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India overtakes China as top weight in MSCI Emerging Market Index

India overtakes China as top weight in MSCI Emerging Market Index

by | Sep 5, 2024 | Share Market


3 min read Last Updated : Sep 05 2024 | 8:34 PM IST


India has pipped China to become the top weight in the MSCI Emerging Market (EM) Investable Market Index (IMI) for the first time. The combined weightage of domestic stocks that are part of the MSCI EM IMI index is 22.27 per cent, while that of India’s larger neighbour is almost 70 basis points lower at 21.58 per cent.


This is despite China’s total market capitalisation at $8.14 trillion being over 60 per cent greater than India’s $5.03 trillion, according to Bloomberg data.


The exact assets tracking the MSCI EM IMI index—an offshoot of the main MSCI EM index tracked by funds with assets of $500 billion—are not known. However, US-based brokerage Morgan Stanley, in a note, said being a top weight will help open the doors for more foreign inflows into Indian companies.

 


The mainstay MSCI EM index—also referred to as the standard index—encompasses stocks in the large- and mid-cap space. The IMI, on the other hand, is more broad-based, with stocks from large-, mid- and small-cap universes.


The higher weight for India vis-à-vis China is by virtue of having a higher share of small-cap weightage in the EM basket, said Sriram Velayudhan, Senior Vice President, IIFL Securities.


Over the past two years, MSCI, a global index provider, has been trimming Chinese stocks from its indices following an extended period of underperformance. On the contrary, Indian companies forming part of its indices have been on the rise.


Last week, MSCI added seven more domestic stocks to its standard index, while trimming 60 from China. Following this, China’s weightage in the index slipped below 24 per cent, while India’s went past 20 per cent for the first time. China—the world’s largest market and economy—has a 320 bps higher weight than India in the MSCI EM index. This gap has narrowed substantially, as at the start of 2021, India’s weight at 9.2 per cent was less than a fourth of China’s 38.7 per cent in the index.


While including stocks and assigning weights, MSCI considers the available legroom for overseas funds as its indices are tracked mainly by global funds seeking exposure to EM or Asian markets. Liberalisation of investment rules by the government has helped improve the investment legroom for foreign portfolio investors (FPIs).


While India’s weightage in most MSCI indices has risen, currently most EM funds have an underweight on the domestic markets given their expensive relative valuations.


Reliance Industries (weight of 1.22 per cent in the index), Infosys (0.86 per cent) and ICICI Bank (0.85 per cent) are top Indian companies in the MSCI EM IMI index. Meanwhile, Taiwanese semiconductor giant TSMC (8.09 per cent), Chinese technology conglomerate Tencent (3.6 per cent), and South Korean electronics major Samsung (2.96 per cent) are the top three components of the index.

First Published: Sep 05 2024 | 8:34 PM IST



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Deposit mobilisation: Banks seek level playing field vis-a-vis mutual funds

Deposit mobilisation: Banks seek level playing field vis-a-vis mutual funds

by | Sep 5, 2024 | Share Market


2 min read Last Updated : Sep 05 2024 | 8:33 PM IST


Faced with the challenge of raising liabilities, the Indian Banks’ Association (IBA) has sought intervention from the banking regulator and government to provide a level playing field for banks vis-à-vis mutual funds.


While mutual funds provide higher returns and have very few constraints on deployment, banks are tightly regulated for charging rates and deployments, according to M V Rao, chairman, IBA.


Rao, who is also managing director and chief executive of Central Bank of India, said at the FICCI-IBA event, “Let us understand why bank customers are moving to mutual funds and how and in what way MFs are offering more returns than the bank deposits… as far as mutual funds and bank deposits are concerned, both are two different ball games.”

 


Rao, however, did not specify what exactly should be the intervention from the regulator or the government.


The intense competition for raising resources has forced banks to float special schemes with attractive interest rates, apart from offering additional benefits like insurance cover for retail customers. Most special deposit schemes are in the maturity bucket of 1-3 years.


With mutual funds, there are no restrictions on deployment; MFs are able to offer more returns than bank deposits, he said.


