SUMMER TRAINING REPORT ON

The European Crisis and its impact on Indian

share market with reference to mutual funds.

For

HDFC ASSET MANAGEMENT CO. LTD.

Under the supervision

of

Mr. Siddharth Chatterjee

Submitted By- Submitted to-

Punita Mittal Prof. Arti Basu

Roll No - 151

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HDFC AMC- Summer Internship Report

ACKNOWLEDGEMENT

I would like to extend my sincere thanks to Mr. Siddharth Chatterjee, my

industry mentor at HDFC AMC, Civil Lines, Allahabad for his guidance and

support throughout my training. His willingness to teach has been a great help in

the successful completion of the project. The learning during the project has been

immeasurable and working under him was a great experience. My sincere thanks

also extends to Mrs. Madhusmita Jha(Exceutive - Client services), Mr. Ankit

Kumar(Unit Mgr - Sales) and Ms. Shobhita(Officer - Client services) for the

knowledge they shared with me as a trainee and providing me a friendly and co-

operative environment during the training. .

I also express my gratitude to Prof. Arti Basu, my faculty mentor, New Delhi

Institute of Management, for her constant help throughout my working on the

project. Her guidance was valuable for the effective completion of my project.

Finally, I would like to say that the learning from the experience of training has

been immense and would be cherished throughout my life.

Punita Mittal

New Delhi Institute of Management

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HDFC AMC- Summer Internship Report

DECLARATION

I Punita Mittal student of New Delhi Institute of Management 2009- 2011 batch

declare that every part of the Project Report „ The European crisis and its impact

on Indian share market with reference to mutual funds‟ that I have submitted is

original.

I was in regular contact with the nominated guide and contacted 5-6 times for

discussing the project.

Date of project submission:

Faculty’s Comments: _________________________________________________

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

Prof. Arti Basu

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HDFC AMC- Summer Internship Report

TABLE OF CONTENTS

Content Pg No.

Acknowledgement 1

Executive Summary 2

1.Company Background

1.1 HDFC AMC Ltd. 3

1.2 Sponsors 5

1.3 HDFC mutual fund products 7

1.4 Awards 8

2.Industry Overview

2.1 Introducing Mutual funds 9

2.2 Advantages of Mutual Funds 10

2.3 Disadvantages of Mutual Funds 11

2.4 Categories of Mutual Funds

2.4.1 Open Ended, Close Ended and Interval Funds

2.4.2 Equity, Debt and hybrid funds

2.4.3 Other Fund

12

13

14

2.5 Mutual Fund structure 15

2.6 Current Trends and key developments 17

3.Introduction to the project

3.1 Introduction to the European debt crisis

3.2 Objective of the project

3.3 Job and key responsibilities

3.4 Activity sheet

19

23

23

24

4.Details of the work done

4.1 Overview of the Indian stock market

4.1.1 The Stock Market

4.1.2 Factors affecting the stock market

25

26

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HDFC AMC- Summer Internship Report

4.2 Global reaction to the crisis 28

4.3 Impact on Indian Economy 32

4.4 The Indian share market - in the time of the crisis 36

4.5 Reaction of Investors

4.5.1 Investor sentiments

4.5.2 Where are the investors moving?

42

42

4.6 India- an outperformer 44

4.7 Mutual Funds-India

4.7.1 Impact of crisis 45

4.7.2 Reasons behind the crisis 48

4.7.3 Performance of funds 49

4.7.4 New products in the market 53

4.7.5 Gold ETF - An Investment option 54

5. Research Methodology 56

6. Learnings from the project 58

7. Findings 59

8. Conclusion 60

9. Recommendations 61

10. 10.References 62

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HDFC AMC- Summer Internship Report

EXECUTIVE SUMMARY

Politicians were proud of the Greece`s strong economy they had created, proved by

its entrance into the EMU. Greece was not a small poor country anymore. But

unfortunately, a strong economy is transformed into a bailout with the PIGS

(Portugal, Italy, Greece and Spain) of Europe delving into a sovereign debt crisis.

During the project, I have tried to find out all about Greek crisis, the reasons

behind it and its impact on the world markets. The report concentrates mainly on

its impact on the Indian share market and mutual funds.

Firstly, the report talks about the company background and an overview of the

mutual fund industry. In the main text, it studies the economy of Europe and how

the functioning of its economy is related to the economies of the rest of world.

It talks about the crisis and the share market. It studies the reaction of the global

markets to the crisis and does an in depth analysis of the impact of the crisis on the

Indian share market and mutual funds industry. It traces the route of the financial

markets during the crisis. Investor’s reaction and perception about the crisis is

analyzed. Both negative and positive sides of the crisis have been uncovered.

The project is completely a secondary research project. All facts stated about the

market are on the basis of regular news paper reading and following websites.

Lesson that can be learned from the crisis is figured out.

Finally the report contains the recommendations based on the study and the

conclusion based on the findings.

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HDFC AMC- Summer Internship Report

1. COMPANY BACKGROUND

1.1 HDFC AMC Ltd.

Vision

HDFC Asset Management Company Ltd (AMC) was incorporated under the

Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset

Management Company for the HDFC Mutual Fund by SEBI vide its letter dated

July 3, 2000.

The registered office of the AMC is situated in Mumbai.

In terms of the Investment Management Agreement, the Trustee has appointed the

HDFC Asset Management Company Limited to manage the Mutual Fund.

Particulars % of the paid up equity

capital

Housing Development Finance Corporation

Limited

60

Standard Life Investments Limited 40

To be a dominant player in the Indian mutual fund space, recognized for its high level of ethical and professional conduct and a commitment towards enhancing investor interests

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HDFC AMC- Summer Internship Report

The paid up equity capital of the company – 2.561 crore.

Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund,

following a review of its overall strategy, had decided to divest its Asset

Management business in India. The AMC had entered into an agreement with ZIC

to acquire the said business, subject to necessary regulatory approvals. On

obtaining the regulatory approvals, some schemes of Zurich India Mutual Fund

have migrated to HDFC mutual fund on June 19, 2003.

BOARD OF DIRECTORS of HDFC AMC Ltd. –

The Board of Directors of the HDFC Asset Management Company Limited (AMC)

consists of the following eminent persons. (HDFC)

Mr. Deepak S. Parekh Chairman of the board

Mr. N. Keith Skeoch CEO of Standard Life Investments Ltd.

Mr. Keki M. Mistry Associate director

Mr. James Aird Investment director

Mr. P. M. Thampi Independent director

Mr. Humayun Dhanrajgir Independent director

Dr. Deepak B. Phatak Independent director

Mr. Hoshang S. Billimoria Independent director

Mr. Rajeshwar Raj Bajaaj Independent director

Mr. Vijay Merchant Independent director

Ms. Renu S. Karnad Joint managing director

Mr. Milind Barve Managing director

Mr. Prashant Jain Chief Investment Officer

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HDFC AMC- Summer Internship Report

1.2

HOUSING DEVELOEMENT FINANCE CORPORATION LTD

HDFC was incorporated in 1977 as the first specialised housing finance institution

in India. HDFC provides financial assistance to individuals, corporate and

developers for the purchase or construction of residential housing. It also provides

property related services (e.g. property identification, sales services and valuation),

training and consultancy. Of these activities, housing finance remains the dominant

activity.

HDFC currently has a client base of over 8, 00,000 borrowers, 12, 00,000

depositors, 92,000 shareholders and 50,000 deposit agents. HDFC raises funds

from international agencies such as the World Bank, IFC (Washington), USAID,

CDC, ADB and KFW, domestic term loans from banks and insurance companies,

bonds and deposits. HDFC has received the highest rating for its bonds and

deposits program for the ninth year in succession. HDFC Standard Life Insurance

Company Limited, promoted by HDFC was the first life insurance company in the

private sector to be granted a Certificate of Registration (on October 23, 2000) by

the Insurance Regulatory and Development Authority to transact life insurance

business in India.

HDFC is India's premier housing finance company and enjoys an impeccable track

record in India as well as in international markets. Since its inception in 1977, the

Corporation has maintained a consistent and healthy growth in its operations to

5

5

SPONSORS

HDFC AMC- Summer Internship Report

remain the market leader in mortgages. Its outstanding loan portfolio covers well

over a million dwelling units.

.

STANDARD LIFE INVESTMENTS LTD.

The Standard Life Assurance Company was established in 1825 and has

considerable experience in global financial markets. In 1998, Standard Life

Investments Limited became the dedicated investment management company of

the Standard Life Group and is owned 100% by The Standard Life Assurance

Company. With global assets under management of approximately US$186.45

billion as at March 31, 2005, Standard Life Investments Limited is one of the

world's major investment companies and is responsible for investing money on

behalf of five million retail and institutional clients worldwide.

With its headquarters in Edinburgh, Standard Life Investments Limited has an

extensive and developing global presence with operations in the United Kingdom,

Ireland, Canada, USA, China, Korea and Hong Kong. In order to meet the different

needs and risk profiles of its clients, Standard Life Investments Limited manages a

diverse portfolio covering all of the major markets world-wide, which includes a

range of private and public equities, government and company bonds, property

investments and various derivative instruments. The company's current holdings in

UK equities account for approximately 2% of the market capitalization of the

London Stock Exchange.

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HDFC AMC- Summer Internship Report

1.3 HDFC MUTUAL FUND PRODUCTS

HDFC provides a variety of products which have different objectives.

