Moolyankan Unitvalue

4th Mar'08
Moolyankan Unitvalue 130.02 (Returns Since 10th Sept - 30.02%)
Sensex Returns - 4.79%

Expectations from Budget

Just like every budget there are bound to be some expectations from every section from the society. But from Stock Market perspective we don't want increase in short term capital gains tax and STT(Securities Transaction Tax), reintroduction of long term capital gains tax. Overall Stock Market is fine and we want status quo from Finance minister(FM).

It is obvious that being the last budget of the present UPA government there are bound be some populist measures. Although its impact will be muted on the FRBM targets because of the strong Tax collections. Apart from this inflationary pressures are something which will be at the back of FM mind while announcing the populist measures. But we want FM to increase allocation to public health and education as part of inclusive growth, since these are part of soft infrastructure and are as important as hard infrastructure. There will surely be some announcements in terms of tax sops for the export oriented sectors.

Sectoral expectations:

• Auto - Presently 24% excise duty is levied on cars above 4000mm and 16% for the rest. So there might be rationalization in terms of excise duty. It would reduce pressure on margins for OEM's
• Banking - Presently term deposits of 5 years or more qualify for deduction under section 80C of IT Act which might be reduced to 3 years in line with other eligible investments. This would facilitate growth in term deposits at competitive rates. Positive for all banks.
  
• Capital goods and infrastructure - Presently excise duty on power equipments is 16% which might be reduced to 12.5%. Countervailing duty is 16% for non project import which also might be reduced to 12.5%. Rural Infrastructure Fund size might be increased. Positive for all power equipment and infrastructure companies.
  
• Cement - Last year some tinkering was done with excise duty structure depending on the price per bag for cement companies. It might remain same.
• Metals - Presently excise duty is 16% which might be reduced to 12.5%. There has been upswing in some metal prices internationally so import duty might be cut on those metals to offset the price increase.
• FMCG - ITC has been the favorite whipping boy of every FM. Every year there is increase in taxes for cigarettes, so we don't expect this year to be exception. VAT on biscuits might be reduced from the present levels of 12.5% to 4%.
• IT Services - There might be extension of tax holiday beyond FY 09 for IT companies. This move might be positive for IT companies which are fighting on rupee appreciation
• Telecom - Presently telecom companies pay around 24-30% of revenues to Government in form of service tax, spectrum charges, license fees, USO, ADC etc. So there might be some rationalization and simplification. Positive for all telecom service providers.
• Real estate - There might be some development on timeline regarding conversion of draft guidelines into formal notification. Presently this forcing developers to list their subsidiaries on Singapore stock exchange. REIT's would allow developers to accelerate cash flows.
• Pharmaceuticals - Presently excise duty on formulations is 16% which might be reduced to 8%. Custom duty on API might be reduced from 12.5% to 10% or even to the asean levels of 5%. Tax breaks might be announced for the pure research companies.
• Oil & Gas - Tax holiday might be announced for city gas distributions for new pipelines.

About Moolyankan Diversified Fund

The Indian stock markets are in the midst of a secular bull run. The Sensex has gone up from 4000 levels in 2004 and touched 21000 levels in just a span of 4 years. Over 100 Indian companies now command a M-cap of over $1 billion. There has been a huge spurt in M&A activity and Indian companies are on a global acquisition spree be it Tata Steel or Hindalco or Suzlon energy. The booming stock markets have put KP Singh of DLF and the Ambani brothers on the Forbes - World Richest People list.

Hence as MBA students and future investors we felt the need to have a platform to apply our theoretical learning into practice. With this idea we created “Moolyankan” which is a student driven mutual fund at DOMS - IIT Madras. The whole spirit of Moolyankan is to learn about the Stock markets and evaluate companies based on the knowledge gained in the classroom. This way we can stay abreast of the business happenings across the globe and also get a chance to invest in the India growth story.

Once the idea was conceptualized we started working on the structure of the fund. Since we believe in the India growth story we decided to invest in growing sectors like Telecom, Realty, Power, Media etc. We decided to stay away from sectors where there is Government policy intervention like Sugar, Cement and Oil Marketing companies.

v Moolyankan started with a corpus of Rs 135,000 on 10^th Sept 2007.

v The initial unit value was Rs 100 (Total units - 1350). Present Units - 1756

v As of 27^th Feb 2008 the corpus stands at Rs 244,127 (Present Unit Value - Rs 139.02)

v There is an investment team to decide allocation to various sectors on the basis of inputs provided by the sectoral analysis team.

v The task of the sectoral analysis team is to keep a track of the happenings of the particular sector and the companies in it.

v At present the investments are based on fundamental analysis of companies but going forward we also plan to use technical analysis for investment decisions.

v Going forward we would also like to learn various hedging strategies using F&O to hedge our holdings against market fluctuations.