“Going forward, banks can’t dictate to the customers. We have to evolve ourselves and ensure that higher returns are given to the depositors,” Rao said, adding that involvement and active participation of the government and regulators is required so people put money in deposits, which helps the economy, rather than putting the money into the market where risks are involved.


“I do not think 99 per cent of investors in the mutual funds are analysing the technicals or fundamentals. They are just following the group trend. So going forward, after six-seven years when the cycle turns, definitely, this will have a lot of systematic risk, which may come out,” Rao said.


He also said that mutual fund investing in a company does not require some provisions, but banks have to make a provision (20 per cent) even for “AAA” companies. “So there are a lot of differences in the deployment, which is why returns are less (for banks) and banks are unable to pass on benefits to depositors. This is a reality but definitely, the banking industry will come out with innovations,” he added.

First Published: Sep 05 2024 | 8:33 PM IST



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Demat accounts surge past 171 mn, helped by investor interest in IPOs

Demat accounts surge past 171 mn, helped by investor interest in IPOs

by | Sep 5, 2024 | Share Market


Investors also open fresh demat accounts for family members to increase their chances of securing IPO allotments. (Illustration: Binay Sinha)

3 min read Last Updated : Sep 05 2024 | 7:32 PM IST


The number of dematerialised (demat) accounts — used for holding shares and other securities electronically — rose by 4.2 million in August, reaching 171.1 million.


It marks an average addition of 4 million accounts monthly since 2024.


The demat tally was boosted by record initial public offerings (IPOs) in August. Last month, 10 companies raised Rs around 17,000 crore via IPOs — the best in terms of the quantum of funds raised since May 2022 when the issue LIC hit the market. 


Last month, saw large issues like Ola Electric (issue size Rs 6,145 crore) and Firstcry owner Brainbees (Rs 4,194 crore). 

 


In this calendar year, more than 50 companies have raised Rs 53,419 crore until August 31. 


IPOs have also given robust returns to investors , the BSE IPO index a gauge tracking newly listed stocks has risen 33.5 per cent so far in 2024.


A recent study by the Securities and Exchange Board of India (Sebi) showed a significant number of investors are opening demat accounts primarily to participate in IPOs.


Almost half of the total allotted demat accounts that applied for IPOs from April 2021 to December 2023 were opened in the post-pandemic period, according to the study.


Investors also open fresh demat accounts for family members to increase their chances of securing IPO allotments.


Almost 32 million demat accounts have been added in the first eight months of calendar year 2024. Despite market turbulence and headwinds, including a hike in capital market taxes and concerns that the United States is headed for a recession, the Indian stock market continues to attract new investors. Market experts view the steady pace of demat additions as a positive sign for market stability. The incremental flows from these new investors will help offset any potential outflows from overseas funds or existing investors, and help keep volatility under check, they said.


The trend also suggests a growing channelisation of household savings into equities. According to a Sebi working paper, domestic household investments in equities stood at Rs 128 trillion in FY24, up from 84 trillion in FY23.


Digitisation and increased awareness about equity investing have made it easier to open accounts, contributing to the surge in demat accounts.


The gains in mid and small-cap segments, combined with a robust IPO market, have enhanced the appeal of equities for new investors. The Nifty Midcap 100 has risen  28.7 per cent, and the Nifty Small Cap 100 has risen 29 per cent.


” We have seen a good inflow of new demat accounts open in the last few years. And it is a refelction of market sentiment. Positive sentiments in the market attract new clients. The mid and small-cap segment returns are attractive, but even large-caps are doing well. The benchmark indices are near all-time highs,” said Satish Menon, executive director of Geojit Financial Services.


The advent of new investors will hinge on the market’s trajectory.


” It can be sustained in the short term if activity in the IPO market continues and the good performance of mid- and small-cap continues. And if investors continue to get superior returns from equities compared to other asset classes. The likelihood of not sustaining is higher because markets cannot rise every month. The corporate earnings growth was not great, at least in the last quarter, and if the tepidness is sustained, it will hurt the markets,” said Prakarsh Gagdani, CEO of Torus Financial Market. v

First Published: Sep 05 2024 | 7:32 PM IST



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Ambani, Adani wooing mom-and-pop investors into financial markets

Ambani, Adani wooing mom-and-pop investors into financial markets

by | Sep 5, 2024 | Share Market


Reliance’s bonus issue may be a sweetener for shareholders of the energy-to-entertainment conglomerate. | Photo: Bloomberg

2 min read Last Updated : Sep 05 2024 | 7:29 PM IST

By P R Sanjai

Billionaires Mukesh Ambani and Gautam Adani are wooing India’s retail investors as this cadre entrenches itself into the country’s financial markets.
 


