DSPML World Gold Fund - investing in Gold mining companies through an International Fund

Just wanted to share an exciting new product which will shortly be available from DSP Merrill Lynch which is a formidable alternative to ETFs. The details will be sent out as we hear more but these are the salient features:

Name of the Scheme: DSPML WORLD GOLD FUND investing in Gold mining companies through an International Fund.

Open-ended Fund which closes 27th July 2007 with Growth and Dividend options.
So far not available to Indian Investors - Accessing one of the Largest Funds in its category (Merrill Lynch International Investment Funds - World Gold Fund having corpus of USD 5405 Million.

How has been the performance of MLIIF-World Gold Fund?

Out-performed Gold (Bullion Investment) by 268% and S&P CNX Nifty by 127% (in absolute terms) between 1994 - 2007.
Just to give an example, an investment of Rs.1 lac on 30-Dec 94 would have given the following Absolute Returns and CAGR in the following:

S&P CNX Nifty - Abs.Return 263.35%, CAGR 10.94%
Gold Bullion - Abs.Return 122.86%, CAGR 6.66%
FTSE Gold Mines (Cap) Index - 47.19%, CAGR 3.16%
MLIIF - World Gold Fund - 390.71%, CAGR 13.66%

More than 12 years of performance track record - AUM of Rs.22017 crores (USD 5405 Million)
AAA rated- S&P Fund Research, AAA rated- Forsyth Partners

What are the other salient points?

A "Best Ideas" rather than benchmark driven portfolio
Invests in Gold (no less than 80% at any time) mining companies which are listed, besides Diamond mining companies, Silver mining companies, and Platinum mining companies - situated in South Africa, North America, China, Latin America, Europe, Australasia and Former Soviet Union.
Correlation with MSCI World Index is -0.11 (negative) and Correlation with S&P 500 is 0.07 (negligible) making it a good case for Asset-Class diversification beyond Indian Equities, Commodities, Debt, Physical Gold and ETFs, Real Estate and International Equities.

Why invest in Shares of Gold Mining Companies?

Because of negative or negligible correlation with stock market as outlined above.
Gold prices are going up due to increasing demand-supply gap
Shares of Gold Mining Companies are leveraged to the gold price, possibility of superior performance and dividends.
Gold Mining Companies have a multiplier effect on their profits vis-a-vis Gold price (To illustrate, today's gold prices are around USD 650 per troy oz. but the cost of production for mining companies has almost been stagnant for the last several years at USD 550 per troy oz.).
Increase in Gold price by 23% leads to increase in profits of Gold Mining companies by 150% according to base case and other scenarios.
M&A Activity in the Gold Mining Sector is rising which leads to premium ratings on growth stocks - Drivers behind consolidation remain and private equity is starting to take interest.

How is it different from Gold Bullion and Gold ETFs?

In Gold Bullion, you buy physical gold, participate in gold fundamentals with passive management with lot of liquidity but no diversification
In Gold ETFs, you buy physical gold kept with custodian (Certificate of Holding etc), participate in Gold fundamentals with passive management with daily liquidity but no diversification.
In DSPML World Gold Fund - you invest in Gold Mining Companies through MLIIF-World Gold Fund, participate in gold fundamentals, with ACTIVE management, with daily liquidity but achieve geographical diversification, exposure to other precious metals and also have value unlocking of stock ratings and re-ratings.
All in all, a good diversification and one of the most differentiated products on alternative investing strategies.

ICICI Bank IPO - Subscription status and biggest investors

Following are the biggest investors in ICICI Bank Follow-on Public Offer:

Citigroup (USD 2 Billion)
Merrill Lynch (USD 2 Billion)
Tamesek Holdings (Rs.8300 crs.)
LIC (USD 2 Billion)
State Bank of India (USD 1.35 Billion)
Warburg Pincus (USD 993 Million)
GIC (Singapore Government)
Capital International
T.Rowe Price
Mukesh Ambani (Rs.1000 crs.)
Aziz Premji (Rs.1000 crs.)
Rahul Bajaj (Rs.1000 crs.)
Deutsche Bank (USD 1 Billion)
Goldman Sachs (USD 1 Billion)
ABN Amro (USD 750 Million)
BNP Paribas (USD 440 Million)

Maximum Bids were received between Rs.885 - 930 per share.

