India's Sensitive Index rose, posting its fourth weekly advance. Tata Steel Ltd. and State Bank of India gained on expectations corporate earnings are weathering slowing economic growth.
Tata Steel Ltd., the country's largest maker of the alloy, rose to its highest in almost three weeks. State Bank of India, the nation's largest lender, gained the most in a week.
``Earnings for the quarter ended June were decent,'' said Mahesh Patil, who helps manage $9.6 billion in assets at Birla Sunlife Asset Management in Mumbai. ``Investors were expecting earnings to be much worse than what companies reported.''
The Bombay Stock Exchange's Sensitive Index, or Sensex, rose 300.94, or 2.1 percent, to 14,656.69. The gauge climbed 2.7 percent this week. The S&P CNX Nifty Index on the National Stock Exchange gained 80.60, or 1.9 percent, to 4,413.55.
Tata Steel rose 3.8 percent to 679.85 rupees, its highest since July 14. State Bank rose 6.2 percent to 1,504.55 rupees, the most since July 23.
Tata Steel, India's largest producer of the metal, posted a 22 percent gain in first-quarter profit, excluding contributions from unit Corus Group Plc, after the company increased prices on higher demand. Net income rose to 14.9 billion rupees in the three months ended June 30, beating the 13.1 billion rupee median profit estimate of analysts surveyed by Bloomberg News.
State Bank, the nation's biggest, reported profit that beat analysts' estimates on July 26 as fees from selling mutual funds and insurance almost tripled.
Overseas investors bought a net 5.97 billion rupees ($148 million) of Indian equities on July 31, reducing their net outflow this year from stocks to $6.62 billion, according to the nation's stock market regulator.
The following were among the most active stocks traded on the Bombay and National Stock Exchanges. Stock symbols are in parentheses after company names:
Bajaj Hindusthan Ltd. (BJH IN) added 11.75 rupees, or 7.6 percent, to 165.65, the most since July 2. India's biggest sugar producer said its third-quarter loss narrowed 41 percent after prices of the sweetener increased. The net loss in the quarter ended June 30 was 354.1 million rupees compared with 604.7 million rupees a year earlier. Sales fell 4 percent to 4.59 billion rupees.
Essar Oil Ltd. (ESOIL IN) rose 10.05 rupees, or 5.3 percent, to 198.70, the highest since June 27. The company, which owns India's newest refinery, swung to a profit in the first quarter. Net income was 299.3 million rupees in the three months ended June 30. It had reported a loss of 56.7 million rupees a year earlier.
HEG Ltd. (HEG IN) dropped 28 rupees, or 10 percent, to 240.80. India's biggest graphite electrodes maker by market value fell the most in a month after deferring a stock buyback plan.
Housing Development Finance Corp. (HDFC IN) rose 124.4 rupees, or 5.5 percent, to 2,401.75, the highest since June 4. India's largest mortgage company raised its benchmark lending rate by 75 basis points. The company raised the lending rate for its best customers to 15 percent from the 14.25 percent set on June 30, making it the second increase in a month. A basis point is 0.01 percentage point.
Maruti Suzuki India Ltd. (MSIL IN) fell 13.5 rupees, or 2.4 percent, to 562.15. The maker of half the cars in the country posted its slowest sales growth in four months in July as rising interest rates and accelerating inflation damped demand. Sales climbed 1.1 percent last month to 58,543 cars, vans and sport- utility vehicles.
Reliance Communications Ltd. (RCOM IN) dropped 64.65 rupees, or 13 percent, to 436, the most since June 8, 2006. India's second-largest mobile-phone operator reported first-quarter net income growth slowed. Profit rose 24 percent to 15.1 billion rupees for the three months ended June 30, missing the 15.5 billion rupee median estimate of seven analysts surveyed by Bloomberg.
Sunday, August 3, 2008
Index Mutual funds are good for passive investors
Index funds have been popular with investors. Over the last year, the returns from index funds have been pretty good - about 30 percent. This is higher than the returns equity schemes posted in the market .
An index fund is a type of mutual fund that invests in securities of the target index in the same proportion or weightage. Index funds are targeted to popular indices like the BSE Sensex or Nifty. There may be index funds benchmarked to sector-specific indices as well. For example, pharma, IT or FMCG sector indices.
These funds are expected to provide returns that closely track the benchmark index and are also subject to all the risks associated with the class of securities invested in. When the market falls, the securities comprising the index fund also fall, and the returns from index funds fall too. Their objective is to ensure that the returns do not vary far from returns from the index that the fund is linked to. These funds do not eliminate or reduce market risk.
Index funds are used by investors who are risk-averse . In comparison to actively managed funds, index funds have lower expense ratio, lower transaction costs, better control of risk through diversification and less prone to risk of fund manager's performance. Among institutional investors, index funds are used by pension and insurance funds.
Among individuals, investors who do have knowledge of the markets or are averse to sector-specific risks prefer index funds. Index funds can be either for equity funds or debt funds. Indexing is popular with investors who prefer steady returns through a conservative, long-term and lowrisk investment strategy.
