Turned Two and Growing...

Print Edition: June 2012

With an aim of giving some actionable advice to our readers, the Money Today-Value Research Lifestage Model Fund Portfolios were launched in June 2010. The portfolios have seen many ups and downs in these two years of investing - beginning with the European debt crisis which had immediately affected the stability of the market, then the Sensex soaring to 21,000 in November 2010, followed by a sharp correction and slide since the beginning of 2011.

Instability in the global economy, erratic foreign institutional investments, fluctuating IIP numbers, weak rupee, high inflation, government's indecision on key policy issues and corruption were the issues that kept markets swinging and investors jittery.

On the debt side, continuous repo-rate hikes by the RBI have been one of the major impediments to growth of the debt portfolios. This has also affected equity funds where a major chunk is invested in rate-sensitive sectors such as banking and automobile.

However, the SIP strategy in stable sectors, such as FMCG and Healthcare, has helped the portfolios limit the damages.

All our portfolios have large equity holdings in private sector banks like ICICI Bank and HDFC Bank. According to a recent report from Prabhudas Lilladher, private banks have reported stable asset quality despite significant moderation in economic growth.

They expect moderation in auto loan growth (compared with the last financial year) to continue and 15 per cent overall credit growth in this financial year. With retail asset quality expected to remain robust, they believe valuations of retail banks already factor in a positive outcome and hence are optimistic on performance of the private banks.

Energy stocks, which form the second-largest equity holdings, are feeling some pressure. Oil manufacturing companies are getting squeezed due to the tension between Iran and the West.

The International Energy Agency (IEA), in its monthly oil market report, said that this international friction is likely to keep oil prices high despite a dramatic improvement in world supply and a big build up in stocks.

The agency reported that global oil supply rose to 91 million barrel per day in April, with 90 per cent of the increase coming from Organization of the Petroleum Exporting Countries.

However, hopefully the scenario will soon change. And since there is nothing fundamentally wrong with these stocks their returns will improve in the near future. Patience will be the key to succeed with these portfolios. It will fetch good returns only for the long-term keepers.

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