Equity /Growth Funds

Debt/ Income Funds

Liquid Funds Special Funds

HDFC Growth Fund HDFC Medium Term Opportunities Fund

HDFC Cash Management Fund -

Savings Plan

HDFC Children's Gift Fund - Investment Plan

HDFC Top 200 Fund HDFC Floating Rate Income Fund - Long

Term Plan

HDFC Liquid Fund Premium Plus Plan

HDFC Children's Gift Fund - Savings Plan

HDFC Prudence Fund HDFC High Interest Fund - Short term

Plan HDFC Liquid Fund

HDFC Gold Exchange Traded Fund

HDFC Capital Builder Fund

HDFC Multiple Yield Fund - Plan 2005

HDFC Cash Management Fund -

Call Plan

HDFC Mid-Cap Opportunities Fund

HDFC Gilt Fund - Short Term Plan

HDFC Liquid Fund Premium Plan

HDFC Index Fund - Nifty Plan

HDFC Income Fund

HDFC Index Fund - Sensex Plan

HDFC MF Monthly Income Plan - Short

Term Plan

HDFC Premier Multi-Cap Fund

HDFC MF Monthly Income Plan - Long

Term Plan

HDFC Arbitrage Fund HDFC MF Monthly Income Plan - Long

Term Plan

HDFC TaxSaver (ELSS) HDFC Multiple Yield

Fund

HDFC Core and Satellite Fund

HDFC Gilt Fund - Long Term Plan

HDFC Balanced Fund HDFC Short Term Opportunities Fund

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HDFC AMC- Summer Internship Report

ICRA Mutual Fund Awards 2010

ICRA Gold Award for 'Best Performance' - Seven Star Fund Ranking

- HDFC Prudence Fund has been ranked ―A Seven Star Fund" # and has been

awarded Gold Award # for 'Best Performance' in the category of Open Ended

Balanced fund for one year period ending December 31, 2009 (from amongst 24

schemes).

- HDFC MF Monthly Income Plan has been ranked ―A Seven Star Fund"# and

has been awarded Gold Award # for 'Best Performance' in the category of Open

Ended Marginal Equity for one year period ending December 31, 2009 (from

amongst 46 schemes).

ICRA Five Star Fund Ranking

HDFC Multiple Yield Fund - Plan 2005 has been ranked “A Five Star Fund"#

indicating performance among top 4.6% in the category of Open Ended Marginal

Equity for one year period ending December 31, 2009 (from amongst 46 schemes).

HDFC Cash Management Fund - Savings Plan has been ranked “A Five Star

Fund”# indicating performance among top 4.6% in the category of Open Ended

Liquid for one year period ending December 31, 2009 (from amongst 29 schemes).

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1.4 AWARDS

HDFC AMC- Summer Internship Report

2. INDUSTRY OVERVIEW

What is Mutual fund - Mutual fund is an investment company that pools

money from small investors and invests in a variety of securities, such as stocks,

bonds and money market instruments depending upon the investment objective.

The mutual fund will have a fund manager who is responsible for investing the

gathered money into specific securities (stocks and bonds). When one invests in a

mutual fund, he/she is buying units or portions and on investing becomes a

shareholder or unit holder of the fund. A mutual fund is the most suitable

investment for common man as it offers an opportunity to invest in a

diversified, professionally managed basket of securities at a relatively low cost.

Mutual funds stand ready to sell and redeem their shares at any time at the fund’s

current

The origin of mutual fund industry in India is with the introduction of the concept

of mutual fund by UTI in the year 1963. Though the growth was slow, but

it accelerated from the year 1987 when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen dramatic improvements,

both quality wise as well as quantity wise. Before, the monopoly of the market had

seen an ending phase; the Assets under Management (AUM) were Rs. 67bn. The

private sector entry to the fund family raised the AUM to Rs. 470 bn in March

1993 and till April 2004; it reached the height of 1,540 bn.

NET ASSET VALUE= total fund assets /by shares outstanding.

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2.1 INTRODUCTION TO MUTUAL FUNDS

FUNDS

HDFC AMC- Summer Internship Report

Fig 1. Mutual Fund- An investment platform

Investments in securities are spread across a wide cross-section of industries

and sectors and thus the risk is reduced. Diversification reduces the risk because

not all stocks may move in the same direction in the same proportion at the same

time. Mutual fund issues units t o the investors in accordance with quantum

of money invested by them. Investors of Mutual fund are known as unit holders.

The profits or losses are shared by the investors in proportion to their investments.

The Mutual funds normally come out with a number of schemes with different

investment objectives which are launched from time to time.

2.2 ADVANTAGES OF MUTUAL FUNDS

a) Professional Management

Funds are managed by a team of qualified professionals, who do research work

have better investment management skills which ensure higher returns to the

investor than what he can manage on his own.

INV

ESTO

R

INVEST THEIR MONEY

INVEST IN VARIETY OF STOCKS/BONDS

M

UTU

AL

FUN

D S

HEM

ES

MA

RK

ET (

FLU

CTU

ATI

ON

S)

PROFIT/LOSS FORM PORTFOLIO OF INVESTMENT

PROFIT/LOSS FROM INDIVIDUAL

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HDFC AMC- Summer Internship Report

b) Risk Mitigation

Investors have a luxury of having a diversified portfolio of securities with a

small investment and this diversification helps significantly in risk mitigation.

c) Diversified Portfolio

Through mutual funds an investor can have much more diversity in his/her

portfolio than any other means of investment at much lower cash inflow as there

is a economy of scale in place.

d) Customized Investment Options

Mutual funds come up with various schemes which are according to the

investment objectives of the investors as per their risk appetite, financial goals

and current market scenario.

e) Flexibility

Investors can switch their holdings from a debt scheme to an equity scheme and

vice-versa. Option of systematic (at regular intervals) investment and withdrawal

is also offered to the investors in most open-end schemes.

2.3 DISADVANTAGES OF MUTUAL FUNDS

a) Investor‟s Say in Cost Control is absent.

Investor has to pay investment management fees and fund distribution costs as a

percentage of the value of his investments (as long as he holds the units),

irrespective of the performance of the fund.

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HDFC AMC- Summer Internship Report

b) No Customized Portfolio of Securities

The portfolio of securities in which a fund invests is a decision taken by the fund

manager. Investors have no right to interfere in the decision making process of a

fund manager, which some investors find as a constraint in achieving their

financial objectives.

c) Difficulty in Suitable Scheme Selection

Many investors find it difficult to select one option from the plethora of

funds/schemes/plans available.

2.4 CATEGORIES OF MUTUAL FUNDS

2.4.1 Open Ended/ Closed Ended/ Interval Funds

Open-ended funds are open for investors to enter or exit at any time, even after

the NFO. Although some unit-holders may exit from the scheme, wholly or partly,

the scheme continues operations with the remaining investors. The scheme does

not have any kind of time frame in which it is to be closed. The unit capital in an

open-ended fund would keep changing on a regular basis.

Close-ended funds have a fixed maturity. Investors can buy units of a close-

ended scheme, from the fund, only during its NFO. The fund makes arrangements

for the units to be traded, post-NFO in a stock exchange.

Interval funds combine features of both open-ended and close-ended schemes.

They are largely close-ended, but become open-ended at pre-specified intervals.

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HDFC AMC- Summer Internship Report

2.4.2 Equity/Debt/Hybrid Funds

Equity Schemes : A scheme with an investment objective to invest largely in

equity shares and equity-related investments like convertible debentures.

Debt Schemes: A scheme with an investment objective that limits them to

investments in debt securities like Treasury Bills, Government 14 Securities, Bonds

and Debentures.

TYPE OF SCHEME REMARKS

Gilt Funds Invest in T Bills/ G-Secs

Diversified Debt Funds In a mix of Govt and Non Govt Securities

Junk Bond Schemes/ High Yield Bond Schemes

Invest in Poor Credit Quality Companies

Fixed Maturity Plans Investment portfolio is closely aligned to maturity of the scheme

Liquid Schemes Money repaid within 91 days - Money Market

Floating Rate Funds Interest rate payable by the issuer changes in line with the market - NAV fluctuates lesser than debt funds investing in

fixed rate securities

TYPE OF SCHEME REMARKS

Diversified Equity Fund Diverse mix of Securities across sectors

Sector Funds Invest in only a Specific Sector

Thematic Fund Invest in line with an investment theme - Infrastructure: cement, steel, power etc.

Equity Linked Savings Scheme (ELSS)

For tax benefits - 3 yr lock in period

Equity Income/ Dividend Yield Schemes

Invest in less fluctuated shares - mostly dividend oriented

Arbitrage Fund Taking contrary positions in the market - two exchanges, exchange and F/O market

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HDFC AMC- Summer Internship Report

Hybrid funds have an investment charter that provides for a reasonable level of

investment in both debt and equity.

Type of Scheme Remarks

Monthly Income Plan (MIP) Seek to declare dividend periodically - Largely invest in Debt Securities, small portion in Equity to improve yield

Capital Protected Schemes Ensure getting back of principal - invest in zero coupon govt securities whose maturity is aligned to scheme's maturity

2.4.3 Other Funds

Gold Funds

a) Gold Exchange Traded Fund: It is similar to index fund and is traded in

exchange just like a stock. The movement of its price is based on gold price in

the ,,,market.

b) Gold Sector Funds: Fund will invest in shares of the companies engaged in

mining.

