Indian fund houses have started answering to the queries sent by State Bank of India (SBI) on investment policies into debt funds. During the first half of October, SBI, which is largest lender of the country, sent a six-point questionnaire to around top 15 fund houses regarding their investment policies into fixed income securities.

According to senior officials in the mutual fund industry, many fund houses have already sent their answers, while a few of them will send in next few days.

“I think questions sent by SBI were very ordinary and reasonable in nature. But one question which surprised not only us, but also the entire industry was on seeking a compensation policy in case of a default,” said a person from a top fund house on condition of anonymity.

Officials in the industry said this latter was following the Rs 190-crore default by Amtek Auto which had hit investors in two schemes of JP Morgan Asset Management.

The letter sent by SBI to fund houses sought details on measures to deal with suspension of ratings, credit quality of papers and exposure of fund houses into single paper, among others. SBI invests approximately Rs 10,000 crore in debt funds with most of the money either into liquid funds or short-term funds.

“We can’t differentiate between retail investors and large corporates as we are regulated by the Securities & Exchange Board of India (Sebi). So the reply were on similar lines which are available in our offer documents. But answer to one question on the compensation policy was very clear that mutual funds are not a ‘guarantee’ products and its returns are market linked,” said the head of credit at a leading fund house.

Even people within the industry have categorically said investments into mutual funds are subject to market risks and investors need to be prepared to bear losses.

CVR Rajendran, CEO of Amfi, said: “We all know that mutual funds are just a pass through vehicle and there are very clear disclaimers. One can’t expect it to be a ‘guaranteed’ product as returns in mutual funds are market linked.”

Clearing the air
* SBI sent a six-point questionnaire to fund houses on their investment policies into fixed income securities
* Officials said the latter was following the Rs 190-crore default by Amtek Auto, badly hitting investors
* SBI invests around Rs 10,000 cr in debt funds with most of the money either into liquid funds or short-term funds

The BSE Midcap and BSE Smallcap index gained 5.89 per cent and 1.85 per cent respectively on a year-to-date basis till Nov 2. (Photo: Reuters)

Like the previous calendar year, midcap and smallcap stocks continue to outperform benchmark indices this year as well. Since the beginning of 2015, the BSE Sensex declined 3.42 per cent till November 2. On the other hand, the BSE Midcap and BSE Smallcap index gained 5.89 per cent and 1.85 per cent during the same period.

During the previous calendar year, Sensex, Smallcap index and Midcap index gained 29.89 per cent, 54.68 per cent and 69.23 per cent, respectively.

About the present market scenario, Nikhil Kamath, director, trading and risk, Zerodha, said, “Markets still continue to remain range bound. Earnings and the Bihar elections are important factors which could dictate short term momentum on the bourses. Not too many sectors have delivered and earnings are just not supporting the market. We can expect a significant number of downgrades to come out forthwith.”

Below are five stocks from the basket of midcap and smallcap indices on which market analysts are looking positive in the current market condition.

Sangam (India)
Recommended By: Sharekhan
Why Buy: Sangam (India) is an integrated textile player with its product portfolio ranging from yarn and fabrics to garments. It is a dominant player in the domestic dyed poly viscose (PV) yarn market (around 25 per cent share) and is growing strong in the highly fragmented polyester viscose fabric market. Sangam has reported a compounded annual growth rate (CAGR) of 11 per cent in its revenues and 25 per cent in its net profits over the last five years. In the same period, it has invested close to Rs 300 crore in capex (forward and backward integration) but reduced its debt/equity ratio to 1.43x in FY2015 from over 3.6x in FY2010 due to focus on cash inflows. The return ratios have also improved consistently with return on equity (RoE) and return on capital employed (RoCE) at over 15 per cent in FY2015 from less than 10 per cent in FY2010. The significant improvement and consistency in its financial performance is driven by its efforts to continuously move in backward-forward integration.

With an expected high double-digit steady growth rate in earnings over the next couple of years and increasing contribution from branded garments segment (B2C business), Sharekhan sees a potential for multiple re-rating of the stock and expect handsome gains over medium to long term. In the near term, the brokerage house believes that the initial success of its garmenting business and strong financial performance could provide 20-25 per cent returns over the next few months. On November 2, the share price of Sangam (India) was at Rs 249.80.

