Connect for the Month of February 2009 - Birla Sun Life Mutual Fund

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Star Fund House of the Year - Debt Awarded by ICRA Birla Sun Life Dynamic Bond Fund Open Ended Debt - Short Term (17 Schemes), 1 year ended 31-Dec-08 Birla Sun Life Gilt Plus - Regular Plan Open Ended Gilt (22 Schemes), 3 years ended 31-Dec-08 Birla Sun Life Frontline Equity Fund Open Ended Diversified Equity Defensive (62 & 55 Schemes), 1 & 3 years ended 31-Dec-08 resp. Birla Sun Life Dividend Yield Plus Open Ended Diversified Equity - Aggressive (51 Schemes), 1 year ended 31-Dec-08 Birla Sun Life MNC Fund Open Ended Diversified Equity - Aggressive (51 Schemes), 1 year ended 31-Dec-08 Birla Sun Life Liquid Plus - Institutional Plan Open Ended Liquid Plus - Institutional Plan(34 Schemes), 1 year ended 31-Dec-08 Birla Sun Life Income Plus Open Ended Debt - Long Term (21 Schemes), 3 years ended 31-Dec-08 Past Performance is no guarantee of future results. Award Methodology & Disclaimers: ICRA Mutual Fund Awards 2009: Birla Sun Life Mutual Fund – “Star Fund House of the Year – Debt”: Birla Sun Life Mutual Fund won Star Fund House of the Year by ICRA Mutual Fund Awards 2009 in the Debt Category. In total 24 fund houses were eligible for the award. To qualify for the award a fund house needs to have atleast one ranked scheme in each of the four debt categories defined by ICRA. The scoring considered the asset under management and assessed the number of superior performing schemes managed by the fund house over the one-year period ended 31 Dec 2008. Birla Sun Life Dynamic Bond Fund – 7-Star Fund in ‘Open Ended Debt - Short Term’ schemes category – 17 Schemes – 1 year performance ended 31 Dec 2008. Birla Sun Life Dividend Yield Plus – 5-Star Fund in ‘Open Ended Diversified Equity - Aggressive’ schemes Category – 51 Schemes – 1 year performance ended 31 Dec 2008. Birla Sun Life MNC Fund – 5-Star Fund in ‘Open Ended Diversified Equity - Aggressive’ schemes Category – 51 Schemes – 1 year performance ended 31 Dec 2008. Birla Sun Life Frontline Equity Fund - 5-Star Fund in the category of ‘Open Ended Diversified Equity - Defensive’ schemes Category – 51 Schemes – 1 year performance ended 31 Dec 2008. Birla Sun Life Frontline Equity Fund – Two 5-Star Fund Rankings both in ‘Open Ended Diversified Equity - Defensive’ schemes Category – 51 and 55 Schemes – 1 and 3 year performance ended 31 Dec 2008 respectively. Birla Sun Life Liquid Plus - Institutional Plan - 5-Star Fund in the category of ‘Open Ended Liquid Plus - Institutional Plan’ schemes Category – 34 Schemes – 1 year performance ended 31 Dec 2008. Birla Sun Life Income Plus - 5-Star Fund in the category of ‘Open Ended Debt – Long Term schemes Category – 21 Schemes – 3 year performance ended 31 Dec 2008. Birla Sun Life Gilt Plus-Regular Plan - 5-Star Fund in the category of ‘Open Ended Gilt’ schemes Category – 21 Schemes – 3 year performance ended 31 Dec 2008. The rank for the schemes is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. 7-Star Fund Rank indicates - Best Performance amongst the 5-Star Funds. 5-Star Fund Rank indicates - Best performance (Top 10% of the category). Entry/Exit Loads not considered. Past Performance is no guarantee of future results. Ranking Source & Publisher: ICRA Online Limited CNBC TV18 Crisil Mutual Fund House of the Year Award Methodology: Birla Sun Life Mutual Fund, Category - Mutual Fund House of the Year, out of 26 Fund houses. Fund Houses winning at least two awards for their schemes in the category level awards for 2007 were considered for the award based on consistency of fund house's performance across various scheme categories in the four quarterly CRISIL CPR rankings released during the calendar year 2007. The individual CRISIL CPR ranks for their schemes were aggregated on a weighted average basis to arrive at the final ranks for fund houses. Detailed methodology available at www.crisil.com.