Real Estate Funds :These funds make it possible for small investors to take

exposure to real estate as an asset class. Although permitted by law, real estate

mutual funds are yet to hit the market in India.

Commodity Funds: These funds invest in the asset classes like food crops,

spices, cotton, industrial metals, oil and gas, gold, silver etc .

International Funds: These are funds that invest outside the country.

Fund of Funds: Funds can be structured to invest in various other funds, whether

in India or abroad. They are designed to help investors get over the trouble of

choosing between multiple schemes and their variants in the market.

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HDFC AMC- Summer Internship Report

Exchange Traded Funds (ETF): ETF are open-ended index funds that are traded

in a stock exchange. The benefits of ETF are that investors can buy and sell their

units in the stock exchange, at various prices during the day that closely track the

market at that time and the unique structure of ETFs, make them more cost-

effective than normal index funds.

2.5 ORGANISATION OF MUTUAL FUND:

Fig2.Structure of mutual fund industry

SPONSOR

Sponsor is the person who acting alone or in combination with another body

corporate establishes a mutual fund. Sponsor must contribute at least 40% of the

net worth of the Investment managed and meet the eligibility criteria prescribed

under the Securities and Exchange Board of India (Mutual Fund) Regulations,

1996. The sponsor is not responsible or liable for any loss or shortfall resulting

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HDFC AMC- Summer Internship Report

from the operation of the Schemes beyond the initial contribution made by it

towards setting up of the Mutual Fund.

TRUST

The Mutual Fund is constituted as a trust in accordance with the provisions of the

Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the

Indian Registration Act, 1908.

TRUSTEE

Trustee is usually a company (corporate body) or a Board of Trustees (body of

individuals) whose responsibility is to safeguard the interest of the unit holders and

ensure that the AMC functions in the interest of investors and in accordance with

the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.

ASSET MANAGEMENT COMPANY (AMC)

The AMC is appointed by the Trustee as the Investment Manager of the Mutual

Fund. It is required to be approved by the Securities and Exchange Board of India.

The AMC must have a net worth of at least 10 cores at all times.

REGISTRAR AND TRANSFER AGENT

The Registrar processes the application form, redemption requests and dispatches

account statements to the unit holders. The Registrar and Transfer agent also

handles communications with investors and updates investor records.

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HDFC AMC- Summer Internship Report

2.6 CURRENT TRENS AND KEY DEVELOPMENTS

Fig. 3 Market share of major mutual fund Companies

Fig 4.Graph showing growth in Assets under Management over the years (source:AMFI)

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HDFC AMC- Summer Internship Report

Distribution of Total AUM amongst Funds – Year 2009 (Source: AMFI)

Distribution of Total AUM based on all Fund Types (Year 2010 – Amfi)

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HDFC AMC- Summer Internship Report

3. INTRODUCTION TO THE PROJECT

3.1 INTRODUCTION TO THE EUROPEAN DEBT CRISIS

In early 2010 fears of a sovereign debt crisis or the 2010 Euro Crisis also known as

Aegean Contagion developed concerning some countries in Europe including:

Greece, Spain, and Portugal and Italy (PIGS). A sovereign bond is a bond

issued by a national government. The term usually refers to bonds issued in foreign

currencies. The total amount owed to the holders of the sovereign bonds is called

sovereign debt. This led to a crisis of confidence as well as the widening of bond

yield spreads and risk insurance on credit default swaps between these countries

and other EU members, most importantly Germany.

The Greek economy was one of the fastest growing in the Euro zone during the

2000s; from 2000 to 2007 it grew at an annual rate of 4.2% as foreign capital

flooded the country. A strong economy and falling bond yields allowed the

government of Greece to run large structural deficits. After the introduction of the

euro Greece was initially able to borrow due to lower interest rates that

government bonds could command. Since the introduction of the Euro, debt to

GDP has remained above 100%.The global financial crisis that began in 2008

had a particularly large effect on Greece. Two of the country's largest industries are

tourism and shipping, and both were badly affected by the downturn with revenues

falling 15% in 2009. To keep within the monetary union guidelines, the

government of Greece has been found to have consistently and deliberately

misreported the country's official economic statistics. In the beginning of 2010, it

was discovered that Greece had paid Goldman Sachs and other banks hundreds of

millions of dollars in fees since 2001 for arranging transactions that hid the actual

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HDFC AMC- Summer Internship Report

level of borrowing.

The government of PIGS nations mopped up a huge debt bill. Greece is

struggling with a total debt of 300 billion euro($406 billion). The state of

affairs in Greece made it the epicenter of the sovereign default malaise as

country was known to live beyond its means.

Fig. 6. Debt skeleton of PIGS

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HDFC AMC- Summer Internship Report

On 27 April 2010, the Greek debt rating was decreased to 'junk' status by Standard

& Poor's amidst fears of default by the Greek government. Yields on Greek

government two-year bonds rose to 15.3% following the downgrading. Analysts

question Greece's ability to refinance its debt. Standard & Poor's estimates that in

the event of default investors would lose 30–50% of their money. Stock markets

worldwide declined in response to this announcement.

Fig. 7-shows Greece to be in maximum credit default as on Jan 2010

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HDFC AMC- Summer Internship Report

AUSTERITY AND LOAN AGREEMENT

On 5 March 2010, the Greek parliament passed the Economy Protection Bill,

expected to save €4.8 billion through a number of measures including public sector

wage reductions. Passage of the bill occurred amid widespread protests against

government austerity measures in the Greek capital, On 2 May 2010, a loan

agreement was reached between Greece, the other Euro zone countries, and the

International Monetary Fund, conditional on the implementation of harsh Greek

austerity measures.The deal consists of an immediate €45 billion in low interest

loans to be provided in 2010, with more funds available later. A total of €100

billion has been agreed. The interest for the Euro zone loans is 5%, considered to

be a rather high level for any bailout loan. The government of Greece agreed to

impose a fourth and final round of austerity measures. Some of the measures

include-

Freeze on increases in public sector wages for three years.

Changes planned to the laws governing lay-offs and overtime pay.

Extraordinary taxes on company profits.

Increases in VAT to 23%, 11% and 5.5%.

10% rise in taxes on alcohol, cigarettes, and fuels.

Creation of a financial stability fund.

Average retirement age for public sector workers increased from 61 to 65.

On 5 May 2010, a nationwide general strike was held in Athens to protest to the

planned spending cuts and tax increases. Three people were killed, dozens injured,

and 107 arrested. On May 5 and 6, the Hellenic Parliament passed the proposed

austerity measures, claiming they show the Greek government's commitment to

tackling its budget deficit, amongst continued protests.

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HDFC AMC- Summer Internship Report

3.2 OBJECTIVE OF THE PROJECT

Primary:

The project aims at studying the European crisis and its impact on Indian share

market and Mutual fund industry.

Secondary:

To fulfill the primary objective, following were required:

a) To understand the Greek crisis and the factors causing it..

b) To understand the functioning of the mutual fund industry, its various schemes

and objectives.

c) Analysis of relationship among different economies as how one affects the stock

markets and investment industry around the world.

d) Study of the various factors affecting the Indian stock market and mutual Fund

3.3 JOB AND KEY RESPONSIBILITIES

a) In order to make me equipped with a good knowledge of the mutual fund

industry’s working, initially I was assigned to read and understand the material

provided and the schemes information documents.

b) Later, to deal with small investors and walk-ins under a guidance, to understand

their requirements, tell them about the schemes and analyze what type of

investment they are interested in. I was expected to analyze the investor’s

perception with the changing face of the market and their reaction towards it.

c) To help investors with the filling of SIP forms.

d) My project being a totally research based project, I was required to follow the

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HDFC AMC- Summer Internship Report

share market updates daily and analyse the trend of investments in the HDFC

AMC for the past few months. Conclusions and suggestions on the same were

required.

3.4

Dates Week Activity sheet

10 May – 16 May 1st week

Introduction to the mutual fund industry and the

HDFC AMC by our mentor. Read through the

AMFI material to understand the basics.

17 May- 23 May 2nd week Completed with the understanding of equity

schemes under HDFC.

24 May-30 May 3rd week

Understanding of the office work and how to

deal with investors while sitting with the ISC

members.

31 May – 6 June 4th week

Started filling SIP forms for investors and also

started with the research on the project topic,

going through news, websites, office documents

7 June – 13 June 5th week SIP forms filling and dealing with investors,

mainly walk-ins.

14 June-20 June 6th week Did some calling to brokers for the ISC.

21 June-27 June 7th week Prepared excel sheets for the company along

with the investor dealing.

