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India- An Attractive Destination For Long-Term Growth

Summary India is poised for a robust economic recovery on the backdrop of strong fundamentals. Slowdown in China created ripple effects across emerging markets, but India looks like an attractive alternative. Narendra Modi government’s efforts on making India a manufacturing hub to catalyze economic recovery. For those who have been tracking the equity markets, last month has been quite a rollercoaster ride. The global sentiments remained weak with negative news flowing from China with respect to their economy. The Chinese economy grew by 7.4% in 2014, which is the slowest in 24 years. In an attempt to boost its exports and revive the economy, China announced a devaluation of its currency. This triggered panic selloff across markets. Emerging markets got the maximum impact. In an attempt to prevent the falling stock prices, the People’s Bank of China reduced its interest rates twice during the last couple of months. But, this failed to entice global investors and panic prevailed. The story in India looks quite different from its peers. The country is in a much stronger wicket compared to its peers. While the US Fed is mulling over increasing its interest rates, the Reserve Bank Of India (RBI) surprised the markets on 29th September with a 50 basis points (bps) cut in the repo rate. The rationale for the same is as follows. ( RBI’s Policy Statement ) Retail inflation has eased significantly to 3.66% in August 2015 as against 7.73% in the same month previous year. ( India’s Inflation ) The monsoon deficit in India has been around 14% this year. However, the central government has taken resolute steps towards managing food supply. Economic recovery has been slower than expected. This rate cut, combined with the 75 bps rate cut done during this year by the central bank is expected to bring down the cost of borrowing. This can encourage fresh borrowing and can propel capital expansion. For companies that already have significant debt on their books, their interest cost is expected to come down, thereby increasing profit margins. On the backdrop of a slowing Chinese economy, global commodity prices have been low. While this may be a negative for countries exporting commodities, it is a huge positive for India as it is an importer and consumer of commodities. India imports close to 80% of its oil requirements. Crude oil prices have fallen sharply over the last one year, and this will have a huge positive impact on the current account of India. It is evident that an economic recovery is underway. The RBI has also stated this clearly in its monetary policy review on 29th September 2015. It has been 15 months since the Narendra Modi government has taken charge and the fundamentals look robust. The Make in India Campaign – With the government encouraging foreign companies to set up their factories in India, this campaign will definitely boost manufacturing, construction, power, infrastructure, technology and logistics sectors. The government is striving hard to make it easier to do business in India. This can definitely attract more foreign funds to the country. While earnings growth was subdued in the previous quarter, it is expected to be robust. With the domestic demand picking up and global economy recovering (healthier data from US and Europe), earnings are expected to improve over the next 3 to 5 years. Softer commodity prices is a huge positive as it will result in improving margins and increased profitability. China has been witnessing increase in the cost of labour and real estate. In comparison, India looks like an attractive alternative for companies to move into. Considering these factors, Indian equities definitely look attractive as an investment destination. In this light, an evaluation of The India Fund, Inc (NYSE: IFN ) is given below. Fund Investment Objective: The fund’s investment objective is long-term capital appreciation, which it seeks to achieve by investing primarily in the equity securities of Indian companies. Investment Philosophy: Bottom-up stock selection Proprietary research driven Based on fundamental analysis Factsheet Download Performance: As on 31st August 2015 The fund has a well-established track record of over 20 years. As it is evident from the past performance, the NAV has beaten the MSCI India Index over the short-term and the long-term. This superior performance can be attributed to a) Superior stock selection of the fund; and b) Fund manager’s ability to manage sector-wise weightings effectively. Top 10 Holdings: As on 31st August 2015 Sector Allocation: As on 31st August 2015 The portfolio consists of fundamentally strong companies that would be benefited as the economic recovery happens in India. The top 10 holdings constitute 58% of the portfolio. The portfolio is diversified across 9 sectors and has a balance between both cyclical and defensive companies. The fund has highest weighting to financial services. With the central bank cutting the repo rate by 50 bps and the outlook for interest