F e b r u a r y 2 0 0 9 Market Outlook Equity Market Indian equity markets started the year positive on the central government's second fiscal stimulus package. The RBI also chipped in through monetary stimulus that helped the market earlier in the month. However, the effect was nullified by the shock the markets received from the Satyam scam after the initial euphoria. The absence of another round of rate cuts in the RBI policy review also did not help the already damp sentiment. BSE Sensex ended with a loss of 223.07 points or 2.31% to end the month at 9424. The sectors that were hit the most included Real Estate that melted 26.65% followed by Bankex, which fell 10.17%. Among the gainers, Oil & Gas was up 3.35% and Auto was up 2.27%, supported by the cut in the motor fuel prices that raised anticipation of higher demand. Power stocks gained after the Central Electricity Regulatory Commission (CERC) upped return on equity on power companies to 15.5% from the existing 14% - applicable on projects from 2009 to 2014. The Satyam financial fraud bodes ill for liquidity and specifically for sentiment. Focused investors are likely to scrutinize corporate governance, disclosures, composition of boards; use of cash proceeds etc. & stay invested or switch into perceived high quality companies. We believe that the long term consumption/ urbanization theme as India is less dependent on global growth than other Asian economies. Though, some impact on domestic consumption is inevitable, India is in much better shape with high forex reserves and much lower consumer gearing. It is important to acknowledge that business cycles and asset markets tend to overshoot and undershoot, and some of the recent slowdown in economic activity, which only a short time ago seemed highly improbable – now might have a chance of transpiring. However, going forward we are keenly watching certain key developments which are likely to impact course of markets. On global front, confidence was further shaken when Chinese exports, after growing by more than 20 percent a year over the last few years and being seen as a key growth engine, reported collapse in growth. It is believed that the Chinese the economy is highly dependent on exports, where tens of millions of workers are employed. The millions of new migrant workers that flock to export factories every year have been driving the urban housing boom. Now with the export engine down, the scale of job losses from Chinese manufacturing sector would be unprecedented, causing social unrest. Global developments provide clear feedback to markets in terms of financial flows both into secondary market and capital financing (in primary debt and equity markets), in turn impacting underlying economic activity. It would also be crucial to monitor how the current risk aversion trade reverses. In this context corporate bond spreads are vital. A sustained rally in equity markets is more likely to be led by falling corporate bond spreads than better economic data in the short-term. Recently, the Fed's action in the commercial paper market has dramatically reduced yields and spreads in that market in recent months. More recently, the BoJ and BoE have also hinted that they may be willing to consider buying corporate debt which is likely to ultimately start to bring down spreads. On domestic front, upcoming general election could sway the markets either way. The uncertainty and possibility of a large coalition government at the centre would create ambiguity over future policy actions and hence business sentiments. Corporate earnings scorecard for the December quarter was uninspiring on overall basis. The BSE500 members that reported results (total 322), non-banking companies registered a decline of 37% yoy while banks showed a 24% yoy increase for Banks in Net Profit. Overall sales growth stood at 4% yoy while EBITDA declined 20% yoy signaling a margin compression. On sectoral basis, Banks, Telecom and IT were the only positive surprises while on the flipside Capital Goods, Construction, Commodities and Real Estate showed poor numbers. As the current financial year comes to a close, after the fourth quarter, there is a risk of further downgrades to consensus earnings expectations for the coming fiscal. Although, while, much of the negatives are already in the current stock prices, in an economic environment like the current one, sentiments may overrule the underlying fundamentals. Then again, precisely such scenarios yield attractive opportunities. Our assessment of the opportunity present for the Indian economy remains unchanged. If and when right policy levers are used, it would not be difficult to match the potential either. In the short term, though, the markets may behave in unpredictable ways as various participants weigh their tactical moves. As a strategy, we consider it prudent to gradually invest incrementally into equities through 2009 with a 3 to 5 years investment horizon. Corporate