28 June- 04 July 8th week Continued with report work mainly.

10 July 9th week Submitted the report

ACTIVITY SHEET

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HDFC AMC- Summer Internship Report

4. DETAILS OF WORK DONE

4.1 OVERIEW OF THE INDIAN STOCK MARKET

4.1.1 The stock market: The Indian stock market is more than a century old. Its

history goes back to 1875, when 22 brokers formed the Bombay Stock Exchange

(BSE). Over the period, the Indian securities market has evolved continuously to

become one of the most dynamic, modern, and efficient securities markets in

Asia. Today, Indian market confirms to best international practices and standards

both in terms of structure and in terms of operating efficiency .The Indian

securities market consists of primary (new issues) as well as secondary (stock)

market in both equity and debt. The primary market provides the channel for sale

of new securities, while the secondary market deals in trading of securities

previously issued. Two exchanges, namely National Stock Exchange (NSE),

Delhi and the Stock Exchange, Mumbai (BSE) are the major stock exchanges in

India. There are 22 other regional exchanges, but NSE and BSE combined account

for about 80% of the equity volume traded in India. The markets are closed on

Saturdays and Sundays. Both the exchanges have switched over from the open

outcry trading system to a fully automated computerized mode of trading known as

SBTS (Screen Based Training System). It facilitates more efficient processing,

automatic order matching, faster execution of trades and transparency. The key

regulator governing Stock Exchanges, Brokers, Depositories, Depository

participants, Mutual Funds, FIIs and other participants in Indian secondary and

primary market is the Securities and Exchange Board of India (SEBI) Limited.

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HDFC AMC- Summer Internship Report

The average daily turnover at the exchanges has increased from Rs 851crore in

1997-98 to Rs1284crore in 1998-99 and further to Rs2273crore in 1999-2000. NSE

has around 1500 shares listed with the total market capitalization of around Rs9,

21,500crore. The BSE has over 6000 stocks listed and has a market capitalization

of around Rs9,68,000 crore.

MARKET INDICATORS

The Sensex is an “index”. An index is basically an indicator. It gives you a general

idea about whether most of the stocks have gone up or most of the stocks have

gone down. The Sensex is the primary index of BSE, which comprises of 50

stocks. The Nifty is the primary index of NSE, comprising 30 stocks. . If the

Sensex goes up, it means that the prices of the stocks of most of the major

companies on the BSE have gone up. If the Sensex goes down, this tells you that

the stock price of most of the major stocks on the BSE have gone down. Just like

the Sensex represents the top stocks of the BSE, the Nifty represents the top stocks

of the NSE.

4.1.2 FACTORS AFFECTING STOCK MARKET

a) Three Es i.e. Economy (both global as well as domestic), Earning &

Emotions:

Economy: The growth in economy should be at pace to encourage common man to

invest more by creating faith on account of transparent financial system. This is

applicable to both global as well as domestic economy. There should be overall

growth of all three sectors of economy i.e. Primary, Secondary, &Tertiary.

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Earning: An accelerated economy always reaps more fruits for people.

Emotions: depends on above two, since healthy economy brings more wealth to

investors which in turns increase one’s morale.

b) Domestic factors:

Domestic political scenario: A stable political scenario always gives boost to

economy.

Domestic business scenario: Certainly if global business is under peril then it will

affect our stock market, but that effect will be nuance if our domestic business

houses are performing well.

Inflation: Increase in inflation lowers the stock market, since under a high inflation

people need more money to fulfill their basic needs, than to save and invest.

c) Natural and artificial calamities:

Natural calamities like Tsunami, Flood, Drought, Earthquake has tremendous

impact on stock market. On the same line artificial irregularities like Wars, Riots,

over manipulation in economy leads to catastrophic effect.

d) Supply & Demand:

These are the mega driver of share market; whatever happens in the stock market is

mainly due to Matching or Mismatching of demand & supply.

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4.2 GLOBAL REACTION TO THE CRISIS

Most attention continued to center on the European debt crisis as investors fretted

that efforts to cut deficits and debt will kill growth by withdrawing government

stimulus from economies in Greece, Spain and Portugal.

The biggest casualty over the period from the euro zone debt crisis has been the

euro, whose exchange rate has been falling since 2009. Fitch Ratings said

investors are deeply skeptical about the ability of governments to get a handle on

their huge debt burdens.

CONVERSION RATES (Fall of Euro..)

American Dollars to 1 EURO

Duration Exchange rate

Duration Exchange

rate Duration

Exchange Rate

2009-12-30 1.4338 USD 2010-02-16 1.3649 USD 2010-04-26 1.3321 USD

2009-12-31 1.4406 USD 2010-02-17 1.3726 USD 2010-04-27 1.329 USD

2010-01-04 1.4389 USD 2010-02-22 1.3626 USD 2010-04-28 1.3245 USD

2010-01-05 1.4442 USD 2010-02-23 1.3577 USD 2010-05-03 1.3238 USD

2010-01-06 1.435 USD 2010-03-01 1.3525 USD 2010-05-05 1.2924 USD

2010-01-07 1.4304 USD 2010-03-02 1.3548 USD 2010-05-10 1.2969 USD

2010-01-11 1.4528 USD 2010-03-08 1.3662 USD 2010-05-11 1.2698 USD

2010-01-12 1.4481 USD 2010-06-01 1.2155 USD 2010-05-14 1.2492 USD

2010-01-13 1.4563 USD 2010-03-17 1.3756 USD 2010-05-17 1.2349 USD

2010-01-18 1.4369 USD 2010-03-22 1.3471 USD 2010-05-18 1.2428 USD

2010-01-19 1.4279 USD 2010-03-23 1.3519 USD 2010-05-24 1.236 USD

2010-01-20 1.4132 USD 2010-03-24 1.3338 USD 2010-05-25 1.2223 USD

2010-01-25 1.4151 USD 2010-03-29 1.3471 USD 2010-05-28 1.2384 USD

2010-01-26 1.4085 USD 2010-03-30 1.3482 USD 2010-06-01 1.2155 USD

2010-01-27 1.4072 USD 2010-03-31 1.3479 USD 2010-06-01 1.2155 USD

2010-01-29 1.3966 USD 2010-04-01 1.3468 USD 2010-06-02 1.2218 USD

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2010-02-01 1.3913 USD 2010-04-05 1.34863 USD 2010-06-07 1.1959 USD

2010-02-02 1.3937 USD 2010-04-06 1.3396 USD 2010-06-08 1.1942 USD

2010-02-05 1.3691 USD 2010-04-07 1.334 USD 2010-06-10 1.2045 USD

2010-02-08 1.3675 USD 2010-04-08 1.3296 USD 2010-06-11 1.2127 USD

2010-02-09 1.376 USD 2010-04-13 1.3583 USD 2010-06-14 1.2249 USD

2010-02-12 1.3572 USD 2010-04-14 1.3615 USD 2010-06-15 1.2258 USD

2010-02-15 1.3607 USD 2010-04-19 1.3432 USD 2010-06-16 1.2277 USD

Average : 1.33787 Lowest: 1.1942 (Jun 08 ’10) Highest: 1.4563(Jan 13 ‘ 10)

(Source : www.xrates.com)

The record shows that the rate of Euro with respect to American Dollar has been

continuously falling since Dec 2009 to June 2010.

Fig. 8. Coversion rate of Euro falling since Feb 2010 to June 2010

120 days latest(Jun30) 1.2271

lowest(Jun8) 1.1942

highest(Jan13) 1.4563

American $ to Euro – Conversion rate

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June 2010 - US: Stocks took their deepest plunge in more than a year as fears

grew that Europe's debt crisis could spread around the world and undermine the

U.S. economic recovery. The possibility has been brewing for weeks, but analysts

said some investors are just waking up to it.

The Dow Jones industrial average fell 376 points, its biggest point drop since

February 2009. All the major indexes were down well over 3 percent and are now

showing losses for 2010. Interest rates fell sharply in the Treasury market as

investors once again sought the safety of U.S. government debt.

They said more investors seemed to be grasping the possibility that the U.S.

recovery could be in jeopardy, and that many were realizing that the stock market's

big rebound since March 2009 might not have been justified. The Dow fell 376.36,

or 3.6 percent, to 10,068.01. The S&P 500 fell 43.46, or 3.9 percent, to 1,071.59.

The drop was the worst for the Dow since February 2009, and the S&P's worst

since April 2009. (As on June 8, 2010)

Rising Market volatility : The resurgence of a sharp volatility over the whole

months of April, May and June reiterate the fact that market players are clueless

and uncertain about the future course of action, leading to a broad range bound

movement in the benchmarks.

From April 1 through May 24, there were 17 trading days in which the Standard &

Poor's 500 Index rose or fell by at least 1%—a traditional benchmark for

volatility—and 3 days in which it rose or fell at least 3%. That's higher than the

long-term historical averages, but it's significantly lower than the volatility we

experienced in 2008 and 2009.

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Fig. 9. shows the maximum volatility in US market in 2009-10

Fig. 10. S&P 500 index vs CBOE volatility index

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4.3 IMPACT ON INDIAN ECONOMY

A crisis in an economy impacts other economies via three channels. It is the

affected economy which in turn affects the financial markets.

a) Trade Channel: When an economy falls into a recession, it impacts the affected

country’s trading partners too. Falling household and business demand in the

slump-hit economy hits the exports/imports of its trading partners. Decreased

business brings a downfall of the stock market and other financial markets

also, of both the countries.

The share of Indian exports to EU (excluding UK) and imports from EU has fallen

over the years. In 1987-88, exports to EU constituted about 18.6% of total exports.

This has declined to 17.5% by 2008-09. The decline of imports is higher from 25%

in 1987-88 to 12% in 2008-09. Hence, total trade between India and EMU is about

29.5% in 2008-09. The trade has been forecasted to fall further in 2009-10

( source: RBI)

Europe accounts for almost 26% of the overall Indian exports. Euro which was

quoting at around Rs.67 before crisis is way below currently. The sharp

depreciation of the euro has concerned exporters as that could ultimately have cash

flow impact on the remittances.

