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Mutual Fund investors look to exit market as equity inflows see 27% dip

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The run-up in markets seen in September has prompted mutual fund (MF) investors to take money off the table, leading to a dip of 27 per cent in equity flows as against previous month.


“It is typical for investors to look for exit, if their investments have been below water for one to one-and-a-half years. In September, redemptions have gone up and inflows have come off,” said Aashish Sommaiyaa, managing director and chief executive officer of Motilal Oswal Asset Management Company (AMC).



In September, net equity inflows stood at Rs 6,609 crore, compared to Rs 9,152 crore in previous month, showed data from Association of Mutual Funds in India (Amfi). In last four months, this is the lowest net inflow tally seen by the equity category.


“Balanced category alone has seen close to Rs 2,000 crore of outflows,” Somaiyaa added.


In terms of overall redemptions, investors pulled out Rs 9,444 crore of funds from equity category, which was 22 per cent higher than previous month.


Contribution through systematic investment plans or SIPs remained intact at Rs 8,262 crore, improving marginally from last month’s tally of Rs 8,231 crore. If large part of these SIP flows (as anecdotally observed) were directed towards equity schemes, they accounted for 51 per cent of gross equity inflows (Rs 16,053 crore) seen in September.


Among the equity categories, large-cap funds received net inflows of Rs 1,559 crore, which was about 40 per cent lower than previous month.


In September, the market benchmark had delivered robust returns of 3.8 per cent. However, markets saw sharp swings during the month. Following sell-off in markets on account weak economic growth data and fears of spike in crude oil prices, the markets saw a complete turnaround after Finance Minister Nirmala Sitharaman announced cuts in corporate tax on September 20.


The markets saw over five per cent gains on the day of announcement, followed by another two per cent jump in the next trading session.


On the fixed-income space, liquid schemes saw the net outflows to the tune of Rs 1.4 trillion. According to industry observers, this was largely on account of quarter-end pullouts made by institutional investors and corporate investors. “Corporates take out funds for meeting their tax-related obligations and redemptions made by banks are related to their capital adequacy requirements,” said NS Venkatesh, chief executive of Amfi.


Outflows in credit risk funds showed no signs of easing. In September, investors pulled out Rs 2,351 crore of investments. So far this fiscal, the category has seen net outflows of Rs 16,133 crore.


“Credit risk category could see pace of outflows even accelerate as there is still nervousness around rating downgrades,” said Mahedra Jajoo, head-fixed income of Mirae Asset Management Company.


Most of the debt categories saw outflows. Other categories with large drawdowns were ultra-short duration (-Rs 6,783 crore), money market funds (-Rs 6,278 crore) and low duration fund (-Rs 2,131 crore).


“Outflows from other debt categories can also be attributed to the quarter-end withdrawals the industry tends to see from institutional and corporate investors,” Jajoo added.


Overall, the debt category saw net outflows of Rs 1.58 trillion, largely driven by investor pullouts in liquid schemes.


At the end of September, industry assets under management stood at Rs 24.5 trillion, four per cent lower than previous month.

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MFs up the ante on private banks, increase weight to nearly 21%

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Mutual funds (MFs) have increased their weight on private banks to a new high of 20.8 per cent in September. With some of the players in the financial space facing heat on their loan exposures, money managers are of the view that better-run private banks are poised to corner higher market share.


Private banks are the top sector holding for MFs, followed by non-banking financial companies (8.9 per cent), technology (8.7 per cent), consumer (8.4 per cent), and capital goods (7.8 per cent), showed a report by Motilal Oswal Financial Services.



“More efficiently-run banks are likely to see increased market share, as weaker players may not be able to participate in the credit offtake cycle. Private banks tend to give better risk-adjusted returns on account of their superior risk management,” said A Balasubramanian, chief executive officer of Aditya Birla Sun Life MF.


The fund house launched its banking exchange-traded fund on Wednesday, which would track the Bank Nifty index.


Fund managers add that increased weight towards private banks might also be on account of a shift in institutional investors’ sentiments on non-banking financial companies (NBFCs).


“The concerns over NBFCs pertaining to their liabilities and growth, has prompted institutional investors to shift their allocation towards private banks, which might have also led to the uptick in weight,” said Akash Singhania, fund manager at Motilal Oswal Asset Management Company (AMC).