Adani Enterprises Ltd., the flagship of Asia’s no. 2 richest tycoon, is for the first time marketing bonds to mom and pop investors, and on Wednesday said the quota set aside for this segment was fully subscribed on the first day of the sale. 

The following day, Ambani-led Reliance Industries Ltd.’s board approved giving shareholders an extra share for every one they hold — a move that boosts liquidity and affordability for small investors as it increases the number of shares in the portfolio while slashing the stock price.

 


Adani’s debt sale taps into a new source of funding at a time when the group is moving past a scathing short-seller attack last year and riding a surge in investor confidence.


Reliance’s bonus issue may be a sweetener for shareholders of the energy-to-entertainment conglomerate who were awaiting clarity on the initial public offerings of its telecom and retail units but got no steer from Ambani, Asia’s richest person, in his annual speech last week.


Millions of Indians have flocked to the stock market in recent years, lured by a recent bull run and pivoting away from traditional bank deposits. 


“When Reliance grows, we reward our shareholders generously,” Ambani said in the speech to Reliance shareholders on Aug. 29, minutes after the company announced plans for its first bonus issue since 2017. “When our shareholders are rewarded handsomely, Reliance grows faster and creates more value.”


Adani Enterprises, meanwhile, continued to get a strong response on the second day of its maiden bond issuance targeted at individuals. It got subscriptions worth Rs 890 crore for the bond that sought to raise Rs 800 crore, according to lead manager Nuvama Wealth Management’s website.

Adani Enterprises is offering bonds due in two-, three- and five years, with yield ranging between 9.25 per cent and 9.90 per cent. At least three quarters of the proceeds will be used to prepay or repay the company’s debt, while the rest is for general corporate purposes.

Bond issues like these will allow more individuals to participate in the public debt securities and reap higher returns, Adani Group’s Chief Financial Officer Jugeshinder Singh said in an Aug. 29 briefing.

First Published: Sep 05 2024 | 7:29 PM IST



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Nippon, Axis mutual funds set to launch active momentum offerings

Nippon, Axis mutual funds set to launch active momentum offerings

by | Sep 5, 2024 | Share Market


3 min read Last Updated : Sep 05 2024 | 10:27 PM IST


With momentum as a factor continuing to deliver, mutual funds (MFs) are exploring the active side of it. In the coming months, two of the largest fund houses — Nippon India and Axis — are expected to launch active momentum funds.


At present, there is only one active momentum fund, that of Samco MF. Most other fund houses have momentum factor-based funds on the passive side.


These passive funds have delivered strong performances in the past few years amid a bull run in the market. For example, the Nifty200 Momentum 30 index has delivered over 65 per cent return in the last one year as compared to 38 per cent rise in Nifty 500.

 


Momentum investors hold the belief that once a trend, whether upward or downward, takes shape, it is likely to persist for a certain period. Hence, they seek to take advantage of market volatility by taking positions in stocks going up.


While a passive structure suits the concept, experts say that the active route gives better control to protect downside and allows creation of a better quality portfolio.


Explaining the difference between active and passive momentum funds, Paras Matalia, fund manager & head of research at Samco MF, said the control and flexibility that comes with the active approach can lead to better performance.


“Active funds can protect downside by lowering net equity exposure during periods of market decline. The approach also allows for real-time rebalancing as opposed to the fixed timing (every six months) in the case of passive funds,” Matalia said.


Active funds also have the freedom to choose the stock universe and the number of stocks in the portfolio, he added.


As per the Axis MF filing with the Securities and Exchange Board of India (Sebi) for fund approval, its active momentum fund builds a portfolio based on its quantitative model but the final discretion will lie with the fund manager.