The trade in services also declines immediately as a result of a crisis in a trading

partner country. It declined visibly in Jan-Mar 2009 quarter when the global crisis

started in September 2008. Though, the impact of crisis is more on goods than

on services. According to the NASSCOM estimates, Indian IT services and BPO

companies earned around 30% of their total export revenues of $50 billion from

Europe. India’s top three IT companies TCS, Infosys and Wipro earn anywhere

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between 23 to 26% of their total revenues from Europe. Tech Mahindra is worst

placed with European exposure to the extent of 59% of its revenues..

b) Financial Channel: The impact of turmoil in one economy’s financial markets

is not merely transmitted to other markets, the quantum and direction of the

movement is also more or less similar (decline in equity markets, rise in corporate

bond spreads and depreciation in currency). This is because cross border financial

linkages have increased substantially over the years. Besides, the correlation

between assets too has been rising across the world. If one plots the BSE Sensex

with other advanced economy stock indices, one sees more or less see the same

trend. Other three kinds of financial flows could impact Indian financial markets:

Foreign Direct Investment: There are many European companies which have

investments in India. So, there could be a possibility of slowdown in FDI in India.

But FDI remained robust throughout this crisis. The FDI inflows actually helped

keep maintain capital account when all other categories showed sharp decline.

(Source: RBI )

(in USD billion) Gross FDI inflows Gross FDI

Outflows

Net FDI (Inflows minus

Outflows)

Jul – Sep 2008 8.8 -3.9 4.9

Oct-Dec 2008 6.3 -5.9 0.4

Jan - Mar 2009 8.0 -4.8 3.2

April-June 2009 8.7 -2.6 6.1

Jul-Sep 2009 10.7 -4.2 6.5

The table shows that FDI showed a decrease in Oct-Dec 2008, as a result of the US

crisis being at its peak, but the Europe crisis shows no impact on FDI till now.

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Foreign Institutional Investment: Portfolio inflows into India from foreign

institutional investors are likely to see huge volatility this year, as the Greece crisis

and the relief package may adversely impact global liquidity.

(in USD billion) FII

Jan – Mar 2008 -3.7

Apr – Jun 2008 -4.2

Jul – Sep 2008 -1.3

Oct-Dec 2008 -5.8

Jan - Mar 2009 -2.7

April-June 2009 8.3

Jul-Sep 2009 9.7

Oct-Dec 2009 5.7

The table shows a decrease in FDI during Oct-Dec 2008 due to US crisis being at

its peak. It again shows a decline in Oct-Dec 2009, with the onset of the spreading

impact of the European crisis.

Remittances and NRI deposits: Former shows whether NRI depositors withdrew

funds in wake of crisis and latter shows whether Indians living abroad stopped

sending funds to their homes again because of the crisis.

(In USD billion) NRI Deposits Remittances

Jan – Mar 2008 1.1 13.4

Apr – Jun 2008 0.8 11.6

Jul – Sep 2008 0.3 13.0

Oct-Dec 2008 1.0 10.0

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HDFC AMC- Summer Internship Report

Jan - Mar 2009 2.2 9.5

April-June 2009 1.8 12.9

Jul-Sep 2009 1.0 13.8

Oct-Dec 2009 0.6 12.8

From the table: The deposits increased in the crisis periods Oct-Dec 2008 and Jan-

Mar 2009 and decline thereafter. In case of remittances, we see a decline in crisis

period Oct 08 – Mar 09 but see improvements as crisis eases.

Confidence channel: This channel shows confidence declines in business and

households seeing the global uncertainty. So even if an economy’s macroeconomic

conditions and outlook look favorable, the decline in confidence can disrupt the

economic conditions. Decline in confidence is also one of the reasons for decline

in business investments which led to decline in overall Indian GDP growth.

Decreasing investments in business and lesser profits, adversely impact the stock

market.

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4.4 THE INDIAN SHARE MARKET- In the time of the crisis

The decreasing exports to Europe from India, lesser FDI receipts and other foreign

investments have hit the Indian economy to an extent, following the crisis.

One of the major impacts of Greece delving into the debt crisis is the fall in value

of Euro. The exchange rate of Euro has also fallen against Rupee since 2009-

2010. But ofcourse, Euro being cheaper it has boosted the travel from India to

European countries. An advantage thus to the Indian airlines and foreign

exchange.

Indian Rupees to 1 EUR

Duration Conversion

rate Duration

Convesrion rate

Duration Conversion

rate

2009-12-29 67.38 INR 2010-03-17 62.38 INR 2010-05-07 57.9691 INR

2009-12-30 67.06 INR 2010-03-18 62.092 INR 2010-05-10 58.166 INR

2009-12-31 67.0401 INR 2010-03-09 61.827 INR 2010-04-29 59.009 INR

2010-01-04 66.6211 INR 2010-03-19 61.6501 INR 2010-04-30 59.0649 INR

2010-01-05 66.787 INR 2010-03-22 61.408 INR 2010-05-11 57.497 INR

2010-01-08 65.3099 INR 2010-03-23 61.5859 INR 2010-05-12 57.2389 INR

2010-01-11 65.8599 INR 2010-03-24 60.61 INR 2010-05-13 56.7315 INR

2010-01-12 66.21 INR 2010-03-25 60.7699 INR 2010-05-14 56.483 INR

2010-01-19 65.405 INR 2010-03-30 60.802 INR 2010-05-19 56.8779 INR

2010-01-22 65.459 INR 2010-03-31 60.514 INR 2010-05-20 57.754 INR

2010-01-25 65.406 INR 2010-04-01 60.2019 INR 2010-05-21 58.667 INR

2010-01-26 64.82 INR 2010-04-05 59.9026 INR 2010-05-24 58.073 INR

2010-01-29 64.5159 INR 2010-04-06 59.5521 INR 2010-05-25 58.3199 INR

2010-02-01 64.522 INR 2010-04-07 59.376 INR 2010-05-26 58.215 INR

2010-02-02 64.3999 INR 2010-04-08 59.1294 INR 2010-05-27 57.4271 INR

2010-02-05 64.07 INR 2010-04-09 59.271 INR 2010-05-28 57.4346 INR

2010-02-08 64.013 INR 2010-04-12 60.301 INR 2010-05-31 57.055 INR

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2010-02-15 63.034 INR 2010-04-15 60.192 INR 2010-06-03 57.255 INR

2010-02-16 63.0745 INR 2010-04-16 59.98 INR 2010-06-04 56.501 INR

2010-02-19 62.6 INR 2010-04-19 60.088 INR 2010-06-07 56.3211 INR

2010-02-22 62.973 INR 2010-04-20 60.0059 INR 2010-06-08 56.0649 INR

2010-02-23 62.7459 INR 2010-04-21 59.583 INR 2010-06-09 56.4724 INR

2010-02-26 62.5639 INR 2010-04-22 59.3681 INR 2010-06-10 56.503 INR

2010-03-01 62.4109 INR 2010-04-23 59.2171 INR 2010-06-11 56.8091 INR

2010-03-02 62.246 INR 2010-04-26 59.139 INR 2010-06-14 56.952 INR

2010-03-05 61.926 INR 2010-04-27 59.067 INR 2010-06-15 57.0309 INR

2010-03-08 62.105 INR 2010-04-28 59.132 INR 2010-06-16 57.162 INR

Average:61.2062 Lowest:56.0649(June8’10) Highest:67.38(Dec 29 ’10) (Source:www.xrstes.com)

The record shows that the rate of Euro with respect to Rupee has been continuously

falling since Dec 2009 to June 2010.

Fig. 11. Indian Rupee against Euro

120 days

latest (Jun 30) 56.993

lowest (Jun 8) 56.0649

highest (Jan 13) 66.327

HDFC AMC- Summer Internship Report

(June ‟10 2010) Indian stock markets have corrected 10% from its recent peaks

on the back of the jitters from the Greece-led European crisis. In fact, the concerns

about the stability in the European region have once again resurfaced with the

latest down grade of Spain by the Fitch.

The recent healthy correction in the stock markets is under the fear of worsening of

the European crisis and a possibility of a double dip recession in the US. Indian

stock markets, the benchmark indices had slumped to a nine-week low as foreign

institutional investors book gains in emerging markets to offset their losses in

crisis-hit European regions. Leading the slump in Indian indices were Metal

counters on concerns of drop in metal prices. State-owned SAIL lowered

prices of long steel products on falling demand. This led to fear of yet another

round of slackening of demand for ferrous and non-ferrous metals

However, India has out-performed the global indices during this correction

phase. India has not corrected as much as have other global markets, during the

phase of European debt crisis.

It must be noted over here that Indian equities have been an outright out-performer

during the play-out of the major Greece crisis. Indian stock markets have out-

classed equity markets of other economies on the back of a number of positive

fundamental factors.

Without any doubt it can be pointed out that the contagion risks of Greek crisis are

now spreading to other weaker European countries such as Portugal, Spain, Italy

and now even Hungary; regarding their susceptibility of exiting the vicious debt

traps.

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MARKETS WAITING FOR CUES: The stocks witnessed across the board fall on

concerns that the $144 billion bail out package sponsored by EU and IMF for

Greece may not be able to contain the region’s debt risks. Further, the budget

deficit in Spain is likely to worsen over next few months. Ultimately, this may

affect Indian exports to susceptible regions of Europe and fund inflows from there.

