in smaller lots. Hence it becomes difficult for the fund manager to strike a balance between fundamental strengths of the company and technical difficulties in buying its common shares in large quantities.

Future tripBSE Sensex has already fallen by more than 5% over last one month. European Sovereign debt issue seems far from solved and the markets are fluctuating like a pendulum. No rally in Indian equities has sustained so far since the markets topped in November 2010. After the recent slide in the market, small caps may have given the feeling that they have become cheaper in valuation; they might have in deed, but that shouldn’t be the basis for investing in a pure small cap fund or a fund with a higher exposure to small caps.

Verdict

Small caps have usually done well when markets have been robust. These are capitalized on when blue chip and midcap looks expensive. Markets seem on the lower side valuation of small cap may seem cheap .This could add to the possibility of panic selling if markets further deteriorates. So a fund with a judicious mix of small cap and large cap with the right timing to enter and exit the market seems like a prudent bet.