UTI Mutual Fund’s exchange-traded fund - UTI Sunder and Quantum Fund’s exchange-traded fund - QNifty both of which are supposed to track S&P CNX Nifty and trade at close to one-tenth the value of Nifty have been moving out of sync with the index in recent trading sessions. UTI Sunder closed at Rs 440 and QNifty closed at Rs 351.05 on Thursday, both at significant premiums to Nifty which closed at 3358.50 (The most commonly traded ETF – Nifty BeES closed at Rs 337).
What’s going on? This is too big to call ‘tracking error’. Illiquidity + no arbitrage opportunity => Nonsensical prices!
… vast systematic volumes of quant strategies in various time frames have become a destabilizing factor due to a convergence of strategies. In the end, the only way to win is to buy stocks that go up and sell stocks that go down and all strategies, no matter how many PhDs portfolio managers are involved, and so quants had to be in the same stocks, at the same time, swinging the market widely under their own weight. The bigger funds took the lead and the goal of smaller ones become to figure out what bigger guys will do the next day.
How is that any different from AAA CDOs constructed from sub-prime RMBS. Rating agencies made flawed assumptions, and now the prop risk managers allocating the bulk of the trading capital for the de jour hot quant manager, are making comparable mistakes, disguised as “assumptions” yet again.
Isn’t it funny that mainstream media across the world has highlighted bearishness on the dollar since its bottom?
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Mutual funds industry is sitting on a volcano as 75-80 per cent of its assets are short-term while it resorts to long-term lending to corporates, creating an asset-liability mismatch.
“This is a dangerous situation,” warns UTI MF’s Chairman, U K Sinha, highlighting the need to take corrective measures. Banking money with mutual funds in end-October was Rs 13,000-crore and it jumped up to Rs 90,000-crore by February, he said.
Though banks have long-term money, they are not lending but mutual funds which have banks’ short-term money parked with them are lending long-term to corporates. “This is not a healthy trend,” he said, adding this could lead to an asset-liability or maturity mismatch, that too, when banks can withdraw money parked with mutual funds within 24 hours.
For the first time since its inception, the Indian School of Business (ISB) has extended its placement season indefinitely. Only 250 of the 440 students (around 57 per cent) in the class of 2009 have secured jobs in the placement drive that began in early January.
Placements should have been completed by the end of March, and the campus would have been readying for graduation day in the first week of April. However, the slowing economy appears to have taken a toll on this prestigious B-school, which ranked 15 in the 2009 global MBA rankings released by the Financial Times. Over the years, the placement trends were analysed and results announced by graduation day, scheduled for April 4. This year, that is unlikely to happen. There are already hints of a fall in the annual average salary offers from Rs 18-20 lakh to Rs 13-15 lakh.
#15 B-school worldwide can’t place half its students. How bad is it at Tier 2/3/4 schools?
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With the recent weakening of the Indian rupee versus the US dollar (crossed 50 this week) and talk of expanding fiscal deficits, drop in FDI and remittances, continued selling by FIIs, etc. it would seem that we are headed to 55 and below. The interim budget was a non-event, and with elections coming up in April/May, we are unlikely to see major (positive) regulatory changes on the forex front.
Before you go short the rupee at the NSE, do keep in mind a couple of (technical) data points. The rapid reversal of the INR:USD rate from 39 to 50 has led to a massive widening of the Bollinger Bands on the long-term chart, indicating range expansion & volatility:
The 200-dma sits at ~ 45, and I would bet on BB contraction and a range-bound 2009 for the rupee, instead of a sustained move towards 55/60.
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. . . a large number of the nearly 350 TV channels in India, most of which were launched in the last three years, will vanish from the screen in the next twelve months.
“New channels come into the space offering more and more money to the cable operators to carry their channels.. It takes Rs 25 to 30 crore to get a national distribution today,”
“The consumers pay Rs 15,000 crore as subscription fees every year. The cable operators pay Rs 2,500 crore to the broadcasters, but out of that, the broadcasters again pay Rs 1,500 crore back to them as carriage fee. So, the final share for the broadcaster is 6% of the subscription fees, against 35 to 40% in developed countries,”
Short UTVi 
The expert committee constituted by the Pension Fund Regulatory and Development Authority (PFRDA) on Tuesday recommended three investment choices for subscribers of the New Pension System (NPS), while seeking to invest through a standardised Nifty-50 stock portfolio. The NPS is to be launched from April 1.
The pension fund regulator had earlier shortlisted six fund managers in addition to LIC, SBI and UTI, who will have the mandate to invest upto 50% of an individual’s pension fund in equities.
A flood of money to come into equities later this year?
As equity markets test their November lows, the US Dollar index is testing its November highs. The US Dollar has been a peculiar “risk-flight” trade throughout the credit crisis, as global investors have flocked to the currency with the belief that other sovereign nations are even worse off than the US. This comes at a time when gold is also rallying to new highs, and the US money supply is increasing at an astounding rate.
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Make sure it is the latest World Bank China Quarterly.
China’ problem this year is simple: labor intensive export sectors have slowed more than capital intensive export sectors.
After growing at 20% y/y for a long time, real estate investment stalled – with a y/y growth rate of around 0%.
The last thing anyone needs to worry about is fall in Chinese demand for US treasuries. Foreign central banks are scaling back their Agency holdings. The Fed is gearing up to buy. Big Time.
A double-no-touch pays the buyer a fixed amount should the underlying currency remain between two levels during the life of the option. The dollar is likely to stay in a range against the yen as both are rising versus the euro due to a reversal of so- called carry trades.
“The strong risk reversal reflects significant downside risk if we were to break below 90 yen due to various stops below this level,” Zaradzki wrote. “It does not reflect an amplified probability of breaking this level. A double-no-touch is therefore the perfect trade.”
Ah yes, those ‘can’t lose’ trades based on assumptions & models.
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