Subscription Details

Investors Qualified institutional buyers 21.62 Times
Non institutional investors 6.15 Times
Retail individual investors 1.03 Times
Employee Reservation 0.22 Times
Total 11.50 Times

RETURNS OF - NFO - LAST ONE YEAR

Here (click here) is a comprehensive information about the returns of the new fund offereings from several Mutual Fund houses during last one year. Because of the difference in the end dates, you may not be able to compare apple to apple, but this gives you an idea about the performances of thes NFOs.

Top 10 Stock Holdings of Top 10 Equity Mutual Funds in India

Please click below to see the top 10 holdings of the top 10 Mutual Funds in India. Notice that few of the blue chip companies appear repeatedly on most of the funds' top holdings.

Also listed are category wise top Mutual Funds.

Top 10 Stock Holdings of Top 10 Equity Mutual Funds in India

FRANKLIN INDIA HIGH GROWTH COMPANIES - New Fund Offer - Details and analysis

Fund closing on June 29th 2007.. (details attached here)

Franklin Templeton has launched a new fund - Franklin India High Growth Companies Fund (FIHGCF) an open ended diversified equity fund closing on The Fund's clear USPs are as follows:

1. Combines the Aggressiveness of Franklin's Style of Investing with the conservatism of Templeton Approach.
2. Open-Ended Diversified Multi-Cap Fund. Fund Positioning a tad less aggressive than Franklin India Opportunities Fund.
3. The present Fund is managed by K Siva Subramaniam (One of the most respected Fund Managers in Asia who has seen more than 12 years of market cycles
4. Track-Record of Templeton has always been in the top quartile but never flashy or flamboyant (Like Reliance) or Inconsistent (Like some Mutual Fund Houses).

NFO Details Investment Objective :

This fund seeks to achieve Capital appreciation through investments in Indian Companies/Sectors with high growth rates or potential.

Key Features :

Growth style of investing could provide relatively higher returns in a fast growing economy like India The combination of top-down and bottom-up analysis helps in identifying the fastest growing companies in terms of earnings and sales, amongst the various sectors benefiting from India's economic growth
Investors with an appropriate risk profile can benefit from Templetons experience of identifying growth companies for over 12 years across market cycles.
A high growth strategy is complementary to a core equity portfolio.
Asset Allocation pattern : Type of Instuments Normal Allocation# (Min%-Max%) Equity and Equity Linked Instruments 70% - 100% Debt securities* and Money Market Instruments 0% - 30% # Including investments in Foreign Securities as may be permitted by SEBI/RBI up to 35% of the net assets of the scheme, exposure in derivatives up to a maximum of 50%
* Including securitised debt up to 30% NFO Dates : May 31, 2007 - June 29, 2007 Load Structure (during the NFO) o Entry load - 2.25% (Less than Rs. 5 Crs) & Nil (Rs. 5 Crs & above) o Exit load - 0.5% for redemption within 6 months and 1% for redemptions within 1 year. Minimum investment - Rs. 5000 and in multiples of Rs. 1 SIP - Minimum amount Rs 1000 for 12 months Also find below some factors which help us selling this fund effectively

Suitability: This fund is suitable for Agressive and Long Term investors.

Plus Points:
The objective of investing in high growth companies is expected to benefit the fund as these companies would be the beneficiaries of the strong economic growth to be witnessed by the Indian economy in the coming years .
Increased interest for equities among Indian investors and concentration on companies with high growth prospects should be a positive for the fund, provided the fund manager picks the right companies.