At the same time, the crisis in developed nations may also lead to flight of capital

to fund their own requirements. Questions are being raised upon ability of Greek

government to tackle the budget deficit over next three years just as it comes under

the grip of severe recession. Romania’s central bank reduced its benchmark

interest rates to stimulate its economy.

RECORD OF THE INDICES DURING THE CRISIS

Indices: SENSEX For the period: January 2009 to July 2010

Month Open High Low Close Price/Earni

ngs Price/ Book

value Dividend

Yield

January 2009 9,720.55 10,469.72 8,631.60 9,424.24 12.21 2.53 1.88

February 2009 9,340.37 9,724.87 8,619.22 8,891.61 12.82 2.50 1.89

March 2009 8,762.88 10,127.09 8,047.17 9,708.50 12.68 2.47 1.92

April 2009 9,745.77 11,492.10 9,546.29 11,403.25 15.23 2.95 1.68

May 2009 11,635.24 14,930.54 11,621.30 14,625.25 17.88 3.35 1.47

June 2009 14,746.51 15,600.30 14,016.95 14,493.84 19.75 3.64 1.30

July 2009 14,506.43 15,732.81 13,219.99 15,670.31 19.10 3.53 1.32

August 2009 15,694.78 16,002.46 14,684.45 15,666.64 20.08 3.73 1.24

September 2009 15,691.27 17,142.52 15,356.72 17,126.84 21.20 3.95 1.17

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The record shows the major fall in Indices during may 2010, after the junk status of

Europe was announced on 23 April.

Historical Data for S&P CNX NIFTY For the period 01-04-2010 to 02-07-2010

Date Open High Low Close Shares Traded Turnover (Rs. Cr)

01-Apr-2010 5249.20 5298.60 5249.20 5290.50 127773261 5365.11

09-Apr-2010 5302.40 5377.45 5302.25 5361.75 154497751 6207.69

12-Apr-2010 5354.15 5382.15 5324.90 5339.70 134901999 5502.80

13-Apr-2010 5340.85 5356.50 5301.70 5322.95 126581805 7839.07

20-Apr-2010 5208.30 5257.25 5208.30 5230.10 199478130 7155.88

21-Apr-2010 5230.30 5266.30 5230.30 5244.90 196901598 6577.43

29-Apr-2010 5215.25 5264.75 5214.80 5254.15 171683419 7264.42

30-Apr-2010 5254.20 5294.80 5254.20 5278.00 152495257 6591.23

03-May-2010 5278.40 5278.70 5210.05 5222.75 111445668 4663.49

07-May-2010 5072.30 5085.65 4984.60 5018.05 233345722 8765.29

13-May-2010 5157.55 5212.70 5147.95 5178.90 179378582 6054.24

October 2009 17,186.20 17,493.17 15,805.20 15,896.28 21.66 4.06 1.14

November 2009 15,838.63 17,290.48 15,330.56 16,926.22 21.23 3.99 1.15

December 2009 16,947.46 17,530.94 16,577.78 17,464.81 21.82 4.10 1.12

January 2010 17,473.45 17,790.33 15,982.08 16,357.96 21.99 4.11 1.10

February 2010 16,339.32 16,669.25 15,651.99 16,429.55 19.97 3.65 1.18

March 2010 16,438.45 17,793.01 16,438.45 17,527.77 21.05 3.85 1.12

April 2010 17,555.04 18,047.86 17,276.80 17,558.71 21.28 3.88 1.10

May 2010 17,536.86 17,536.86 15,960.15 16,944.63 19.96 3.56 1.15

June 2010 16,942.82 17,919.62 16,318.39 17,700.90 20.57 3.34 1.18

July 2010 17,679.34 17,679.34 17,455.41 17,509.33 20.85 3.34 1.19

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14-May-2010 5180.55 5192.75 5070.95 5093.50 144381001 6094.56

20-May-2010 4924.30 4980.25 4924.30 4947.60 197303335 7215.28

21-May-2010 4946.70 4946.70 4842.30 4931.15 230483809 7363.95

22-Jun-2010 5353.95 5354.35 5311.05 5316.55 162043358 5453.37

23-Jun-2010 5316.15 5333.30 5288.15 5323.15 150160458 5457.95

24-Jun-2010 5323.25 5348.30 5284.55 5320.60 218787111 8902.73

25-Jun-2010 5320.50 5320.50 5259.90 5269.05 164967805 6750.84

28-Jun-2010 5271.10 5339.45 5270.75 5333.50 154140414 6284.06

29-Jun-2010 5333.55 5334.15 5235.80 5256.15 158720263 5859.41

30-Jun-2010 5254.25 5320.35 5210.00 5312.50 183722824 7083.92

01-Jul-2010 5312.05 5312.55 5232.10 5251.40 141430947 5489.08

02-Jul-2010 5251.25 5277.25 5225.60 5237.10 149979351 5158.26

Stock market is more depending on the behaviour and the expectations of investors in

the market. What small corrections are coming in the market, are the repercussions of

the European crisis that well understood, however, if you apply fundamentals it is

quite evident that Indian companies having sound financial position, good order

books, increasing profits, increasing sales and doing good business domestically

or globally, will (has) definitely hedge all these risk and in near time will be able to

generate sizable earnings Stocks become more risky, not less, as their prices rise - and less

risky, not more, as their prices fall. The fact lies in the fear in the minds of the minds of

the people which forces them to think irrationally.

WHY BEARS WERE POWERFUL IN RECENT DAYS ??

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4.5 REACTION OF INVESTORS

4.5.1 INVESTOR SENTIMENTS

The uncertainty in the global economy and the subsequent volatility have seen

domestic retail investors shy away from Indian equity markets.

Increased Risk Aversion : High net worth individual (HNI) traders have halved

their activity in the past two months(April and May).While they are confident

about Indian stories, they are concerned about Indian developments.

Profit Booking: Insvestors sold their shares as soon as they could get some profit.

This made the share market tumble as on 11 May ’10- The Bombay Stock

Exchange benchmark Sensex tumbled by 189 points with investors booking profit

a day after market witnessed a 561 point rally. The 30-share barometer fell by

189.02 to 17,141.53 points. The Sensex had gained 561 points in the last session.

The wide-based National Stock Exchange index Nifty fell by 57.45 to 5,136.15

points.

4.5.2 WHERE ARE THE INVESTORS MOVING??

In such a scenario, most of the money has found its way into liquid debt-based

funds and gold. The market sees a lot of demand for liquid and short-term debt,

and in the long-term investments space, a demand for structured products that offer

capital protection.

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With gold prices zooming, gold ETFs look like a safe in-vestment avenue. Gold-

based ETFs have generated a returning excess of 10 per cent over the past month,

the best among all fund categories.

Gold as an investment option:

- Demand and supply balance.

- As a hedge against inflation and store of value.

- As a safe haven in times of financial, economic and political crisis.

-Gold provides effective diversification for investment portfolios by exhibiting

Fig. 12. Rising investment demand in gold in India(Amount in Crores)

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4.6 INDIA - AN OUT PERFORMER

Indian economy is far less dependent on exports to Europe. Indian IT companies

have a lower exposure to European clients to the extent of roughly a quarter of

their revenues. Add to that India’s exposure to debt-stuck economies such as

Greece, Spain, Italy and Portugal is far more limited to 4% of total exports.

According to the latest macro-economic figures, India’s IIP data has registered a

growth of 5.1% compared to 3.7% witnessed during April 2009. The Central

Statistical Organization has pegged India’s GDP growth for 2009-10 at 7.4%.

Thus, there are various parameters on which Indian stock markets have out-

performed the global indices while going passing through the turmoil phase of

European crisis. Investors waiting on sidelines should use every dip from here to

create a portfolio for long-term duration.

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4.7 MUTUAL FUNDS – INDIA

4.7.1 Impact of crisis: The mutual fund industry works on the share market as a

backbone. So any effect on the share market will directly affect the mutual fund

industry also in the same way.

Fall in AUM of fund houses: The domestic mutual fund market has seen the

steepest fall in assets since the crisis of October 2008.According to latest data from

the Association of Mutual Funds in India (Amfi), the industry’s average assets

under management (AAUM) plunged 15.89 per cent, or Rs 1,27,695 crore, in June

to Rs 6,75,864.20 crore, compared to the May figures.

Fig 13. Decrease in AUMs of fund houses in June 2010

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The top 5 players in Mutual funds, Reliance MF, HDFC MF, ICICI MF, UTI MF

and Birla Sunlife MF – saw their AAUMs fall 14-18 per cent. UTI MF saw the

sharpest fall of 18 per cent, followed by ICICI MF at 15.86 per cent.

Mutual Fund House % fall in AUM AUM value

Reliance Mutual Funds 15% Rs 1 lakh crore

HDFC Mutual Fund 14.9% Rs 86,648 crore

UTI Mutual Fund 18% Rs 64,445 crore.

Kotak Mutual Fund 29.8% Rs 28,540 crore.

Birla Sun Life Mutual Fun 14.5% Rs 63,111 crore

SBI Mutual Fund 6.9% Rs 33,727 crore,

Fig. 14. Fall in AUM of top mutual fund players.

