Mutual Funds say in a debt fund, overall performance should be seen

Various mutual funds continue to have substantial exposure to debt papers of companies that have either witnessed a downgrade in credit ratings or revision in credit outlook so far in 2015-16.

Data compiled by Value Research shows that as of August 31, several debt schemes had significant holdings in Jindal Steel & Power, Hindalco, Vedanta, and Magma Fincorp — companies that have faced rating downgrades to their long- or short-term debt instruments in the past six months by at least one of the leading rating agencies including Care, Crisil and Icra.

Moreover, their holdings in debt instruments of companies such as SAIL, DLF, Tata Teleservices, Bank of Maharashtra and Bank of India, for which the credit outlook has been lowered in the previous six months, remain substantial.

On their part, fund houses argue that similar to a equity scheme, the range of debt papers under one particular scheme could be diverse and does not solely reflect the risk profile of the scheme itself.

According to Rahul Goswami, CIO of fixed income at ICICI prudential Asset Management Company, upgrades and downgrades are part of life for mutual funds which invest in corporate bonds. They are like upward and downward movement of share prices for equity funds.

“Hence, just like in an equity fund, the overall performance of the portfolio is looked at, similarly in a debt fund one should look at the overall fund performance,” said Goswami.

However, since credit downgrade of Amtek Auto by rating agencies led to a sharp decline in net asset value (NAV) of two of the debt schemes of JP Morgan AMC in late August, the credit profile of Indian companies, especially from the troubled commodity and investment-linked sectors, has been in focus.

While it was reported that after the Amtek Auto debacle, the Securities and Exchange Board of India (Sebi) asked JP Morgan AMC to present their books to examine the systems followed for investments in Amtek, there were also reports that the market regulator asked various AMCs to provide information on their exposure to Jindal Steel & Power after rating firm Icra had lowered the company’s rating.

Data shows that 46 mutual fund schemes, including several fixed maturity plans (FMPs), held exposure to various debt instruments — commercial papers, debentures and structured obligations — of Jindal Steel & Power as of August 31, with maturities ranging from November 2011 to March 2021.

All AMCs FE approached, while declining to comment on specific holdings of their schemes, argued that security selection in debt schemes follows a bottoms-up approach and a multi-layered in-house credit process besides considering grading by credit rating agencies as inputs.

As such, metal companies have seen higher downgrades this fiscal and while all the dozen revisions do not signify any serious problem, the number of ratings and outlook downgrades reflects the weakening financial of companies.

Compilation of FE shows that at least 29 and 60 schemes held debt securities of Hindalco and Vedanta, respectively, with maturity from 2016 onward. Crisil lowered long-term credit ratings of these companies to AA- and AA in April this year.

According to a spokesperson of Franklin Templeton Investments, every sector will have both strong and weak companies, and it is wrong to paint every company with the same brush. “Generally speaking, the overall credit environment in India is improving with numerous rating upgrades in the past one year and if one were to analyse our bond fund portfolios; the number of upgrades in the last year is substantially higher than the number of downgrades,” the spokesperson said.

More metals producers could be downgraded, said analysts, as they see several steel producers reporting negative operating cash flows in FY16, with around half of steel producers reporting loss in the three months to June 2016.

Acknowledging that the deterioration in credit parameters in the metals space is on account of high leverage and a weak cycle, Akhil Mittal, senior fund manager, Tata Mutual Fund, said the AMC is vigilant on the sector. “ We also take note that issuers have undergone through a lot of stress and balance sheet deterioration although further stress cannot be completely ruled out.”

AMCs said their rating strategy also give weight to the track record of promoters and parent companies of a business. They are drawing comfort from the fact that companies such as SAIL, Bank of Maharashtra and Indian Overseas Bank are owned by the government or entities like Vedanta and Hindalco have cash-making subsidiaries or established promoter group.

Idea Cellular share price declined over 6 per cent on Friday after the company’s second quarter earnings failed to cheer investors. (Photo: Reuters)

Idea Cellular share price declined over 6 per cent on Friday after the company’s second quarter earnings failed to cheer investors.