Key Distinguishing Factors:

The fund has the leeway to invest in high growth companies across marketcaps i.e. largecap, midcap and smallcap
Benefit of employing blend of top down and bottom up approach
Sound fund management track record

Risk Factors :

High interest rates and inflation could have an adverse impact on the profitability and revenues of companies in the midcap and smallcap segment
Any correction or consolidation in the euqity markets would result in the midcaps and smallcaps underperforming the largecaps and adversely affect the fund's performance

Reliance Equity Advantage Fund - Good bet for NIFTY plus return

Here is a note (see presentation below the text) on Reliance Equity Advantage Fund from Reliance Mutual Fund. The notes are self-explanatory and lavish on the India Growth Story and the relentless march of the Indian Indices in the Global Investor portfolios.
What happens if you take a long bet on the S&P CNX Nifty (NSE 50) stocks in the same sectoral proportion of the Nifty Index on a monthly basis upto 80% investment in the Index? And what if we try to outperform the Index (Nifty) by taking 20% exposure to non-Index stocks (called in Portfolio Management parlance as "Non-neutral positions"). That in essence, is what the new scheme of Reliance Mutual Fund all about - Reliance Equity Advantage Fund - open-ended Diversified Equity Scheme which just opened and closes 10th July, 2007.
USPs of the Fund:
Largest Mutual Fund House (Assets Under Management of over Rs.56000 crores) in India.
Fund House renowned for Aggressive, momentum-driven approach to Investing
Track Record of all new launches (from Reliance Equity Opportunities Fund to Reliance Long Term Equity Fund to Reliance Equity Fund to Reliance Power Fund) has been overall good.
Fund House contributes significantly to the share price of parent company Reliance Capital Ltd (Anil Ambani Venture) almost Rs.140/- per share of Reliance Capital. Fund House itself manages USD 11 Billion.
Some of the successful Schemes: Reliance Growth Fund/Reliance Vision Fund/ Reliance NRI Equity Fund/ Reliance Equity Opportunities Fund/ Reliance Power Fund/ Reliance Banking Fund.
Fund manages Schemes with Aggressive Cash Allocations (Sometimes the cash allocation goes upto 65% in markets which the Fund Manager believes is "peaked".
I am also attaching a confidential report on the valuation of Reliance Capital (which is just to give you an idea of the dynamics of what is driving one of the fastest-growing financial conglomerates in the Indian Financial Services Industry).
Worth considering are both Reliance Equity Advantage Fund (a proxy for Indian Benchmark Nifty Index - which is more robust than the bellweather popular Sensex) and Franklin India High Growth Companies (betting on all the growth engines of the Indian economy).

Click here for downloading Detail Presenatation

Credit Suisse report on possible M&A companies in India

According to a recent report, Credit Suisse believes the few Indian companies could be likely merger & acquisition candidates. They believe the stocks need over US$100 mn market cap for liquidity.and should be from consumer-facing sectors (excluded technology, services, industrials, commodities and engineering related sectors). Should have sales growth of over 15% in last three years anda verage ROE of less than 10% despite good sales growth. They find that the media, cement and auto related sectors have potential to see more acquisitions, in addition to aviation and telecommunications.

The following are the companies..

Centurion Bank of Punjab Ltd
Deccan Aviation
EIH
Entertainment Network Limited
Escorts Limited
Federal Mogul Goetze
Hotel Leelaventure
IOL Broadband
India Cements
Indiabulls Financial Services
Indian Hotels
J K Industries
Jet Airways (India) Ltd.
MRF
NDTV India Ltd.
Orchid Chemicals & Pharma
Oriental Hotels
PVR Limited
Punjab Tractors
Pyramid Saima Theatres Limited
Ruchi Soya Industries
Sahara One Media & Entertainment
Sanghi Industries
Suven Life Sciences
Tata Tele Services
Television 18
Trent Ltd.
UTV Software Communications
Zee Entertainment Enterprises

It makes ample sense for Retail Investor (RIB) category - ICICI Bank FPO analysis for retail

The follow-on public offer (FPO) of ICICI Bank Ltd. offers visible upsides to retail investors on listing even if the stock price on listing remains the same as the offer price. Existing shareholders (below Rs. 1 lakh share value as on record date) can also apply in the reservation as well as retail segment…

