IndexFunds vs indexETFs-former better for plainvanilla indices, latter for smartbeta indices
GS Junior BeES
WHAT IS IT
GS Junior BeES (GSJB) is a 13-year old index ETF tracking Nifty Next 50 (earlier called Junior Nifty) index.
Capital appreciation is what GSC500F aims for through corpus
deployment in the 50 companies of Nifty Next 50 index in the same proportion as they officially weigh in the index.
Any index fund or index ETF is best-suited for all those equity exposure-seeking investors who do not have the time or the wherewithal to analyse the fundamentals of various listed stocks and who prefer not to go by the recommendations from their stockbrokers or other sources.
Since it is an ETF, you can buy and sell only through your stock broker on the NSE
WHAT TO WATCH OUT FOR
Nifty Next 50 index, which GSJB is committed to mimic, has the second lot of largest 50 large cap stocks after the 50 companies of Nifty 50. There are several ETFs on Nifty 50. There are also a few on Nifty 100 index which is made up of stocks of both--Nifty 50 and Nifty Next 50.
Should you simply invest in Nifty 100 ETF to get a large-cap equity exposure, or should you invest in one ETF each on Nifty 50 and Nifty Next 50?
For one, portfolio concentration (and therefore the returns) would vry in all the three cases. As of May 31, Nifty 100 had top 10-weighted stocks making up for 46 per cent of the total, while the corresponding top 10 weighted stocks concentration of Nifty 50 and Nifty Next 50 were 54 per cent and 34 per cent respectively. The 1-year return, as of Friday, was 0.7 per cent in Nifty 50, 4.4 per cent in Nifty Next 50 and 1.1 percent in Nifty 100.
It is better to taken an exposure to top 100 large-cap stocks by investing separately in ETFs on Nifty 50 and Nifty Next 50, instead of in Nifty 100 ETF.
Performance-wise, tracking efficiency is what matters to an index investor. The returns by an index fund or ETF should mimic the index as closely as possible.
The only comparable fund to GSJB is ICICI Prudential MF's Nifty Next 50 Index Fund. The latter is an index fund which can be bought and sold directly with the AMC like any regular MF scheme.
As of March 31, the Nifty Next 50 Total Returns Index delivered a 1-year return of -2.2 per cent, as GSJB's latest factsheet. GSJB's 1-year return was -3.1 per cent while ICICI Pru's index fund's 1-year return was -3.2 per cent. With returns being almost same, choose whether you prefer an ETF or an index fund.
Retail inflation higher in rural India compared to urban India. https://t.co/KFayrXYBSy
A news analysis writeup on Infosys I contributed as a journalist this week:
INFOSYS EXPRESSES CAUTION
Infosys became the first information technology major in the country to call out early signs of slowdown in revenues from IT services to the retail sector in the US and Europe. In last couple of quarters, the management commentary from major IT companies was positive on the
business from US retail, but Infosys has become the first to talk of negative growth.
The IT major also expressed experiencing new headwinds in the healthcare and life science business segment, and said it was no longer hopeful of seeing recovery in the insurance segment in the current financial year as it was at the start of FY17.
The company said while it overall full-year revenue guidance for FY17 of 11.5 per cent to 13.5 per cent will not be affected, it might see, short term, quarterly bumps given the propensity of its client to react to the short term volatility.
The retail segment, or the RCL (retail, consumer packaged goods and logistics) segment as it is termed by Infosys in its segmental reporting of revenues, contributed 16.4 per cent of Infosys’ consolidated revenue in FY16. North American and European clients of Infosys contributed 62.7 per cent and 23.0 per cent of its FY16 consolidated revenue respectively.
Infosys’ chief operating officer Pravin Rao said, “In the last couple of weeks we have seen the results (financial) of retailers, both in the US and Europe, have not been good. Its probably one of the poorest results seen in recent times.” Rao was speaking at a private investor conference on Wednesday, the audio transcript of which was released by Infosys on Thursday.
Rao was not sure immediately of how the retailers will react and the company will have to wait and watch. “In the beginning of this quarter (Q1 of FY17), when we gave the guidance, we were optimistic but now we are a little bit watchful on the retail space,” he said.
As a result of this change in Infosys management viewpoint coming to light on Thursday, the stock market reacted adversely by hiving off 3.0 per cent off the share price of Infosys which closed at Rs 1,187 on the NSE on Thursday. It was the second-largest loser among Nifty 50
constituents with Aurobindo Pharma seeing the biggest decline of 3.4 per cent.
The stock market, however, did not fully extend Infosys’ concerns to other major IT stocks. So, while Infosys fell by 3.0 per cent, Tata Consultancy Services’ share price declined by 1.2 per cent making it the 17th biggest loser among Nifty 50 companies. The share price of
HCL Technologies and Wipro actually gained by 1.0 per cent and 0.3 per cent respectively.