Exit Of Investors from mutual fund industry: The Indian mutual fund industry

has seen exit of investors in the month of April- May’ 10. Distributors' lack of

interest in selling MFs to investors and profit-booking by retail investors and

financial institutions are the two reasons behind the exodus. The profit- booking

is a result of uncertainty in the market over the sustainability of the global

economic recovery, especially given the recent events in Europe.

Figures –

The number of accounts fell from 46.9 million to 46.5 million.

Equity assets of around Rs 1,300 crore were redeemed net of new sales in April.

More than 10 times the drop in investor ac- counts between September 2009 and

March 2010. During that period, the number of ac- counts fell by 37,161.

(Source: AMFI)

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HDFC AMC- Summer Internship Report

Fig. 15. Retail folios declining in number

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HDFC AMC- Summer Internship Report

4.7.2 REASONS BEHIND THE IMPACT

The overall liquidity crisis and outflows due to advance tax and 3G auction

payments pulled down the assets sharply. The pullout by banks in the

quarter-end was another major factor.

June saw the highest outflow of over 1.25 lakh crore..Liquidity crunch and

advance tax payments had their impact. Moreover, banks took out money at

the end of the quarter.‖

Investments by large institutional investors and corporates make up 50 per

cent of the segment, who started investing primarily in ultra-short-term debt

schemes.

Though fund houses expect that most of the banks’ and corporate money would

come back, independent industry experts seemed sceptical. They said following the

rate hike by the Reserve Bank of India today, banks might not park the money with

fund houses so soon. On the corporate side too, companies may wait for clarity on

new norms on valuation of debt and money market instruments by mutual fund

houses on the mark-to-market basis.

The Greek sovereign crises, increase in credit spreads along with tightening of

lending standards in the property sector by the Chinese government hurt sentiment

across the world causing a fall in equity markets for the month. The BSE Sensex

closed down 3.5% while the Nifty closed down 3.6% (31May’10).

Under performers - Realty, Metals, Banking and Power sectors.

Outperformers - FMCG, pharmaceuticals and domestic plays like Auto and

Capital Goods, the oil and gas sector did well with a gas price hike and expectation

of further reforms.

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HDFC AMC- Summer Internship Report

4.7.3 PERFORMANCE OF FUNDS

SECTOR SPECIFIC FUNDS: Investors in sector specific funds have reason to

be happy. Most schemes have consistently outperformed the benchmark

indices – the Bombay Stock Exchange’s Sensex and the national Stock

Exchange’s Nifty. An analysis of category average returns over five years

shows that sector funds, especially pharma, banking and FMCG (fast

moving consumer goods), have outperformed diversified funds and also

the benchmark indices. Over the past five years, banking and pharma

funds have provided average annual re- turns in excess of 20 per cent,

significantly higher than most other instruments. In the past three years,

the category average returns of pharma funds has been around 17 per cent.

FMCG and banking funds have provided returns of 15 and 11 per cent,

respectively. The Sensex or Nifty, in the same time period, has given only

single-digit returns. Both pharma and FMCG are defensive sectors. As

a result, during the lean phase in 2008-09, they were able to provide

stable returns. Pharmaceuticals, being a defensive sector will have

investor interest even when the market corrects. Moreover, it also has

steady fundamental growth. So, one can expect some consistency.

Certain retail, energy and infrastructure-related funds have also been

stable, if not good during the 2010 crisis period.

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HDFC AMC- Summer Internship Report

Losers Parade

Assets (inRs)

Fund Houses

Dec-09

Jan-09

Change (%)

Baroda Pioneer Mutual Fund

2984.12

3694.34

23.80

Sahara Mutual Fund

499.15

608.33

21.87

Canara Robeco Mutual Fund

8516.91

9199.94

8.02

Sundaram BNP Paribas Mutual Fund

13075.69

13755.84

5.20

Axis Mutual Fund

2569.18

2641.13

2.80

Escorts Mutual Fund

209.48

214.29

2.30

JM Financial Mutual Fund

8853.16

9025.18

1.94

Quantum Mutual Fund

84.90

86.34

1.69

ING Mutual Fund

1516.76

1542.37

1.69

JPMorgan Mutual Fund

4252.27

4315.47

1.49

Taurus Mutual Fund

1898.04

1911.51

0.71

Morgan Stanley Mutual Fund

2299.41

2302.24

0.12

DSP BlackRock Mutual Fund

20182.87

20107.58

-0.37

HSBC Mutual Fund

7020.30

6894.11

-1.80

Reliance Mutual Fund

119981.79

117248.57

-2.28

IDFC Mutual Fund

25361.01

24759.36

-2.37

HDFC Mutual Fund

97183.85

94797.01

-2.46

SBI Mutual Fund

37900.13

36623.30

-3.37

UTI Mutual Fund

78203.44

74509.87

-4.72

ICICI Prudential Mutual Fund

82432.25

78372.39

-4.93

Fidelity Mutual Fund

8350.29

7834.93

-6.17

Tata Mutual Fund

23778.93

22298.89

-6.22

Fortis Mutual Fund

8601.76

7960.01

-7.46

Birla Sun Life Mutual Fund

68066.19

62595.13

-8.04

LIC Mutual Fund

49681.48

45599.20

-8.22

Shinsei Mutual Fund

447.65

400.15

-10.61

Deutsche Mutual Fund

13613.31

12162.13

-10.66

Kotak Mahindra Mutual Fund

41401.75

36781.33

-11.16

Religare Mutual Fund

15865.25

13823.34

-12.87

Edelweiss Mutual Fund

129.99

111.42

-14.28

Fig. 16.The record shows the assets of the fund houses. While most of them have lost on their assets, from

Dec to Jan (shown by negative change %), some of them have managed to have increase to some extent.

The biggest loser has been Edelweiss Mutual fund with change percentage of -14.28

(Source: www.valueresearchonline.com)

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HDFC AMC- Summer Internship Report

Top performer schemes in last 1 year (2009- June 2010)

Scheme %Return

Reliance Pharma Fund (Bonus) 106.17

Reliance Pharma Fund (G) 106.16

Franklin Pharma Fund – (G) 89.74

DSP BR Micro-Cap Fund (G) 89.03

UTI-Pharma & Healthcare Fund (G) 72.16

SBI Magnum SFU – FMCG Fund 70.25

UTI-Master Value Fund (G) 69.15

UTI-Transportation & Logistics Fund (G) 68.33

ICICI Pru Discovery Fund – Inst Option – 1 (G) 67.30

ICICI Pru Technology Fund (G) 65.84

ICICI Pru Discovery Fund (G) 65.34

DSP BR Small And Mid Cap Fund (G) 62.01

SBI Magnum SFU – Pharma Fund (G) 61.56

Reliance Equity Opportunities Fund (B) 60.81

ICICI Pru FMCG Fund - (G) 60.81

HSBC Small Cap Fund (G) 59.90

Franklin Infotech Fund - (G) 59.65

SBI Magnum SFU - Infotech Fund 58.74

Sundaram BNP Paribas Select Small Cap (G) 58.32

ICICI Pru Emerging S.T.A.R. Fund-Inst Option-1 (G) 57.49

UTI-Mid Cap Fund (G) 57.40

Franklin FMCG Fund - (G) 57.38

Birla Sun Life Long Term Advantage Fund - Sr.1 (G) 56.07

Canara Robeco Emerging Equities (G) 55.87

(Source: www.valueresearchonline.cm)

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HDFC AMC- Summer Internship Report

Bottom performer schemes in last 1 year (2009- June 2010)

Scheme %Return

Tata Index Fund - Sensex Plan (B) -47.81

JM Telecom Sector Fund (G) -14.92

DSP BR World Gold Fund - Inst (G) -13.80

Birla Sun Life CEF - Global Agri Plan (G) -4.17

JM Agri & Infra Fund (G) -2.13

Birla Sun Life CEF - Global MCP (G) 0.18

Birla Sun Life International Equity - Plan A (G) 2.58

DWS Global Thematic Offshore Fund (G) 3.27

JM HI FI Fund (G) 5.89

JM Basic Fund (G) 6.59

JM Financial Services Sector Fund (G) 6.81

HSBC Emerging Markets Fund (G) 7.41

L&T Global Advantage Fund (G) 7.83

JM Core 11 Fund - Series I (G) 8.02

L&T Infrastructure Fund (G) 9.2

Franklin Asian Equity Fund (G) 9.39

LICMF Infrastructure Fund (G) 9.46

Reliance Natural Resources Fund (G) 9.74

JM Equity Fund - (G) 11.28

SBI Infrastructure Fund - Series I (G) 11.90

UTI-Infrastructure Advantage Fund - Sr.I (G) 11.97

LICMF India Vision Fund (G) 12.77

Reliance Equity Fund (G) 12.84

LICMF Opportunities Fund (G) 12.97

Sahara Infrastructure - Fixed Pricing (G) 13.05

LICMF Tax Plan - (G) 13.19

(Source: www.valueresearchonline.com)

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HDFC AMC- Summer Internship Report

4.7.4 NEW PRODUCTS IN THE MARKET

Several fund houses launched new offers in May to bring fresh investors into

the fold. Some have been successful, but not to the extent expected. The biggest of

these offers, was from DSP Black Rock which collected Rs 670 crore. Out of the

about 54,000 applications, roughly 80% would be retail and HNI (high net worth

individual) applications. The figures are reasonable given the volatile markets.

Birla Sun Life Asset Management Co. Ltd, SBI Funds Management Pvt. Ltd, Axis

Asset Management Co. Ltd, IDFC As- set Management Co. Ltd and Mirae Asset

Global are selling their new funds currently.