rates moving southwards in the next 12 to 18 months, financial services are expected to play a key role in economic recovery of the country. Information Technology and Consumer Staples have a weighting of around 17.5% each to the portfolio. Information Technology plays an important role in the exports of the country. With the US Dollar strengthening against the INR, these companies can be benefited due to increased US Dollar revenues. The Consumer Staples companies in the portfolio, especially ITC, Hindustan Unilever and Godrej Consumer Products have very low debt, well-established brands and a strong hold in the Indian consumer market. The other key sectors that are expected to contribute to the fund’s performance are Healthcare and Industrials. Healthcare has a weighting of 10.1%. Growth is expected to come from both the domestic markets and exports. Industrials have a weighting of 5.3%. This sector will be benefited significantly as the Make in India campaign becomes a reality and as manufacturing activity improves. The cash level in the portfolio is just 1%. As it is a closed-ended fund, it need not maintain high cash levels to fund redemption requests as they are not allowed. As on 1st October 2015, the closing price of the fund was $24.27 while the NAV of the fund was $27.54. It is currently trading at a discount of 11.87%. IFN data by YCharts Forward Looking Estimates The RBI, in its latest monetary policy review has projected a GDP growth of 7.4% for the year 2015-16. The International Monetary Fund (NYSE: IMF ) too has projected a GDP growth of 7.5% for the same period. This is higher than its estimate of China’s GDP growth which is 6.8%. With an inflation projection of around 5%, the portfolio companies are expected to deliver a robust 13-15% growth in earnings over the next 3 to 5 years. The fund also has a healthy track record of generating superior returns than the benchmark. Considering the robust macro-economic factors in India and with limited number of India-dedicated funds listed in the US, The India Fund, Inc fund looks attractive for long-term wealth creation. Fund Management Team: Asian Equity Team based in Singapore Net Assets: $824.1 million Expense Ratio: 1.47% Shares Outstanding: 29,541,212

Where In The World To Look For Opportunities

While Russ believes the outlook for U.S. stocks may be muted, he sees opportunities in other parts of the world, particularly in Asia. Kisan / Shutterstock After weeks of struggling, global stocks stabilized last week. However, market volatility remains elevated. Looking at realized returns over the past month accessible via Bloomberg data, annualized volatility on the S&P 500 Index is above 30 percent, triple its early August level. Looking forward, the bumpy ride in the U.S. is likely to continue , given the persistence of several factors, including a pending interest rate hike by the Federal Reserve (Fed) and expensive U.S. stock valuations. Without the tailwind of easier money, U.S. equities will need to get by on earnings growth, of which there hasn’t been much lately, rather than monetary policy-induced multiple expansion. But while the outlook for U.S. stocks may be muted, I do see potential opportunities in other parts of the world, as I write in my new weekly commentary, “ More Volatility on U.S. Horizon Has Sights Turning to Asia .” In particular, Asian stocks, both in Japan and in emerging markets (EMs), look attractive right now relative to other regions. Two Potential Opportunities in Asia Japan Last week, Japanese stocks, as measured by the Nikkei 225 stock index, enjoyed their biggest one-day advance since 2008 . Investors were encouraged by Prime Minister Abe’s pledge to further lower the corporate tax rate. Although implementation of the so-called “third arrow” of Abe’s reforms has been mixed, Japanese corporate profitability continues to improve. The return-on-equity ( ROE ) for Toyko Stock Price Index (MUTF: TOPIX ) stocks was 8.6 percent in August, up roughly a half point from a year ago, as data accessible via Bloomberg shows. As such, investors may want to consider Japanese equities . Emerging Asia I also see potential opportunities in Asia’s emerging markets, despite my more cautious stance toward the broader emerging market asset class . Many Asian emerging markets, including the Chinese market listed in Hong Kong, have sold off in concert with China, leaving their valuations once again cheap. In addition, with most countries in emerging Asia running a current account surplus and possessing sizable foreign currency reserves , I believe emerging Asia could be better positioned to withstand a Fed tightening cycle than other emerging markets. This dynamic has been evident in the relative resilience of emerging market currencies, an important determinant of overall return for dollar-based investors. With a few notable exceptions, namely currencies in Malaysia and Indonesia, the currencies in most Asian emerging markets are holding up relatively well against the dollar, as Bloomberg data show. Even in China, despite all the hand wringing over the recent