Scenario 1

Consider a scenario where the offer/issue price is Rs. 900 and the listing price is the same (Rs. 900)…

Due to the 5% discount, retail investors will get the shares at Rs. 855
They will pay Rs. 500 (paid up value) (Rs. 250 on application; Rs. 250 on allotment
The unpaid value will be Rs. 355
The partly paid shares will be traded at a price equivalent to the market price of fully paid share less calls in arrears; ie., Rs. 900 - Rs. 355= Rs. 545
Rs. 545 is the listing price of the partly paid share
The investor gains Rs. 545 - Rs. 500= Rs. 45
Considering the partly paid investment of Rs. 500, the investor’s gain is 9%
i.e. Rs. 45/500 X 100= 9%
Considering the gain of Rs. 45, the investor gets a benefit of approximately 13% in the unpaid value that he has to pay later (Rs. 355)…i.e., 45/355 X 100= 13%

Scenario 2

Consider a scenario where the offer/issue price is Rs. 900 and the listing price is the higher (Rs. 925)…
Due to the 5% discount, retail investors will get the shares at Rs. 855
They will pay Rs. 500 (paid up value) (Rs. 250 on application; Rs. 250 on allotment
The unpaid value will be Rs. 425
The partly paid shares will be traded at a price equivalent to the market price of fully paid share less calls in arrears; ie., Rs. 925 - Rs. 355= Rs. 570
Rs. 570 is the listing price of the partly paid share
The investor gains Rs. 570 - Rs. 500= Rs. 70
Considering the partly paid investment of Rs. 500, the investor’s gain is 14%
i.e. Rs. 70/500 X 100= 14%
Considering the gain of Rs. 70, the investor gets a benefit of approximately 20% in the unpaid value that he has to pay later (Rs. 355)…i.e., 70/355 X 100= 20%

ICICI Bank IPO - Business Standard Analysis

Stripping off the value embedded in its subsidiaries, ICICI Bank is available atleast 40 per cent cheaper than its closest private rival HDFC Bank . India's largest private sector bank is finally here with another mega share offering. With a market-capitalisation of Rs 81,000 crore, the highest among listed banks, ICICI Bank is planning to raise Rs 8750 crore with an option to accept an additional Rs 1300 crore in the domestic market. Simultaneously, the bank would also raise a similar amount in the international market through issue of American Depository Shares (ADS) taking the total money garnered to nearly a quarter of its current market value. The money collected will go as essential capital to fund its rapidly growing assets and adhere to the new banking regulations. Coming a week after a similar sized issue from real estate developer DLF got a lukewarm response from investors, investment banking sources suggest that several global investors abstained from the DLF offer considering a relatively more attractive deal from ICICI Bank.
Whatever be the response to this issue, ICICI Bank appears to be a long term story with an aggressive growth strategy that would now focus on the country's poor on the one end and overseas operations on the other, apart from the traditional segments like urban retail and corporate banking. Over the next two years, the bank should be able to achieve an asset growth of 28 per cent and profits some 35 per cent, according to analysts' estimates. Despite the accelerated growth if anyone is complaining it is because ICICI Bank has been knocking at the capital market more often than its peers thus earnings a lower return on equity (ROE). Much to the dismay of analysts, ICICI Bank raised roughly Rs 10, 000 crore over the past three years. Being in a business which requires money to make money, not all of the additional capital were to further its core business. A significant part went into feeding its babies, particularly the insurance subsidiary. According to analyst estimates, the additional capital committed towards its subsidiaries and the increased capital requirement (risk weights) for certain assets are roughly 50 per cent of the capital raised. But this is set to change. Since its insurance and asset management businesses have grown big enough to stand up on their own feet, the bank is bundling them into a separate subsidiary ICICI Financial Services. Housing ICICI Prudential Life Insurance company (where it holds 74 per cent stake), ICICI Lombard General insurance (74 per cent) and ICICI Prudential Mutual Fund (51 per cent), this company would take care of their future funding needs. "The money raised by the bank would be used to fund the capital requirements of the bank and not of the subsidiaries", says Vishaka Mulye, group CFO of the bank.
ICICI Bank intends to hold 94 per cent in the new subsidiary and has got definitive offers from various investors for a six per cent stake for Rs 2650 crore. And here is the clincher: the deal spells an implied valuation of Rs 44,600 crore for the holding company, or more than half its current market value. On the face of it, ICICI Bank seems to reflect the characteristics of both a value and a growth stock, considering the embedded value in its holding company and its own growth potential. The pertinent question is whether ICICI Financial Services’ current valuations would be sustained when the company goes for listing about 12-24 months from now. Otherwise, investors may not realise the value made out to be built into the stock.