Investors considering debt and gold funds as the safe investments in the time of

market volatility, new funds have been launched in the debt and hybrid type.

Some schemes launched by HDFC mutual funds :

Scheme Name Type Open Date Close Date Min

Amount.[Rs.] Category

HDFC Gold Exchange Traded Fund

HYBRID 25-Jun-10 23-Jul-10 5000.00 Gold – ETFs

HDFC FMP - 100Days - June 2010(1)(XIII) (G)

DEBT 29-Jun-10 05-Jul-10 5000.00 Fixed

Maturity Plans

HDFC FMP - 100Days - June 2010(1)(XIII) (D)

DEBT 29-Jun-10 05-Jul-10 5000.00 Fixed

Maturity Plans

HDFC FMP - 370Days - June 2010(2)(XV) (G)

DEBT 29-Jun-10 05-Jul-10 5000.00 Fixed

Maturity Plans

HDFC FMP - 370Days - June 2010(2)(XV) (Div-Q)

DEBT 29-Jun-10 05-Jul-10 5000.00 Fixed

Maturity Plans

HDFC FMP - 370Days - June 2010(2)(XV) (D)

DEBT 29-Jun-10 05-Jul-10 5000.00 Fixed

Maturity Plans

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HDFC AMC- Summer Internship Report

4.7.5 GOLD ETF- AN INVESTMENT OPTION

With the global economic environment once again turning bleak because of the

European sovereign debt crisis, gold, the ultimate safe-haven investment, has once

again found favor with investors. It is currently trading at around Rs 18,825 per 10

gram.

Besides acting as a safe-haven investment, gold also acts as a hedge against

inflation, which is currently high in India. The yellow metal has registered a

compounded annual growth rate of 16.4 per cent and 24.6 per cent over the 10-year

and five-year horizon respectively.

A gold fund or an ETF is by all means a great portfolio diversifier. The returns

have also been impressive. In the month of May ’10, gold ETFs have returned

6.5%, slightly lower than the 5.3% category average of FMCG funds. Over the

Past 3 months it has returned around 9.8%. Over one and three years it has returned

around 24.4% and 27.1% respectively. The latter was the best performer among all

MF categories.

NFO UPDATE 2010

1. HDFC Gold Exchange Traded Fund

Offer Open Offer Close Structure Nature

Jun 25, 2010 Jul 23, 2010 Open Ended ETF

Scheme Objective

The investment objective of the Scheme is to generate returns that are in line with the

performance of gold, subject to tracking errors.

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HDFC AMC- Summer Internship Report

Mutual Fund Minimum

Investment

Incremental

Investment

SIP

allowed

NRI

Investment

HDFC Mutual Fund

Ramon House, 3rd Floor,

H.T. Parekh Marg

169, Backbay Reclamation,

Churchgate

Mumbai

Tel.-22029111

Rs. 5000 Rs. 1 No

2. ICICI Prudential Gold Exchange Traded Fund

Offer Open Offer Close Structure Nature

Jun 28, 2010 Jul 27, 2010 Open Ended ETF

Scheme Objective

The objective of the scheme is to seek to provide investment returns that, before expenses,

closely track the performance of domestic prices of Gold derived from the LBMA AM

fixing prices. However, the performance of the scheme may differ from that of the

underlying gold due to tracking error.

Mutual Fund Minimum

Investment

Incremental

Investment

SIP

allowed

NRI

Investment

ICICI Prudential Mutual

Fund

8th Floor, Peninsula Tower,

Ganpatrao Kadam Marg,

Off Senapati Bapat Marg,

Lower Parel

Mumbai

Tel.-24997000

Rs. 5000 Rs. 1 No Yes

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HDFC AMC- Summer Internship Report

5. RESEARCH METHODOLOGY

A. Statement of Problem:

1. Understanding the Greek crisis in detail, working of the mutual fund industry

and the share market.

2. To identify the impact of the crisis on the Indian share market and the mutual

funds industry. To understand the relationship between the Greek instability and

the movement of the share market indices of India.

B. Research Design :

Research design is a master plan that specifies the method and procedure for

collecting and analyzing the needed information. The research design for this

project is descriptive where the data is collected mainly through extensive reading

and establishing relationships between the findings. Real time environment helped

in understanding the investment industry better from the perspective of industry

mentor. .

C. Sources of Data Collection:.

Secondary Research: The report is based totally on secondary data. The tools

include web access to documents, articles, news and reports discussing the crisis,

the share market and mutual funds .The offer documents and reports provide in the

ISC also were a great aid.

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HDFC AMC- Summer Internship Report

D. Statistical Tools Used:

The main statistical tools used to present data in the report are :

Pie Charts

Line Graphs

Bar Graphs

E. Limitations of the Study:

Any facts stated or any assumptions made on the basis of it, may not be accurate as

there were limitations to the study:

1. The study is based on secondary data available from monthly fact sheets,

websites and other books, as primary data was not accessible.

2. The study is based mainly on the schemes and functioning of HDFC AMC and

results generalized for other AMCs.

3.The assumption that all investors have the same belief and perception towards

investments.

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HDFC AMC- Summer Internship Report

6. LEARNINGS FROM THE PROJECT

1. Working culture and structure of Mutual fund industry.

2. Strategy of investing in shares and mutual funds.

3. Understanding of the economy.

4. Learnings from the study of the crisis:

a. Importance of fiscal prudence for economies.

b. Too much dependence on foreign funds is destructive.

c. Self awareness necessary for an investor. It took a long time for credit agencies

to discover real fiscal position of Greece, which proved very harmful for those

investors who rely deeply on the ratings.

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HDFC AMC- Summer Internship Report

7. FINDINGS

The working on the project has provided understanding of the working of the

economy and the stock market. The findings in abridged form are-

1. It was living beyond means that led Greece and other EU countries into the

debt crisis. The economy of one country has impact on the economy of others.

2. Stock market depends on the corporate action but more on the behavior and the

expectations of investors in the market. Thus despite Indian companies having

very less exposure in Greek economy, the market is correcting to an

extent. The correction is more because of investor’s fear of the crisis and risk

aversion, which is making them pull out money from the market.

3. With respect to mutual funds, Fund houses are coming up with new schemes to

attract new investors. The AUM of mutual funds has fallen following the exit of

investors during the crisis. Debt, hybrid and EFT schemes are on the rise, while

equity is falling.

3. Similarities exist between the sub-prime crisis and the Greek crisis: Firstly, both

the crises have been caused by a large section of the population living beyond

its means for an extended period of time. Secondly, both the crises have rattled

global investors and put a downward pressure on two strong currency pegs: the

US Dollar and the Euro. Lastly, both have predominantly affected the

developed Western economies, while the emerging economies including the

BRICs have showed unprecedented resilience

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HDFC AMC- Summer Internship Report

8. CONCLUSION

1. The India share market and the mutual fund industry have been adversely

affected by the crisis. The indices fell rapidly through the months and the

market became aggressively volaltile.

2. More than the crisis actually bringing down the Indian market, it is

investors ignorance about the fundamentals and their apprehension that

makes them de-invest.

3. Currently, normalcy seems to be returning to the financial markets. The

equity markets are again seeing an inflow of funds.Markets which are

down will go up again, bringing profits to those who invest at the lower prices.

Infact, it’s the regularity with which crises occur that makes stocks such risky

investments. And that’s why stocks have historically been priced to provide a

large equity risk premium. If crises were rare, equity investing would be less

risky, the equity risk premium would be smaller, and equity returns would be

lower. In other words, BEAR MARKETS ARE A NECESSARY EVIL.

4. India can turn Euro crisis into an opportunity:

a) India can contain its fuel subsidy bill as the crisis has pulled commodity

prices, including petroleum products.

b) Lower prices will contain inflation.

c) If inflatin starts to cool off, RBI may not push up interest rates and continue

with its soft rate regime.

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HDFC AMC- Summer Internship Report

9. RECOMMENDATIONS

1. Investor education: in the form of programs or briefing at the ISCs, brokerage

houses itself to be more self aware about products, markets and economy before

investing. They should be made to understand that market volatility is not a reason

to be worried, but only to act cautiously. Opportunities are hidden inside.

2. Innovative products by mutual fund houses: The challenge is to create

products that are relevant to evolving regulatory conditions and changing customer

requirements. The year 2009 had witnessed a boom for mutual funds, but the

schemes are now rapidly losing attractiveness. Market revival is the current need

and for this, innovation, both in products and schemes, is the key.

3. Investment in fundamentally strong Companies at the time of bearish market,

is a good investment strategy, as they will certainly give profits once the market

revives.

4. Investments in certain sectors can be considered, which are not affected by the

unfavourable prevailing conditions and can be expected to be steady or grow

throughout the period .

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HDFC AMC- Summer Internship Report

10. REFERENCES

Books:

Khan and Jain – Financial management

NCFM- Mutual Funds Distributor’s Certification

NCFM- Capital Market (Dealers) module

Prasana Chandra – Investment Analysis and portfolio management

Websites:

www.amfiindia.com

www.bseindia.com

www.businessstandards.com

www.hdfcfund.com

www.investorzworld.com

www.moneycontrol.com

www.nseindia.com

www.valueresearchonline.com

Newspapers:

Business Standards

The Times of India

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