performance is likely to look up from the later part of the fiscal 2009-10 and the equity markets should bottom out some time before that. Debt Market Bond market The 10-year yield rose to as high as 6.18% during the month after making a historical intraday low of 4.86% at the start of the month. The 10 year yield on AAA corporate paper moved from 8% to a high of 9.15% during the month making it one of the most volatile month. Money market yields maintained a downward trend on back of easy liquidity with 1 year CDs coming down from a high of 8.50% to making a low of 6.90%. Macro factors overall supported the debt market but bonds appeared to have hit a ceiling on concerns of overwhelming supply. Government is expected to come up with an additional borrowing requirement for FY09 which will flood the market and thus an upward pressure on the yields. The government on January 6th raised the borrowing target for the fourth quarter to garner funds for meeting rising expenses. Exports dropped 1.1% yoy in December, a third consecutive drop as the global slowdown dampens demand. The trade deficit narrowed in December due to a sharp drop in the cost of oil imports. The industrial output rose 2.4% in November y-o-y, rebounding from the previous month's revised decline of 0.3%. Fiscal deficit during April-December stood at 2.18 trillion rupees, ($44.5 billion) or 163.8% of the annual target. The government has borrowed INR 2.15 Tr as against budgeted INR 1.45 Tr. Yields on government securities across the globe came off from the lows reached during December despite macro factors being in support of the debt market. European bonds faced selling pressure with several European countries facing sovereign rating downgrades. Central banks still continue on rate cutting spree with BoE bringing down its policy rate to historical low. ECB, Australia, Bank of Korea and Taiwan also cut their policy rates. Fed maintained the target rate near zero and in addition announced the extension of swap lines with various central banks across the globe and continuation of existing liquidity facilities in domestic markets. IMF has cut down the global growth forecast to 0.5% from 2.2%, the lowest ever since World War-II. The outlook remains bleak for the current year. On January 2, the RBI had cut the LAF rates by 100 bps and eased CRR by 50 bps, releasing Rs.20,000 crores into the system. Later in its Policy review meeting, Reserve Bank of India kept all its policy rates unchanged. Though, policy stance remains considerably dovish and paves way for further monetary easing as and when required. RBI's stance on growth and inflation matches the market consensus as they expect both the economic indicators to ease substantially. We expect RBI to ease further over next few months as economic news gets gloomier. RBI acknowledges that non-banking financial resources for banking system have dried up causing increased demand for credit from the banking system. This remains a key reason for elevated bond spreads. We expect the credit growth to slow down considerably over next two quarters, easing pressure on banking system to industry's financing needs. We don't think that RBI is pausing in easing rates, and the current stance of 'hold' is only to accommodate the transmission of deep rate cuts RBI has orchestrated over last three months. Since RBI has extended the refinance window for MFs and NBFCs till September, it augurs well for further easing in the money market rates. 10-year Gsec is trading at 5.80/85 and is likely to take fresh cues from IIP, GDP, export-import data and unscheduled auction announcements in the coming weeks. Bond yields are likely to be choppy in the near-term owing to the prevailing uncertainty over additional government borrowing. Macro factors support bonds but those aspects have been fully factored in and bonds remain bogged down by short-term uncertainties. The vote-on-account to be held on 16th February is much awaited for. Current scenario remains a tug-of-war between unprecedented monetary easing and huge bond supply causing the volatility. We expect the markets will remain volatile till the issue of additional borrowing is resolved. Our Investment Team (In alphabetical order) A. Balasubramanian Chief Investment Officer Achala Kanitkar Research Analyst - Equity Ajay Argal Co - Head Equity Ajay Garg Fund Manager - Equity Ankit Sancheti Fund Manager - Equity Atul Penkar Hemang Dagli Hina Sampat Lokesh Mallya Mahesh Patil Fund Manager - Equity Sr. Dealer - Equity & Deri. Specialist Executive - Knowledge Management Credit Analyst-Fixed Income Co - Head Equity Maneesh Dangi Paresh Khandelwal Prasad Dhonde Sanjay Chawla Co - Head Fixed Income Equity Analyst Fund Manager - Debt Fund Manager - Equity Satyabrata Mohanty Sujit Patki Sunaina da Cunha Vineet Maloo Co - Head Fixed Income Dealer-Equity Fund Manager - Debt Fund Manager - Equity 03
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