Relaxo Footwears
Recommended By: Sharekhan
Why Buy: In Q2FY2016, Relaxo Footwear (Relaxo)’s revenue growth of 15.7 per cent YoY was driven by both volume and premiumisation improvement in the product mix. In a muted demand environment, this double-digit growth in revenue on an increasingly higher base (Q2FY2015 revenue grew at 25.7 per cent YoY) is commendable and signifies the strong on-ground execution and brand salience efforts of the company. The growth in the revenue along with falling prices of raw materials boosted the operating profit margin by 170 basis points in Q2FY2016. Driven by a healthy operating performance and increase in the other income, the reported net earnings grew by a strong 56.2 per cent YoY. Adjusting for the one-off gain (reported in other income) on account of sale of investment in an associate company, the adjusted earnings grew by 39.2 per cent on a Y-o-Y basis.

Relaxo’s strong presence in the lucrative mid-priced footwear segment (through its top-of-the-mind recall brands like Hawaii, Flite and Sparx) along with its integrated manufacturing set-up, lean working capital requirement and vigilant management puts it in a sweet spot to cash in on the strong growth opportunity unfolding in the footwear category due to a shift from unbranded to branded products. Thus, Sharekhan is positive on the stock and believes the stock can touch Rs 635. The share price of Relaxo Foowears was at Rs 523.60 on November 2.

FAG Bearings and Timken India
Recommended By: JM Financial
Why Buy: Indian bearings sector is at the cusp of another upcycle (3rd in last 15 yrs) as JM Financial expects sector sales to double from $1.4bn to $3bn over next 5 years, led by robust growth in automotive sales, pickup in exports and moderate growth in industrial capex. The brokerage house is bullish on FAG Bearings and Timken India with 16 per cent upside in both these stocks. Share prices of FAG Bearings and Timken India were at Rs 4063.20 and Rs 592.70 on November 2.

Kitex Garments
Recommended By: Motilal Oswal
Why Buy: For the quarter ended September 30, 2015, Kitex Garments posted net profit of Rs 27.16 crore, up 40.55 per cent, against Rs 19.32 crore in the corresponding quarter a year ago. Net sales and other operating income of the company grew 4.75 per cent year-on-year (YoY) to Rs 134.25 crore. On November 2, the share price of Kitex Garments was at Rs 703.55.

Motilal Oswal expects 19 per cent revenue CAGR along with 450 basis points margin expansion over FY15-17, driving 32 per cent PAT CAGR. The brokerage house believes foray into the brand business marks Kitex’s transition from a B2B business to a B2C business, with strong room for higher markups and higher profitability per unit. Given huge scalability, strong return ratios and free cash generation, Motilal Oswal believes Kitex Garmens deserves a multiple of 26x one-year forward earnings and the share price of the company can touch Rs 950.

(Disclaimer: The stocks are recommended by the respective brokerage houses and not a recommendation from Financial Express online)

Sangam India share price jumped as much as 8.85 per cent in the morning trade on Tuesday. (Photo: Reuters)

Sangam India share price jumped as much as 8.85 per cent in the morning trade on Tuesday. The company is an integrated textile player with its product portfolio ranging from yarn and fabrics to garments.

At 11.56 am, the share price of Sangam was trading 7 per cent up at Rs 267.50. The scrip opened at Rs 252.80 and had touched a high and low of Rs 271.90 and Rs 252.80, respectively, in trade so far. Sharekhan is bullish on the further movement of Sangam India shares and gave five reasons on why Sangam India shares can give 20-25 per cent return in the next few months.

1) Sangam has reported a compounded annual growth rate (CAGR) of 11 per cent in its revenues and 25 per cent in its net profits over the last five years. In the same period, it has invested close to Rs 300 crore in capex (forward and backward integration) but reduced its debt/equity ratio to 1.43x in FY2015 from over 3.6x in FY2010 due to focus on cash inflows.

2) The return ratios have also improved consistently with return on equity (RoE) and return on capital employed (RoCE) at over 15 per cent in FY2015 from less than 10 per cent in FY2010. The significant improvement and consistency in its financial performance is driven by its efforts to continuously move in backward-forward integration.

3) With an expected high double-digit steady growth rate in earnings over the next couple of years and increasing contribution from branded garments segment (B2C business), Sharekhan see a potential for multiple re-rating of the stock and expect handsome gains over medium to long term. In the near term, the brokerage house believes that the initial success of its garmenting business and strong financial performance could provide 20-25 per cent returns over the next few months.

4) Sangam has forayed into the garment segment by entering into lucrative women’s active and intimate wear category in line with its strengths in PV fabric. At present, the segment is growing at double-digit rates and is highly fragmented with less than 20 per cent market share of organised players. Thereby throwing up a huge opportunity for players like Sangam. This initiative has a potential to add Rs150-200 crore to the top line with relatively higher margins of close to around 20 per cent from 2HFY2016 onwards.