devaluation, the yuan is down less than 3 percent against the dollar this year, according to Bloomberg data. In contrast, as the data show, currencies in Russia, Columbia, Turkey and Brazil have plunged this year. Finally, many investors assume that commodities and emerging markets go hand-in-hand . In fact, most of the countries in Asia, including China and India, are large commodity importers. They benefit when commodity prices decline. This is in contrast to the situation in places like Brazil, a large exporter of raw materials. Last week Standard & Poor’s downgraded Brazil’s sovereign rating back to junk status. Admittedly, other factors—notably a major political scandal and deteriorating fiscal picture— also played a part . The bottom line: For all of the reasons mentioned above, I see pockets of value in Asia, both in Japan and in the region’s emerging markets. This post originally appeared on the BlackRock Blog

5 Worst Performing Mutual Funds In August

It turned out to be quite a terrible August for US mutual funds. Except for the Precious Metals equity funds, none of the sector equity mutual funds finished in the green in August. Moreover, the Healthcare sector which had been a consistently strong performer since last year turned out to be the biggest loser among sector equity funds in August. Real Estate sector, which was July’s best gainer, suffered a 5.7% decline in August. The best gainer for August turned out to be Bear Market funds, gaining a robust 9.1%. This is particularly significant given the fact that the second and third placed Commodities Precious Metals and Equity Precious Metals had scored gains of 3.3% and 2.7%. Municipal Bond Funds were the only other gainers, but those gains were marginal with the best one being 0.3%. The success of Bear Market funds is not surprising though. It was a torrid August for markets, struggling hard to survive growth fears in China. For the month, the benchmarks dropped to their multi-month lows. The world’s second largest economy continued to be a cause for concern and led to a global market rout. A slump in oil prices also weighed on energy stocks before a rebound in prices late in the month. August’s Performance For the month, the S&P 500, the Dow and the Nasdaq plunged 6.3%, 6.6% and 6.9%, respectively. While the Dow notched up its biggest monthly decline in more than five years, the S&P 500 and the Nasdaq registered their steepest monthly losses since May 2012. All the major indexes moved in and out of their correction territory to end a volatile month in the red. Benchmarks slumped for the month on concerns that a weak Chinese economy would result in a global slowdown. Benchmarks also closed in the red, following the yuan’s devaluation. Uncertainty about the timing of a Fed rate hike was another major cause for the losses. China Fears Spook Markets Several economic indicators from China signaled the slowdown may be deepening. Data on manufacturing was disappointing in nature, indicating underlying China’s economic weakness. Producer prices declined to the lowest level in six years in July. Additionally, exports recorded a greater than expected decline. Dismal data aggravated losses for China stocks, which weighed on investor sentiment in the U.S. On Aug. 21, the blue-chip index nosedived, declining 3.6% after a volatile trading session. This was a result of investors’ concerns about the adverse effects of a slowdown in China’s economy. The Shanghai Composite Index tanked 8.5% to close at 3,209.91 on the same day. China’s main stock index moved into the red for the year, while it plunged almost 38% from its peak in mid-June. In its latest move to prop up markets and the economy, the People’s Bank of China (PBOC) decided to cut interest rates for the fifth time since November. The apex bank will cut one-year lending rate to 4.6% from 4.85%, while the one-year deposit rate will be lowered to 1.75% from 2%. The PBOC also decided to reduce reserve requirement ratio for all banks from 18.5% to 18%. This will pump around 678 billion yuan or about $105.9 billion into the Chinese economy. However, investors remained unconvinced about whether these measures would be able to prop up the economy. Market Rout & Rebound China’s concerns had triggered record losses for U.S. stocks as well as all other major markets across the world at the latter half of August. The S&P 500 and the Dow had entered correction territories. A drop of 10% or higher than the peak achieved that year, generally indicates a correction. The blue-chip index and the S&P 500 posted their biggest weekly declines for the week ending Aug. 21 since Sep. 2011. The Nasdaq recorded its steepest weekly drop since Aug. 2011. Losses spilled over into the following Monday, i.e. Aug. 24, with the Dow plunging by more than 1,000 points during the first six minutes of trading. The index finished in negative territory, losing 3.6% and settled at its lowest level since Feb. 2014. All 30 Dow components ended in the red. Meanwhile, the S&P 500 dropped more than 10% on Aug. 24 from its peak achieved on May 21, losing 3.9%. Moreover, the