At 1.33 pm, the shares were down 6.46 per cent at Rs 141.80 on BSE. On NSE, the shares were down 6.62 per cent at Rs 141.85. The BSE Sensex was trading 199.43 points up at 27,487.09 during the same time. The stock was the top loser on NSE’s 50-share Nifty.

Idea Cellular on Wednesday reported a 7 per cent increase in net profit at Rs 809.26 crore for the July-September quarter, helped by non-voice revenue growth.

The company, however, witnessed a decline in voice usage and pressure on mobile data.

Idea, part of the Aditya Birla conglomerate, had reported a net profit of Rs 755.88 crore for the second quarter of the last fiscal.

Total revenue rose to Rs 8,689.06 crore for the reported period as against Rs 7,569.92 crore a year ago, Idea had said in a statement.

It said voice minutes usage declined to 189.5 billion for the quarter under review compared with 195.8 billion in the preceding three months (April-June of 2015-16).

On a sequential basis, Idea’s net profit declined to Rs 809.3 crore in the reported period from Rs 930.8 crore the previous quarter while total revenue was down to Rs 8,689.1 crore from Rs 8,798.3 crore.

With PTI inputs

Wipro share price declined 1.57 per cent in morning trade on Friday after the company for the third quarter of the fiscal gave a muted revenue growth guidance in the range of 0.5-2.5% in dollar terms. (Photo: PTI)

Wipro share price declined 1.57 per cent in morning trade on Friday after the company for the third quarter of the fiscal gave a muted revenue growth guidance in the range of 0.5-2.5% in dollar terms. The IT major attributed this conservative guidance to larger number of holidays during the third quarter and the continued weakness in the energy vertical.

At 11.49 am, share price of Wipro was down 1.57 per cent at Rs 568.85. Sensex was trading 221.25 points up at Rs 27,508.91 during the same time.

Wipro reported a 7.2 per cent growth in consolidated net profit at Rs 2,235.4 crore for the second quarter ended September 30, 2015. Net sales rose by 6.3% year-on-year.

Wipro’s IT services revenue increased by 4 per cent on a sequential basis to touch Rs 12,042.8 crore at the end of the second quarter. The IT ervices revenues in dollar terms was $1831.9 million, showing a sequential growth 2.1 per cent and it was line with its guidance of 1.5-3.5 per cent.

Moving averages is one of the oldest and most useful technical indicators in technical analysis. (Thinkstock)

A thorough price and volume analysis could help stock market investors to enter an undervalued security at the right time and right price. At times the indicators highlight extreme pessimism zone which help the investors to plan a structured entry and eliminate panic reactions. During a structured bull market identifying relatively strong trends could be achieved with the help of technical indicators like Average Directional Index and and Moving averages etc.

Vivek Gupta, CMT, director research, CapitalVia Global Research, said, “Technial analysis help investors in determining the support and resistance levels. This indicates if a stock’s price has dropped lower (support levels) or has climbed higher (resistance levels). Technical indicators always alert a technical analyst if any major price action or/and volatility is about to occur in a stock’s price.”

Top 5 Technical Indicators

1. Relative Strength Indicator (RSI)

The RSI is classified as a momentum oscillator and it measure the magnitude of directional price movements. Momentum is the rate of the rise or fall in price. The indicator has an upper line, typically at 70, a lower line at 30, and a dashed mid-line at 50.

When price moves up very rapidly, at some point it is considered overbought (When the RSI crosses 70). Likewise, when price falls very rapidly, at some point it is considered oversold (When the RSI crosses 30) the level of the RSI is a measure of the stock’s recent trading strength.

Sacchidanand Uttekar, equity technical analyst, Motilal Oswal, said, “RSI is one of the most reliable indicators to ascertain accumulation and distribution phase. As the name states it gauges the strength of the ongoing trend.”

2. Average Directional Index – (ADX)

ADX is used to measure the trend strength and is plotted as a single line with values ranging from 0-100. It helps investors to quantify the strongest zone and maximize the opportunity to build aggressive positions. Increasing ADX value above 20 indicates that the trend is getting stronger while a move above 50 generally indicates exhaustion of the move. It is an effective tool to navigate in a trending market.

