Banking & Finance
The Reserve Bank of India today said it was alive to the issues plaguing ICICI BankNSE -0.25 % and it was taking appropriate action to deal with it. Without naming ICICI Bank, RBI deputy governor N Vishwanathan said the regulator cannot reveal the interchange with an individual bank. “It is not appropriate to discuss any specific bank but I must tell you that we are alive to what is happening in the banking system and we are dealing with those situations as they are emerging but cannot mention what we are doing with a specific bank,” N Vishwanathan, Deputy Governor, RBI said after being questioned on governance issues at India’s largest private sector lender. ICICI Bank has been in the midst of series of charges against its CEO Kochhar that first began in 2016. Multiple whistle blowers have alleged that she failed to disclose the business relationships her husband Deepak Kochhar had with some of the corporations to which ICICI Bank sanctioned loans in which she was instrumental. The charge is that some of the loans to Videocon and Essar Groups were granted as a quid pro quo for business dealings with her husband Kochhar. But the ICICI Board had denied charges. The bank has constituted a committee headed by retired Supreme Court Judge Justice BN Srikrishna to get to the depths of the conflict of interests charges against its chief executive Chanda Kochhar who has gone on leave pending investigations. Law firm Luthra and Luthra and forensic audit company Control Risk Group are assisting Srikrishna in the probe. The bank has also hired white collar crime specialist Panag and Babu law offices to investigate allegations that ICICI Bank inflated profits by at least $1.3 billion over 8 years by delaying provisioning for 31 NPA accounts.
Most sector mutual fund schemes are in red. What should you do?
Most sectoral mutual fund schemes have offered negative returns in this year. Infrastructure category is the worst hit, with -30.17 per cent returns since January 1. Energy and power category followed with an average CAGR of -26.32 per cent, pharma and healthcare with -15.25 per cent, consumption (-7.24 per cent) and banking (-1.77 per cent). The only exception was the technology sector, which has offered a CAGR of 43.87 per cent in the same time period. “Most sectors are showing dismal
performance. The sectors are dealing with their set of issues. For an instance, the power plants are not getting enough fuel so they have gone unoperational; energy stocks are down due to rise in crude oil prices; banking sector is struggling due to the rising NPAs, frauds and tensions in the cases of PNB, ICICI banks,” says Dinesh Rohira, founder & CEO, 5nance.com. The sectors might have their own headaches, but the market correction is the main culprit behind their dismal performance, say mutual fund experts. “The market fall is a big reason for these sector-focused funds returns reversing the trend. In the year to date, more than threequarters of the stocks that make up the BSE 500 are in losses. For 2017, just about 10 per cent had been in losses. Given such a broad-based dip in prices, fund returns can be poor,” says Bhavana Acharya, Deputy Head - Mutual Fund Research, FundsIndia. Mutual funds are also attributing the negative returns to the higher base last year. They say that except for technology and pharma, all the other sector schemes did fairly well in 2017. “Poor returns could partially be attributed to the higher base effect,” says Rohira. Last year (2017), infrastructure sector schemes on an average gave 47.72 per cent, energy and power (45.61 per cent), consumption (43.31 per cent), banking schemes (40.65 per cent), technology (18.83 per cent) and pharma and healthcare sector schemes gave 5.15 per cent. According to mutual fund advisors, investors should not worry too much about the short-term underperformance. “In a market fall, it is best not to worry too much. Immediate improvement may not be possible and is unlikely. For every sector/theme fund to improve, a broad-based market recovery needs to happen,” says Acharya. However, many mutual fund experts believe that the consumption sector is likely to start performing towards the year end. “The slowdown in consumption sector could last for one or two quarters. But, as we move towards year-end, there will be festivals which will boost sales of consumer durables. Also, recently, the GST council has reduced tax rates on several consumer items including washing machine, refrigerator, TV and many more durables. This is also expected to give a boost to the sector going forward,” says Rohira.
What should investors do?
Mutual fund advisors ask retail investors to stay away from sectoral schemes. They say sectoral schemes are meant only for sophisticated investors who understand the high risks involved in investing in them. Advisors ask dissatisfied investors to exit if they invested in the sector schemes less than a year ago. “Those existing investors who got in less than one year ago may choose to exit. But those who have already completed a year or more with their sectoral schemes must give some more time, may hold for two to three years,” says Rohira. Acharya adds, “if an investor has already made good returns in these funds and invested some time ago, shifting it into diversified equity funds may be one way to book gains made and prevent further steep erosion in gains. Else, staying invested will be prudent for now.” Experts advise investors not to keep more than 10 per cent of their portfolio in thematic funds. “This is a good way of reducing the impact of sector/themed funds turning sour. Investors should be aware that sector/ thematic funds are highly risky and require active timing in entry and exit,” says Acharya.