Indexing is an investment approach that attempts to match the investment returns of a specified stock market benchmark or index. The fund attempts to replicate the investment results of the target index by holding all or a representative sample of the securities in the index. No attempt is made to use traditional stock management, take positions on individual stocks, or narrow industry sectors in an attempt to outpace the index.
Indexing is a relatively passive investment approach. Index funds are generally evaluated on the basis of the tracking error, i.e., the annualised standard deviation of the difference in returns between the index fund and its target index. It is the difference between returns from the index fund to that of the index.
An index fund needs to calculate tracking error on a daily basis. The lower the tracking error, closer are the returns of the fund to that of the target index. The tracking error is calculated against the total returns of the index, inclusive of dividends.
It indicates how closely the fund is tracking the index. It refers to the ratio of how close the weightages of the stocks in the portfolio are to the weightages of the stocks in the index. The more closely the weightage of the stocks are tracked in the index, lower will be the tracking error.
The factors that affect tracking error are inflows or outflows in the fund, corporate actions, change of index constituents, level of cash maintained in the fund, costs that are routinely deducted from fund returns like transaction costs including commissions , bid and ask spread, etc.
The higher the expenses incurred, greater will be the tracking error. Because of the tracking error, the returns from the index funds are usually lower than the benchmarked index. However, in case the tracking error is zero or negative, the index fund may deliver returns superior to that of benchmarked index.
Index funds are primarily meant for the passive investors. The portfolio of the index fund comprises stocks in a particular benchmark index. The composition of the portfolio is similar to the benchmark index, any movement in the underlying index would affect the fund. The NAV of the scheme replicate the underlying index. So the investor can swim and float with the index.
These funds are cost-effective . The schemes are pretty transparent. The investor knows in which companies his money is going to be invested. For example, if one invests in an index fund linked to the BSE Sensex, the investor knows that his money would be invested in the companies comprised in the BSE Sensex only and not in any other company. These funds are ideal for investors having a medium term view of the market.
As presently the stock markets are subdued , and are expected to rise in the times to come - over a time horizon of 1-2 years - one may consider including investments in index funds in his portfolio to get good returns.
An index fund is a type of mutual fund that invests in securities of the target index in the same proportion or weightage. Index funds are targeted to popular indices like the BSE Sensex or Nifty. There may be index funds benchmarked to sector-specific indices as well. For example, pharma, IT or FMCG sector indices.
These funds are expected to provide returns that closely track the benchmark index and are also subject to all the risks associated with the class of securities invested in. When the market falls, the securities comprising the index fund also fall, and the returns from index funds fall too. Their objective is to ensure that the returns do not vary far from returns from the index that the fund is linked to. These funds do not eliminate or reduce market risk.
Index funds are used by investors who are risk-averse . In comparison to actively managed funds, index funds have lower expense ratio, lower transaction costs, better control of risk through diversification and less prone to risk of fund manager's performance. Among institutional investors, index funds are used by pension and insurance funds.
Among individuals, investors who do have knowledge of the markets or are averse to sector-specific risks prefer index funds. Index funds can be either for equity funds or debt funds. Indexing is popular with investors who prefer steady returns through a conservative, long-term and lowrisk investment strategy.
Indexing is an investment approach that attempts to match the investment returns of a specified stock market benchmark or index. The fund attempts to replicate the investment results of the target index by holding all or a representative sample of the securities in the index. No attempt is made to use traditional stock management, take positions on individual stocks, or narrow industry sectors in an attempt to outpace the index.
Indexing is a relatively passive investment approach. Index funds are generally evaluated on the basis of the tracking error, i.e., the annualised standard deviation of the difference in returns between the index fund and its target index. It is the difference between returns from the index fund to that of the index.
An index fund needs to calculate tracking error on a daily basis. The lower the tracking error, closer are the returns of the fund to that of the target index. The tracking error is calculated against the total returns of the index, inclusive of dividends.
It indicates how closely the fund is tracking the index. It refers to the ratio of how close the weightages of the stocks in the portfolio are to the weightages of the stocks in the index. The more closely the weightage of the stocks are tracked in the index, lower will be the tracking error.
The factors that affect tracking error are inflows or outflows in the fund, corporate actions, change of index constituents, level of cash maintained in the fund, costs that are routinely deducted from fund returns like transaction costs including commissions , bid and ask spread, etc.
The higher the expenses incurred, greater will be the tracking error. Because of the tracking error, the returns from the index funds are usually lower than the benchmarked index. However, in case the tracking error is zero or negative, the index fund may deliver returns superior to that of benchmarked index.
Index funds are primarily meant for the passive investors. The portfolio of the index fund comprises stocks in a particular benchmark index. The composition of the portfolio is similar to the benchmark index, any movement in the underlying index would affect the fund. The NAV of the scheme replicate the underlying index. So the investor can swim and float with the index.
These funds are cost-effective . The schemes are pretty transparent. The investor knows in which companies his money is going to be invested. For example, if one invests in an index fund linked to the BSE Sensex, the investor knows that his money would be invested in the companies comprised in the BSE Sensex only and not in any other company. These funds are ideal for investors having a medium term view of the market.
As presently the stock markets are subdued , and are expected to rise in the times to come - over a time horizon of 1-2 years - one may consider including investments in index funds in his portfolio to get good returns.
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