"Not my fault, everyone else and his uncle's...!"

Here's what Sandesh Kirkire, CEO, Kotak Mutual Fund says defending underperformance of Mutual Funds as an asset class -

"Mutual funds are ultimately alpha players. My estimate is that almost two-thirds of the schemes (by way of assets) would have outperformed their respective benchmarks over the medium to long term. This is not bad when you compare it with the developed economies."

This is more or less the refrain of most Mutual Fund managers.  They blame everything but the quality of their own stock selection or fund management skills.  Even now they are not conceding their investment skills are as bad as any direct equity investor or worse, and blame it on everything else. The investors in their funds remember very well the loud declarations made by them regarding their investment prowess.  But when their Systematic Investment Plans (SIP) succeed only in systematic destruction of investor wealth, they shamelessly resort to semantics as the first line of their defense instead of candidly admitting their incompetence as the reason behind their inability to ringfence their fund portfolios from the vagaries of the market by "highly skilled strategic intervention" they advertised in their promos and commercials, not so long ago - which the lay investor believed and invested.

To me, the real road test for veracity of any fund manager's claim will come when they loudly advertise across media, with the same intensity as on the launch of new fund offerings, asking investors to *exit from their investments* [also cut down on SIP subscription] when markets enter a bubble zone and to *restart SIPs* after the bubble collapse.  But they invariably do the opposite so that they can sell their funds at the highest NAVs to pocket higher commissions based on larger corpus size.

If serious fund management has to happen, AMCs should benchmark fund managers compensation 100% to Alpha returns.  Then it'll be fun to invest because the casualness or the indifference with which they play with OPM (other people's money ) will end and they will be more sensitive to the investor pain before they bullshit over the media...!!!

The symptom is worse than the disease

So, DLF goes about the mock play – sorry buyback.

Earlier I had concluded that such false bravado is a symptom of DLF management being new to the listed public market. That explains why they try to zig and zag with the price action in the markets. Markets dance to a non-rhythmic rhapsody, not a synchronized symphony. Company managements can't keep pace with it without breaking down. Stock prices may go up or down in public markets, but management’s priority should be effective supervision of operations. By announcing a Rs.1,100 crore buyback when stock prices sag while having plans to raise QIP of Rs.10,000 crore in hardly six months down the line, they betray impulsive overreaction. As I said before, DLF may be a large enterprise; but they lack the maturity required to stay put in that bracket.

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We're easily the most resilient amongst BRIC

Are we the best amongst BRIC?

Here is the update on the stock markets of Brazil, Russia and China. I think comparatively India is far better.

In Brazil, yield spreads of Brazil's government overseas bonds over comparable U.S. Treasuries, as measured by JPMorgan's EMBI+ index, widened sharply, reflecting an increase in investors' risk aversion toward Brazilian assets. The index 11EMJ showed the country's bond spread widened by 39 points to 349, the highest since November 2005.

In Russia, Government and central bank officials were locked in talks with the chief executives of Russia’s biggest investment banks throughout most of the day on ways to halt the market collapse, which has wiped nearly $800bn off the country’s stock exchanges in a matter of months and sent stocks spinning down to levels last seen in 2005. The two main bourses, the MICEX and RTS, had suspended stock trading until further notice from the state’s main financial regulator.

China? Please don’t ask. Here is a report from Epoch Times I had linked above -

“The truth about China’s stock market is actually not a secret, and most investors probably already knew it. That is, China’s stock market is a tool used by the government to re-distribute and re-organize social wealth on a grand scale, which means that it is a tool to clean out Chinese people’s savings accounts. The biggest winners in this process are, of course, government officials and their relatives who are the most well-informed about the actual value and re-organizing plans of those that control state wealth; as well as institutional investors who collaborate with them and who rely on insider tips to control the stock market. Those people have already made huge fortunes in the process. This is the truth about China’s stock market….

Actually, the goal of China’s stock market was not purely an economic one when it as originally established. When former Premier Zhu Rongji set up stock market in Shenzhen, he said that China’s stock market was meant to get money--to get money in the market and give it to companies that were unable to get money, and because these companies were unable to make money, they needed monetary support.

China’s stock market has been established to operate like an ATM for the listed companies. For the majority of the listed companies, economic reform is nothing but a mechanism to trap money. Many heavily indebted State-owned companies have been listed in the stock market after re-packaging. All of a sudden, they become the new stars in the market with easy loans and finance. The foundation of a stock market is the listed companies. With a weak foundation, how can any high stock price be affordable? The deflation in stock prices is therefore predictable.”