“Once the universe is finalized, we will use our proprietary quantitative model to rank stocks based on momentum. The quantitative model calculates the momentum score using any one or more metrics. For instance, the fund may consider price-based momentum strategy where the price and/or total returns of the stock across different time horizons may be considered. The fund manager will then take the output from the model and based on his views of the current market dynamics, select stocks and its weights in the portfolio to construct the final portfolio at his discretion,” the fund house stated in its filing.


Nippon MF also plans to manage the fund through a quantitative model.


“The quantitative model, which will be used for stock selection, will be primarily based on momentum factor that will consider both absolute and relative momentum. The momentum factor attempts to capture the market trends through price momentum adjusted for risk. Momentum strategy can work in both up and down trending market phases,” Nippon MF’s draft filing states.

First Published: Sep 05 2024 | 7:00 PM IST



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5 top infrastructure funds for your portfolio

5 top infrastructure funds for your portfolio

by | Sep 5, 2024 | Share Market


The tailwinds for infrastructure funds continue to be favourable in FY25, with GDP growth estimates lingering above 7 per cent and budgeted capex for infrastructure building reaffirmed at historically high levels for the year. The sector has outperformed the broader market in the last five years, with Nifty Infrastructure delivering 210 per cent returns, compared to the Nifty-50’s 130 per cent returns.

Investors should allocate a portion to the infrastructure space considering the long runway of growth. There are several funds to choose from, each with seasoned operations and nearly every fund beating the index by a wide margin. We analyse the top funds in the sector and the factors for outperformance.

Infrastructure segment

Nifty Infrastructure is one of the benchmarks for the segment, and includes companies from diverse sectors including Telecom, Power, Port, Air, Roads, Railways, shipping and other Utilities. This is a wide array of sectors under the infrastructure theme. The current index is comprised of 31 per cent invested in Oil and Gas, and around 13 per cent each from Construction, Power and Telecom. Even Healthcare and Autos are part of the fund composition.

The wide definition of sectors allows for funds to have a diverse portfolio composition to gain from varying industry cycles in power, construction, roads and telecom. This is reflected in the wide outperformance of the sector funds, compared to the benchmark. For instance, Franklin Build India Fund has only a 5 per cent exposure to oil and 14 per cent to construction and also includes a 10 per cent exposure to banks. While sector or thematic funds possess risk of concentration, the broad theme of infrastructure allows these funds to reduce that risk significantly.

The overall prospects of the sector are underlined by the above 7 per cent GDP growth estimates and high budgeted capex,. which is widely expected to be followed by the private capex cycle, too. The capex allocation moved from 3.3 lakh crore in FY19, to the current 11 lakh crore at 27 per cent CAGR. Within the expenditure head, allocation to roads, rail, power and defence saw allocations growing at 15-25 per cent CAGR in the previous five-year term. This is a direct boost to the sector and a second order driver to other allied sectors such as capital goods, automobiles and banking. The increasing expectation of a rate cut in the US, followed with cuts in India, may spur the private industry to the capex cycle in FY25 as well.

Sector funds

There are 18 funds in the infrastructure sector and the average age of the funds is close to 17 years. Measured on the basis of average daily 5-year rolling returns, the top five funds are Franklin Build India, Invesco India Infra, Kotak Infra & Eco Reform, HSBC Infrastructure  and Canara Rob Infrastructure. Owing to the large field of investible universe, all the funds have bettered the index in all the three time frames (1-3-5), which implies the role of active management in this sector compared to passive management, which might be relevant for other sector funds.

Franklin Build India Fund returned an average 17.6 per cent CAGR over all the five-year periods in the last 10 years, compared to Nifty Infrastructure TRI of 7.3 per cent CAGR in the same period. The fund has also beaten the index on 97 per cent of the days in the period. The same performance is seen in shorter cycles of 3-years (18.5 per cent average) and 1-year (21.5 per cent) as well, and is the better performer in the segment.

The fund’s largest holding is in Larsen & Toubro (9.5 per cent) and has been so since October 2021. The other large holdings are NTPC, ONGC, ICICI Bank, and Reliance Industries. The fund is well diversified with the top five holdings accounting for 30 per cent of the fund, which was invested in 44 companies as of July 2024.





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