3. Moving averages

Moving averages is one of the oldest and most useful technical indicators in technical analysis. Moving shows a trend in a “smoothed” manner and can give reliable signals when used in tandem with other oscillators like MACD and RSI. Simple moving average (SMA), exponential moving average (EMA) and weighted moving average (WMA) are three types of moving averages. For stocks, common time periods for moving averages are 10 days, 21 days, 50 days, 100 days and 200 days.

Gupta of CapitalVia, said, “The most commonly used moving average is the simple moving average (SMA). Single SMAs can be used to identify a trend but we find that dual or triple MA is more powerful when combined together.”

4. Relative Rotation Graphs (RRGs)

RRGs are a unique visualisation tool to analyse trends in relative strength of multiple securities against a common benchmark and against each other. The tool helps identify relative outperformers in any market situation and helps to channel your attention to those areas of the market that deserve it. According to market experts, it helps investors to have a right portfolio mix and participate in securities which are likely to witness relative strong trends.

5)Bollinger Band

Bollinger Bands are a technical trading tool created by John Bollinger in the early 1980s. They arose from the need for adaptive trading bands and the observation that volatility was dynamic, not static as was widely believed at the time. The purpose of Bollinger Bands is to provide a relative definition of high and low. By definition prices are high at the upper band and low at the lower band. This definition can aid in rigorous pattern recognition and is useful in comparing price action to the action of indicators.

Gupta said, “Bollinger Bands consist of a set of three curves drawn in relation to securities prices. The middle band is a measure of the intermediate-term trend, usually a simple moving average that serves as the base for the upper band and lower band. The interval between the upper and lower bands and the middle band is determined by volatility, typically the standard deviation of the same data that were used for the average. The default parameters, 20 periods and two standard deviations, may be adjusted to suit your purpose.”

The BSE Sensex and NSE Nifty opened on a positive note on Friday tracking global markets. (Express Photo)

10.59 am: Cadila Healthcare Ltd shares were up 2.63 per cent at Rs 443.00 after the company on Thursday said its net profits for the July-September quarter increased by 41 pe cent from Rs 278 crore to Rs 391 crore, helped by launch of new products in India and Mexico, and growth in sales of high-margin drugs in the US market. Sensex was up 233.32 points at 27,520.98. NSE Nifty was up 61.70 points at 8,313.40 during the same time.

9.41 am: The Indian rupee snapped its two-day falling streak and strengthened by 34 paise to 64.78 against the dollar in early trade on fresh selling of the US currency by exporters and banks amid sustained foreign funds inflows. Sensex was up 212.35 points at 27,500.01. Nifty as up 59.50 points at 8,311.20 during the same time.

9.24 am: Wipro stocks were trading 1.57 per cent down at Rs 568.80 after the company on Wednesday posted 7.2 per cent year-on-year rise in its consolidated net profit at Rs 2235.40 crore for the second quarter ended September 30, 2015.BSE Sensex was up 261.33 points at 27,548.99. NSE Nifty was up 73.30 points at 8,325.00 during the same time.

The BSE Sensex and NSE Nifty opened on a positive note on Friday tracking global markets. At 9.17 am, Sensex was up 212.58 points at 27,500.24. NSE Nifty was trading 64.55 points up at 8,316.25

Asian stocks rocketed higher on Friday after the European Central Bank signaled that it’s considering more stimulus to revive the continent’s ailing economy.

The S&P 500 closed at its highest in two months on Thursday as stronger-than-expected earnings from several top companies, including McDonald’s, relieved investors’ concerns about the profit outlook.

Britain’s top share index edged higher on Thursday, failing to match a sharp rally in euro zone shares after European Central Bank President Mario Draghi stoked prospects of further monetary easing, sending the euro lower.

Japan’s Nikkei share average rose sharply to a near two-month high on Friday after European Central Bank President Mario Draghi signalled that new stimulus measures could come as early as December, boosting riskier assets.