An analysis of ICICI FPO in Economic Times

Investors can consider subscribing to ICICI Bank’s follow-on offer. It offers an attractive entry point for investors, given the discount to market price and the embedded value of its subsidiaries.INVESTMENT RATIONALE: The size of the issue, at around Rs 20,000 crore, has come as a surprise, but we believe it is aimed at avoiding frequent visits to the equity market. This is the third time in four years that the bank has chosen to raise funds. With the current issue, the bank should be comfortably placed to meet its growth requirements, at least for the next three years. This is assuming it’s can grow assets at 30%.Such a huge issuance will have a positive impact on margins. Fresh loans may be funded out of equity, resulting in positive net interest margins. As yields increase and the full impact of interest rate hikes during Q1 FY08 sets in, margins will rise. Moreover, we expect the current capital will be used primarily to fund advances in high-yielding areas like rural and international markets. The spreads in these markets are significantly superior to those earned in other segments, which may lead to positive margins in the long term. This will help ICICI Bank maintain its current growth, notwithstanding a slowdown in retail assets.There is now greater clarity on its subsidiary’s valuation and the proposed listing of the holding company. This will ensure relative independence for subsidiaries as ICICI Bank won’t be required to infuse capital into its subsidiaries. The current round of funding is expected to be fully utilised to support the bank’s balance sheet. In the current year, ICICI Bank sees no major capital infusion, as it expects that money raised via private placement will pay for growth of its insurance arms.Significant value can accrue from the bank’s subsidiaries. Current placement of equity for the insurance (general and life) and MF AMC has a valuation of Rs 44,600 crore — almost half the bank’s total valuation. Near-term gains in the stock will depend on how the valuations of its subsidiaries (especially the insurance business) are factored into the market price. But, the issue will be neutral or marginally dilutive on earnings. The RoE may fall to high single digits. RoEs can normalise at current rates of 13% by FY09. But the company’s experience in leveraging capital effectively for growth lends support to the issue.VALUATIONS : ICICI Bank trades at around 3.37x its FY07 post-issue book. Adjusted for the value of its subsidiary and investments, the banking business is around 1.5x its FY07 post-issue book. We have assumed a subsidiary and investment value of Rs 420 per share. But we will be more comfortable with a lower figure for the holding company’s valuation. Though the current valuation derived from the private placement provides a reliable estimate for the value of the insurance arm, it’s skewed towards the higher end. We assume a 25% discount on valuations to arrive at 1.6x post-issue valuation for the standalone bank. This is extremely attractive compared to its peers, which typically trade at 4-5x FY07 book.RISKS: The recommendation relies heavily on the subsidiary valuations, especially the insurance business. Any slowdown in the life insurance subsidiary, delay or downward revision of the holding company’s valuations in future are key risks