So, India - is far better any day. We just have 12% plus inflation and some high interest rates. There is no sham in the system, the companies are real and investors are long term. Stay invested if it is your personal savings and not borrowed funds. We're in for some not so quick turnaround - to allow the dust to settle around the world. As for savvy global investors, it seems to be their only emerging market bastion that's left...

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Bonding with convertibles

No I am not talking about sexy Alfa Romeos here.

Falling stock prices mean that investors have to increasingly rely on the bond part of the convertible securities for returns.

More than $1.4 trillion of equities worldwide are now on loan, about a third higher than at the start of 2007, data compiled by Spitalfields Advisors, the London-based firm specialising in securities lending, show. Almost all of that is being used to speculate shares will fall, according to James Angel, a professor at Georgetown University who studies short-selling.

Negative Yields Investors were willing to accept negative yields of as much as 11.5 percent in January to buy Reliance Communications Ltd.’s zero-coupon convertible bonds maturing in 2011, as the company’s share price on Jan. 9 climbed to a record 821.55 rupees, 71 percent higher than the 480.68 rupee conversion price set when the $500 million of securities were sold in March, 2006.

Investors are now asking for more than 5 percent yield to buy the bonds of the Mumbai-based company, India’s second-largest mobile-phone operator, as the stock has fallen 48 percent from its record, according to Nomura Holdings Inc.’s prices.

“This market is becoming a busted universe, offering little equity value,’’ as a HK based analyst Viktor Hjort said. “As stock markets are repriced, people should treat the share option portion of a convertible bond just as a lottery ticket and start looking at the asset from pure credit fundamental perspective.’’

But then there are many other wide open, lucrative avenues for ever enterprising investment funds.

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PE gets a knock, SEBI has remorse

Well, there it is. PE deals decline sequentially. [ $3.3 billion mopped up through 97 deals in the March 2008 quarter were lower than 131 deals totaling $5 billion in the December 2007 quarter]. The report cites weak market conditions for the thaw. But there is another reason that it masks – PE portfolios are beginning to look “sinful” exposing callous fund management. The reversals have been dramatic. Recognizing old fashioned due diligence, PE firms are now all the more wary of churning out “weekly” term sheets. Seems they've realized it is not about blind betting on market sentiments, not just about investing other people’s money (OPM) ; it’s also about delivering superior returns. It’s clearly not about letting limited partners grieve!

SEBI on its part has done some self appraisal and has remorse. That's rare! For mere “custody” of draft documents and posting it on its website, apart from “occasional” (to-plug-its-own-mistakes) release of notifications and guidelines, it has been gouging the market players by way of fees. Most of its charges leveled against alleged scamsters have been annulled by High Courts – so much for its “fact-finding” skills! Way too much CYA type “disclosures” emerging from the woodwork. It had to seek atonement some day. So here comes a catharsis.

New funds emerge on the horizon – Saffron Asset Advisors, is planning to launch Rs 300 crore domestic real estate fund, which will invest in non FDI-compliant projects in the country. It manages the real estate investments of NYSE Euronext-listed Yatra Capital, is now planning to launch a bouquet of funds focusing on India.

Recently, New Delhi-based Red Fort Capital announced the launch of its second offshore fund, with a corpus of Rs 3200 crore, to invest in Indian real estate. Red Fort has also launched a Rs 1,000 crore domestic property fund. South Africa’s Old Mutual and Mumbai-based ICS have floated a Rs 2,000 crore property fund and Triangle India Real Estate Fund.

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Too much for a single day?

Business Standard cites M/o Commerce release and reports FDI equity inflows in the month were more than the entire annual inflows from 1991-92 to 2004-05. Inflows into India in February stood at $5.67 billion, the highest-ever during any month since 1991. On a year-on-year basis, the Feb inflows were 712 per cent higher than the $698 million inflows in February 2007.

So you took it to mean investment outlook in India remains strong since FDI is usually slapped with lock-in terms. With more money pumped into the system, can inflation be far behind?

So I get to read this and this. Both the key stock indices, the BSE Sensex (down 500 points) and the S&P CNX Nifty (down 124 points), lost some ground yesterday as the government announced a record inflation rate of 7 per cent, a three-year high. The latest surge is partly on account of a jump in metallic mineral prices. The primary articles sub-index, which has a weight of 22.02 per cent in the WPI, rose 1.8 per cent over the previous week on account of a steep 38.2 per cent rise in metallic minerals, a 4.9 per cent surge in vegetable prices and a 1 per cent increase in oilseeds.

It means “expect turbulence till you fly out of inflation headwind” – well that could be about 12-18 months till you get the full impact of all clamp down measures?

Burning question – what do we do? Left to myself, I would rather go fishing in style, if I get lucky like this guy, David Sneath !

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