According to a brokerage report, HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank were among the top five stocks to see the highest net investments by MFs in September.


Net investments in HDFC Bank and ICICI Bank stood at Rs 7,400 crore and Rs 4,500 crore, respectively; Axis Bank and Kotak Bank stood at Rs 4,080 crore and Rs 3,730 crore, respectively.


Given the asset quality concerns in the overall financial space, the banking segment can also see polarisation with quality names drawing higher investor interest, and getting easier access to capital, say analysts.


In a one-year time-frame, banking sector funds have delivered returns of 10.6 per cent, outperforming most of the equity categories during this period.


“While we don’t have a banking fund in our basket at present, we feel the banking and financial space remains a strong long-term theme for investors,” said Swarup Mohanty, chief executive officer of Mirae AMC.


Analysts point out that the banking sector funds also offer a tactical opportunity as a benign interest rate scenario can lift stocks of state-owned banks.


“Public-sector banks being more sensitive to change in yield, compared to private banks, will remain major beneficiaries if further rate cuts lead to a decline in G-sec yields,” analysts at ICICI Direct said in a note. “Accordingly… aggressive investors may consider allocating some portion of their thematic allocation into banking funds,” the note added.

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India asks OPEC not to cut oil production; seeks better commercial terms

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India asks OPEC not to cut oil production; seeks better commercial terms


Battling a slowing economy, India on Tuesday implored oil cartel OPEC to not undertake deeper crude oil production cuts as it renewed its pitch for reasonable pricing of oil and stability in supplies.


In a meeting with OPEC Secretary-General Mohammad Sanusi Barkindo, Oil Minister Dharmendra Pradhan also pitched for better commercial terms for crude oil imports including reduction in official selling price, extension of credit period from existing 30 days to 90 days from bill of lading, freight discount and open credit based on creditworthiness of Indian state-run refineries.


“We discussed the present oil availability scenario,” he told reporters here. “Organization of the Petroleum Exporting Countries (OPEC) is now taking cognizance of consumer interest in deciding on its policies.”

The oil cartel, he said, will meet in December and hoped it would not announce new cuts in production.


“We hope that in the current geopolitical situation, OPEC does not exercise greater production cuts. We sincerely believe that crude prices should be left to market forces of demand and supply. We have been consistently advocating maintaining an optimal balance between the producers and consumers for responsible pricing, which balances the interests of both the producer and consumer,” he said.


Pradhan said the voice of India, the world’s third-largest energy consumer behind the US and China, is now being heard and OPEC Secretary-General has been taking its views to the meetings of the producers.


OPEC nations led by Iraq and Saudi Arabia supply more than 80 per cent of India’s oil needs and any cut in output is likely to push up prices – something that a slowing economy cannot afford.


He said OPEC members such as Abu Dhabi have been very supportive of making up any production shortfall in the aftermath of attacks on Saudi oil facilities.


Indian companies have started exploring alternate sources for crude oil, to ensure that import basket is widely spread out, to counter any eventuality of a sudden supply shortage.


The minister said he is encouraging Indian firms to look for investment opportunities in producing assets. “Our companies are engaged with OPEC member countries for further investment opportunities.”






India, he said, attaches a lot of importance to the IndiaOPEC Institutional Dialogue and New Delhi looks forward for the fourth round at mutually convenient dates.


Earlier speaking at the India Energy Forum of CERAWeek, Barkindo said India’s enthusiasm for producer and consumer dialogue has contributed enormously to OPEC’s success in restoring sustainable stability to the world oil market.


India, he said, is one of the major drivers of global economic and oil demand growth. “Our latest figures for India show that oil demand increased in August by 0.12 million barrels per day (mb/d) for the second month running with a total consumption of 4.61 mb/d. The country’s oil demand growth in 2019 is estimated at 0.14 mb/d year-on-year, accounting for 15 per cent of global oil demand growth.”

While world oil demand is expected to rise by 14.5 mb/d, increasing from 97.2 mb/d in 2017 to nearly 112 mb/d in 2040, India will account for oil demand growth of 5.8 mb/d, which represents an astonishing 40 per cent of the overall increase. “India is projected to see the largest additional oil demand and the fastest growth (3.7 per cent per annum) in the period to 2040,” he said.


He said OPEC demonstrated repeatedly its commitment to sustainable stability, even during unprecedented events like the attacks on Saudi Arabia’s oil facilities one month ago.