index ended at its lowest level on Monday since Oct. 2014. Almost all the 500 members of the index settled in negative territory. The S&P 500 along with the blue-chip index posted their biggest one-day percentage declines on Aug. 24 since Aug. 2011. Additionally, the Nasdaq declined heavily, by 3.8%. However, markets rebounded later on Aug. 27 and 28. On Aug. 27, the Dow and the S&P 500 registered their biggest one-day percentage gain since Nov. 2011. The Dow also posted its third largest gain in terms of points and the best since the crisis of 2008. The Nasdaq too notched up its biggest one-day gain since Aug. 2011. The indexes bounced back on Aug. 27 following a six-day rout, which wiped out around $2 trillion from the market. Upbeat GDP data and rebound in oil prices helped benchmarks notch up massive gains for the second consecutive day on Aug. 28. The blue-chip index increased 6.3% over two days, its largest two-day increase since 2008. Why Bear Market Funds Won? The gains, or the rebound, after the market rout failed to help benchmarks finish in the green for the month. Oil prices had shown a reversal in fortunes at the end of August, but those gains were insufficient compared to the month-long decline oil prices suffered. During August, price of WTI crude oil had finished below $39 a barrel for the first time since Feb. 2009. Additionally, price of Brent crude oil fell below the $43 mark for the first time since March 2009. Moreover, certain dismal earnings numbers and rate hike uncertainty also kept the benchmarks in the red. The losses for the broader markets helped funds that employ a short strategy. The Long/Short mutual funds generally profit from both bull and bear markets. These funds utilize conventional methods to identify stocks which are either under or overvalued, aiming to profit from shorting the overvalued stocks. These funds invest in short positions and profit from declines in share prices. The returns thus move in the opposite direction of the markets. These funds use leverage, derivatives, and short positions in order to maximize total returns, irrespective of market conditions. Biggest Losers in August As mentioned earlier, there was hardly any category of funds outperforming. The monthly performance list is all about decliners this time. Below we present 10 fund categories with the biggest losses in August: Source: Morningstar To have China Region as the biggest loser among all categories was no surprise. The rout in Chinese markets was sure to keep the funds under pressure. Pacific Asia, Diversified Emerging Markets and India also had to deal with China concerns and ended in the red. The emerging markets are also having to put up with recent market turmoil and wild currency swings. Now let’s look at funds that had suffered largest declines in August. We have narrowed our search based on Zacks Mutual Fund Rank. The following funds carry either a Zacks Mutual Fund Rank #4 (Sell) or Zacks Mutual Fund Rank #5 (Strong Sell) as we expect the funds to underperform its peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund. The minimum initial investment for these funds is within $5000. Turner Small Cap Growth (MUTF: TSCEX ) invests a minimum of 80% of its assets in small-cap US firms’ equity securities. These firms are believed to have strong earnings growth prospects. The firms are diversified across economic sectors but sector concentration may be on ones that approximate those in the 2000 Growth Index. TSCEX currently carries a Zacks Mutual Fund Rank #4 and lost 9.6% in August. Alger Health Sciences A (MUTF: AHSAX ) seeks capital growth over the long term. AHSAX invests most of its assets in equity securities of companies related to the health sciences sector. These companies may be of any size. AHSAX may also invest in derivative instruments. AHSAX currently carries a Zacks Mutual Fund Rank #5 and lost 8.9% in August. AllianzGI Health Sciences A (MUTF: RAGHX ) invests a lion’s share of its assets in health-science related companies including those that design, manufacture or sell products associated with healthcare, medicine or life sciences. It invests mostly in common stocks and other equity securities. RAGHX currently carries a Zacks Mutual Fund Rank #4 and lost 7.6% in August. BlackRock Health Sciences Opportunities Portfolio Investor A (MUTF: SHSAX ) seeks capital appreciation over the long run. It invests a major portion of its assets in healthcare and related companies. These firms include health care equipment and suppliers, health care providers and services, biotechnology companies and also pharmaceuticals. SHSAX currently carries a Zacks Mutual Fund Rank #4 and lost 7.5% in August. Gabelli Utilities A (MUTF: GAUAX ) seeks to provide high return through current income and capital growth. The fund invests a large portion of its assets in readily marketable US and non-US utility companies that pay dividends. These companies are believed to have the potential to offer current income or capital growth. GAUAX currently carries a Zacks Mutual Fund Rank #4 and lost 5.1% in August. Original Post