ICICI Bank IPO - Brief Note

India's Biggest Domestic and Oversease Offering in Follow-on Public Issue (FPO) is now open from June 19th - June 22nd, 2007.
ICICI Bank, the country’s largest bank in terms of market capitalization and the second largest in terms of assets, is coming out with a follow-on public offering (FPO) which opens for subscription on Tuesday, June 19, 2007. The Bank is raising a total amount of Rs. 201.25 billion through a domestic offering and an ADR issue, with both contributing equal amounts. The previous offering was in December 2005 and the issue price then was Rs. 525 per equity share and those who invested have enjoyed substantial gains. The stock has outperformed both the Sensex and the Bankex and most of its peers too.
Price on June 15, 2007 Price on December 20, 2005 Gain % ICICI Bank 908.0 575.1 158% HDFC Bank 1108.0 736.4 150% State Bank of India 1323.7 932.5 142% Sensex 14162.7 9346.2 152% Bankex 7461.6 5117.4 146%
The price band has just got announced as has been fixed at Rs885-Rs950 per equity share. Retail bidders including existing retail share holder will be allotted shares at a discount of Rs50/- per share to the issue price determined through book building process. The min. bid size will be 6 equity shares for retail bidders.
The Bank recently announced the restructuring of its investments in the insurance and asset management subsidiaries into a single holding company (subject to necessary approvals) which will be known as ICICI Financial Services. The new company will hold ICICI Bank’s investments in ICICI Prudential Life Insurance (ICICI Life), ICICI Lombard General Insurance (ICICI General) and ICICI Prudential Asset Management (ICICI AMC). The Bank holds 75% in both the insurance companies while it holds 51% in ICICI AMC. Both, ICICI Life and ICICI General are leaders in the private life insurance and the private general insurance industry respectively, while ICICI AMC is among the top two AMCs in terms of assets under management.
The Bank on June 12, 2007 announced that pursuant to initiation of discussions with potential investors for investment in the proposed new subsidiary, they have received definitive offers from investors for subscription to equity shares of the proposed new subsidiary and for entering into definitive agreements for this purpose. The subscription amount is Rs. 26.50 billion towards fresh issue of shares by the proposed new subsidiary, and the investors would thereby acquire a collective stake of 5.9% in the proposed new subsidiary, valuing it at Rs. 446.00 billion on a post-issue basis. Thus ICICI Bank’s residual stake of 94.1% in the proposed new subsidiary will be valued at Rs. 419.69 billion giving a per share value Rs. 464.88.
In the table below, we give an analysis of the share price of the company:
Current Share price 908 Current No. of shares outstanding (Crs) 90.3 Book value per share as on March 31, 2007 269.8 Market Cap 81,992 ICICI Bank's share of ICICI Financial Services 41,969 Per share price of ICICI Financial Services 464.8 Per share price of core business 443.2 Current P/B (Core business) 1.64
While ICICI Bank’s core banking business is getting valued at 1.64 times its book value, its peers in the private sector banking space are trading at much more expensive valuations as seen in the table below:
Bank P/B ICICI Bank 1.64 HDFC Bank 5.50 UTI Bank 4.95 Centurion Bank of Punjab 4.89 Kotak Mahindra Bank 5.72 Yes Bank 5.45 State Bank of India 2.18
As seen in the above table, the minimum valuation of a private sector bank is a price to book of 4.89, while HDFC Bank is being valued at a multiple of as high as 5.50. Thus the ICICI Bank issue, which will offer a further 5% discount to retail bidders from the existing inexpensive valuation, offers a very attractive investment opportunity.
ICICI Bank Ltd.: Visible upsides to retail investors on listing, although this working has been done at 5% the discount has been fixed as Rs50 per share . The discount now works out to 5.2% at higher band and 5.6 % at lower band.
Also attached are two reports from Business Standard and Business Line newspapers...

Now open for investment - Kotak Gold Fund and Deutsche Credit Opportunities Cash Fund

Two interesting investment opportunities came up this week in different Asset Classes - Gold and Fixed-Income.

1. Kotak Gold Exchange Traded Fund - opened now
Underlying asset - gold.
Opening today
closing July 4th.2007 .
Complete description: Here is the details


2. Deutsche (DWS) Credit Opportunities Cash Fund -
opening June 21st.
underlying asset - Short-term corporate bonds with good spreads.
Opinion: It is likely to give for longer term holding a tidy return above liquid fund returns.
Complete description: Here is the details