“In the immediate aftermath of these shocking attacks, Saudi Arabia moved swiftly to ensure a stable supply to the global market as it worked to restore its production capacity. Its exemplary handling of the situation very quickly stabilized markets and allayed concerns about supply disruptions,” he said. “Additionally, the oil industry is in a much stronger position today to deliver a sustainable energy supply than it was just three years ago.”

He said OPEC has been since 2016 adjusting productions by the ‘Declaration of Cooperation’ which provides for a durable foundation for the opportunity to facilitate dialogue with consumers; promote a better understanding of market fundamentals; support energy sustainability, and promote technological advancement.


“OPEC does not believe in one-way streets. Throughout the ‘Declaration’ process we’ve been diligent in listening to the views of India and other oil-consuming nations. The ‘Charter’ provides a further means to engage in a constructive and consultative process,” he said.

 

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Q2 preview: Refining margins may pump up Reliance Industries earnings

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(From right) Mukesh Ambani, CMD of RIL, with wife Nita Ambani and mother Kokilaben Ambani 	photo: bloomberg


With an improvement in refining margins, Reliance Industries (RIL) is expected to report a strong quarter for the July-September period. Analysts expect refining to offset weakness in petrochemicals (petchem) and a lower tax rate benefit for the retail and telecom businesses.


RIL will report its financial performance for the September 2019 quarter on Friday.



In a Bloomberg poll, 10 analysts estimated RIL’s consolidated net profit at Rs 11,256 crore and nine analysts estimated revenue at Rs 1.5 trillion. Brokerages like Centrum see the highest-ever consolidated earnings prospect for the company. In the September 2018 quarter, RIL reported a consolidated net profit of Rs 9,516 crore.


RIL’s refining business is expected to make a comeback in the September quarter, owing to higher margins. Analysts have pegged estimated gross refining margins (GRMs) in the range of $9.5 per barrel and $10.5 per barrel. This would be a turnaround from the $8.1 per barrel GRM reported in the June quarter, which was the lowest since October-December 2014.


“We expect September quarter GRMs at $9.5 per barrel, up from $8.1 per barrel during the June quarter, on the back of higher key product margins of diesel, gasoline, and jet fuel. The attack on Saudi Aramco oil processing facilities pushed gasoline margins to its highest level since 2018,” said analysts with BNP Paribas in their note. Analysts expect refining strength to offset petchem weakness.


Q2 preview: Refining margins may pump up Reliance Industries earnings


While the petchem segment is expected to be weak, other businesses like retail and telecom are expected to show steady results. “ While the petchem environment has weakened, we believe RIL’s ability to switch feedstock to gas for as much as 60-70 per cent of its requirement should limit the petchem margin decline quarter-on-quarter (QoQ),” said analysts with JPMorgan. They added, “Retail should be another strong quarter, though year-on-year (YoY) growth rates should come off essentially on a higher base. We forecast Reliance Jio’s earnings before interest, tax, depreciation and amortisation at Rs 5,010 crore, up 7 per cent QoQ, driven by continued strong subscriber growth.”


The telecom and retail business is also expected to benefit from lower tax rates, according to analysts with Nomura. At the consolidated level, in the Bloomberg poll, only one brokerage shared a pre-tax profit estimate for RIL, which was at Rs 15,560 crore for the September 2019 quarter. In a Kotak brokerage report, analysts pegged estimated profit before tax at Rs 14,918 crore for the September quarter, compared to Rs 13,197 crore in the same quarter a year ago.


Analysts with Bank of Baroda expect RIL’s retail earnings growth to witness slowdown, in line with macro trends across India. The brokerage estimated earnings before interest and tax at Rs 1,500 crore, a rise of 18 per cent YoY, but down 17 per cent sequentially.


In the post-results management guidance, analysts will look for further update on the company’s deleveraging plans. At RIL’s annual general meeting (AGM) in August, Group Chairman Mukesh Ambani announced plans to become zero net-debt company in 18 months. At the same AGM, Ambani also announced a proposed investment by Saudi Aramco in RIL’s oil-to-chemicals division.


Analysts on Friday will look for more details on this proposed deal and a commentary on expectations with regard to the Indian Maritime Organization (IMO) regulations.


The new IMO regulations require ships to use cleaner fuel starting January 2020, which are expected to improve the refining prospects for RIL.

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