The impact of Infosys’ concerns on its financials may not be material. The Infosys management was indirectly saying that Q1 of FY17 will not be great. But is difficult to tell whether this was the starting of things to come in terms of growth.
Infosys has had a track record of being the first to call out signs of
weakness. Analysts said there was no reason for Infosys to come out cautioning on growth and talking of quarterly bumps unless there was some substance in the matter.
Like Infosys, TCS also sees a significant portion of its consolidated revenue (14.1 per cent in FY16) coming from IT services to the retail and consumer packaged goods sector.
Infosys’ COO Rao was, however, confident of growth in other business segments of the company. “We have a good pipeline in financial services (barring insurance) where we grew close to 15 per cent last
year which we expect to continue in the current year. In manufacturing too, we are seeing traction, particularly in the auto space, although the aero space is a bit stagnant,” Rao said.
Of total Infosys consolidated revenue of Rs 62,441 crore in FY17, the financial services segment contributed 27.3 per cent, the manufacturing segment contributed 11.1 per cent, the ECS (energy, utilities, communications and services) contributed 21.7 per cent, the RCL (retail) segment contributed 16.4 per cent and the health and life sciences segment contributed 13.0 per cent.
|How four major consumption-driven stocks have fared in the last two financial years|
|Net sales||RM cost||Ebidta||Ebitda margin (%)||Net sales||RM cost||Ebidta||Ebitda margin (%)|
|YoY change (%)||8.5||-3.0||24.8||---||12.9||12.2||10.1||---|
|YoY change (%)||3.7||-5.5||14.3||---||11.8||3.5||3.8||---|
|Godrej Consumer Products||6691||2579||1219||18.2||6160||2569||1033||16.8|
|YoY change (%)||8.6||0.4||17.9||---||8.9||14.7||20.6||---|
|YoY change (%)||4.4||-5.7||-6.0||---||10.5||8.3||21.4||---|
|YoY change (%)||7.2||-4.2||23.4||---||24.7||44.4||15.9||---|
|* Apr-Dec 2015|
|** Apr-Dec 2014|
|Figures in Rs crore, unless specified otherwise|
|Financials are consolidated, unless not available or not applicable|
|RM: raw material, Ebidta is operating profit|
|Source: Capitaline. Analysed by FCRB.|
— Rajesh Gajra (@JournalistRGaj) January 23, 2016
(contd) Derivatives story ---- https://t.co/jM1WTzrjfU https://t.co/CHm7mGQE6q pic.twitter.com/OnvpDGede5— Rajesh Gajra (@JournalistRGaj) January 23, 2016
The 2 most basic hedging strategies in equity futures & options -- https://t.co/ZdOlSdJJug pic.twitter.com/mukMmRwRbc— Rajesh Gajra (@JournalistRGaj) January 23, 2016
|FPIs dabbling in equity derivatives|
|FPIs increased their use of three of the four|
|derivatives instruments in CY15 over CY14|
|Index Futures - Buy||2480||2575|
|Index Futures - Sell||2444||2601|
|Index Options - Buy||14451||16840|
|Index Options - Sell||14035||16290|
|Stock Futures - Buy||4879||5213|
|Stock Futures - Sell||5013||5188|
|Stock Options - Buy||2004||1869|
|Stock Options - Sell||2026||1888|
|Figures in Rs crore, represent daily average|
|CY: calendar year|
|Source: Capitaline (source:Sebi).|
|Analysed by FCRB.|
|The historical mix|
|Stock-based derivatives' share fell from 30% to 20% in last few years|
|Share in total equity F&O turnover:|
|Index futures||Index options||Stock futures||Stock options|
|Figures in per cent, represent share in total equity equity F&O turnover|
|Put a * in FY16, and say the following in the footnote *till mid-January|
|Source: National Stock Exchange. Analysed by FC Research Bureau|
|Cash vs derivatives in equity market|
|Lower margins and downpayment have inevitably meant higher|
|notional turnover in F&O|
|Total turnover (Rs crore)|
|Cash market||Derivatives market||Derivatives over cash (times)|
|Figures represent total traded value in the cash market and notional|
|turnover in the derivatives market|
|Data covers NSE and BSE|
|Source: Sebi, NSE, BSE. Analysed by FCRB|
|India's equity F&O vs world's|
|Size of Indian equity derivatives market is formidable and compares well with the world total|
|NSE's share in world total (%)||BSE's share in world total (%)|
|No. of contracts||Notional turnover||Number of contracts||Notional turnover|
|For notional turnover, share is derived from US$ notional value of trades|
|Source: World Federation of Exchanges. Analysed by FCRB.|