5) It is a dominant player in the domestic dyed poly viscose (PV) yarn market (around 25 per cent share) and is growing strong in the highly fragmented polyester viscose fabric market. At present, yarn contributes 58 per cent to its total revenue, while fabric contributes 38 per cent.

Eros International said it has engaged a US-based law firm to conduct an independent internal review in the wake of an anonymous campaign spreading false and malicious information that has negatively impacted the company’s share prices.

Eros International Media shares rose as much as 10 per cent in the early trade on Tuesday after the company on Monday said that it has appointed a US-based law firm to conduct an independent internal review in the wake of an anonymous campaign spreading “false and malicious information” that has negatively impacted the company’s share prices.

However, the share price of the company wiped off its initial gains and was trading 1.40 per cent up at Rs 254.00 at 9.28 am. The scrip opened at Rs 275.55 and had touched a high and low of Rs 275.55 and Rs 247.25 respectively. Sensex was trading 140.81 points up at 26,699.96 during the same time.

“In the past two weeks, there has been a vicious campaign to damage the credibility of Eros International by spreading false rumors and misinformation regarding its business with an objective to create panic amongst the investor community,” the company said in a statement.

Stating that the company is “confident in our business fundamentals”, it said no new facts about it have come to light since the filing of the FY2015 financials or its Q1 FY2016 financials at which time the market sentiment was extremely positive.

“Our Audit Committee has engaged the US law firm Skadden, Arps, Slate, Meagher & Flom LLP to conduct an independent internal review and also to advise us on related matters,” it added.

Eros International stocks will be in focus as the entertainment firm on Monday said it has engaged a US-based law firm to conduct an independent internal review in the wake of an anonymous campaign spreading “false and malicious information” that has negatively impacted the company’s share prices.

The BSE Sensex and NSE Nifty are expected to open in positive on Tuesday following firm global cues.

Back home, Sensex and Nifty declined 97.68 points and 15 points at 26559.15 and 8050.80, respectively, on Monday

Below are the stocks that are likely to be in focus today:

Adani Ports and Special Economic Zone Ltd (APSEZ): The company on Monday reported 16 per cent increase in its consolidated net profit to Rs 667 crore for the September quarter on increased income from operations.

Bharti Airtel: Country’s largest telecom operator will have a revenue growth of 8-10 per cent over the next 12-18 months on strong demand for data services and affordable smartphones, Moody’s Investors Service said.

Eros International: The entertainment firm on Monday said it has engaged a US-based law firm to conduct an independent internal review in the wake of an anonymous campaign spreading “false and malicious information” that has negatively impacted the company’s share prices.

Amtek Auto: The auto component maker on MOnday appointed Morgan Stanley as advisors to assist in its debt reduction plan.

Oberoi Realty Ltd: The Mumbai-based real estate developer reported a marginal rise in consolidated net profit at Rs 72.44 crore for the quarter ended September 30.

Godrej Properties: The real estate company said that ICRA has upgraded its long term rating for the company’s line of credit.

Jaiprakash Power Ventures Ltd (JPVL): The company on Monday reported standalone net profit of Rs 133.69 crore for quarter ended on September 30.

Tech Mahindra: The software company will announce its second quarter results today.

Blue Star: The engineering conglomerate announced that it has acquired 51 per cent stake in Oman Electro Mechanical Contracting Co LLC (OEMC), a 100 per cent subsidiary of W J Towell & Co LLC.

United Spirits: The liquor major on Monday posted a net profit of Rs 929.3 crore for the second quarter ended September 30, 2015, on the back of Rs 870 crore share sale in United Breweries Ltd.

Piramal Enterprises: The company reported a consolidated net profit of Rs 245.91 crore for the second quarter ended September 30, mainly on improved performance across business segments and lower R&D expenses.

Reliance Power: Government on Monday justified cancellation of one of three coal blocks allocated to Reliance Power’s Sasan Ultra Mega Power Project (UMPP) saying the unit’s coal requirement could be met by the other two.

TVS Motor: The Chennai-based company on Monday reported 14 per cent increase in total sales at 2,74,622 units in October.

HPCL and GAIL: The state-owned refiner are looking at jointly setting up a multi-billion dollar petrochemical plant in Andhra Pradesh.

India Cements: The N Srinivasan-led company on Monday reported a net profit of Rs 41.04 crore for the second quarter ended September 30, on cost-cutting.