Year: 2008

We have been recommending SIPs in HDFC Funds and one HSBC Fund too. I am not sure how this review got slipped even though the required data was ready in Mid October.

The Sensex has been at the same levels when compard on Sept-30 of 2006 and Sept-30th of 2008 – 12,454 and 12,860 levels. So neat enough to compare the performance of fund managers ?

HDFC Equity Fund:
In Sept-06, 10 years SIP returns was 40.22%, while the same has fallen to 30.31% in Sept-08.

HDFC Top 200 Fund:
In Sept-06, 10 years SIP returns was 33.5%, while the same has fallen to 27.35% in Sept-08.

Now does this means the fund manager underperformed ? No, Not yet. What has happened is during the course of our SIP investments, we continued to BUY units when the SENSEX was 18,000, 20,000 etc. The carnage in the equity markets was really bad and personally I would have expected the fund manager to anticipate and move towards cash. However, he did not, but held on to Good Companies except ICICI Bank which has led to some under performance.

Here is the performance of other 3 funds at the end of Sept-08 and Sept-06,
HDFC Tax Saver Fund Growth – 2008 and 2006
HDFC Long Term Advantage Fund Growth – 2008 and 2006
HSBC Equity Fund Growth – 2008

HSBC Equity Fund is fairly new compared to the other four, but SIP should help one to get comparable returns in the long run as their fund manager is equally smart and experienced.

Here is a brief excerpt from Bharti AXA Investment Managers presentation on expectations from the Indian Equity Markets.

The global economic slowdown has seen commodity prices tumbling down in the recent past. This has led to fall in inflationary concerns world over. In India the sharp depreciation in rupee since August 08 has however counter balanced a significant part of the fall in international prices. But still inflation has come down to single digits.

The flight to safety saw flow of capital towards the USD and yen leading to their strengthening. India also got impacted severely with FII’s pulling out ~Rs55000crs on a ytd basis.

Issues Concerning India:
Export tonnage, rail freight traffic, auto production, foreign tourist arrivals are at a very slow or negative growth rates. Exports saw negative growth in Oct 2008, last seen in Oct 2002. Commercial vehicle sales collapsed in the month of October. Corporate tax which constitute 35% of the Total tax revenue declined by 20% YoY in October.

How Long Does the Pain Last:
Historically looking at the indicators, the markets should be bottoming out in next couple of months. Market has on previous occasions taken 6 months to recover from market crash. Measures being taken by Obama in terms of TARP representing ~5% of GDP should help stimulate the economy along with other bailout packages. Also Oil at USD50 on average for the next 12 months represents a gain in purchasing power of nearly USD200 billion. In India with majority outflows done and valuations at an attractive levels the markets should also see a bounce back.

Going Ahead, 3rd quarter earnings are expected to be disappointing on yoy basis. We may see further downgrades in earnings which could put further pressure on markets. With ~27% of the Sensex weight in cyclical further downside in earnings is possible. However with declining interest rate scenario, Interest cost which was a major expense for the company would come down going forward. Macro factors like decrease in inflation, BOP, Currency stability and recovery in funding markets and revival of capex cycle should help the future corporate earnings in FY10.

With majority FII selling behind us and domestic flows expected to remain intact Bharti Axa expects India to decouple from redemption flows caused by deleveraging activities internationally. As compared to other economies India is far lesser leveraged and this should bode well for resilience of Indian economy.