MF score-card in Q2: HDFC, SBI Mutual see major action
Businessline. Chennai: Jul 10, 2005. pg. 1
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Abstract (Document Summary)
In such a backdrop, the performance of several of SBI Mutual's funds point to superior
stock selection. Magnum TaxGain, Magnum Global, Magnum Equity and Magnum
Contra benefited from a focus on well-chosen mid-cap and small-cap stocks. The small
asset base of most of its funds also provides for a high degree of flexibility in portfolio
management.
The tryst with mid-cap stocks has ensured HDFC TaxSaver and HDFC Long Term
Advantage remain top performers. Goodlass Nerolac, Shanthi Gears, Balkrishna
Industries, Crompton Greaves, MICO, Carborundum Universal and Asahi India Safety
Glass are the core holdings of these two funds.
Preferred plays from funds with a long-term track record are: HDFC TaxSaver, HDFC
Long-Term Advantage, Reliance Growth, HDFC Equity, HDFC Top200, Magnum
TaxGain, Magnum Contra, Templeton India Growth and Franklin Prima.
Full Text (1278 words)
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Material Subject to Copyright.)
INVESTORS have reason to cheer the performance of fund-houses in the April-June
quarter. While it was not one of those periods in which a slew of funds outperformed
their benchmark indices, a select few did beat the index, aided by superior stock
selection and a streak of aggression in investment strategy.
Only five of the top 50 gainers among stocks figured in the portfolios of mutual funds.
Funds from HDFC Mutual and SBI Mutual notched up yet another good quarter. The
former has an impressive presence in the diversified funds space; the latter boasts a
sprinkling of star performers from among diversified and sector- specific funds.
Funds from the UTI Mutual stable are conspicuous by their absence. The highest gainer
was Reliance Media and Entertainment; its NAV rose 26.8 per cent. Small-sized tax
saving funds outpaced diversified funds with a large asset base for yet another quarter;
this trend has been evident for several quarters now. Among funds that figure at the top
end of the rankings, HDFC TaxSaver, Reliance Growth and Taurus Discovery Stock
catch the eye for several reasons:
- HDFC TaxSaver continues to impress in the quality of its performance, as it scored
over even mid-cap indices by a factor of two;
- Reliance Growth's showing is notable, as it has an asset base of about Rs 1,500 crore;
and
- Taurus Discovery Stock has wovenits growth around a concentrated portfolio; its core
holdings - NDTV, SRF and Jaiprakash Associates - account for about 50 per cent of its
assets.
Missing the big story
In a quarter when broad market indices such as the Nifty, Sensex and CNX-500 posted
gains of 7.5-10.8 per cent, stocks in the consumer products' space rose by about 35 per
cent.
The BSE index tracking this sector was the best performing portfolio in the quarter. If a
sub-sect of this sector - FMCG stocks - is considered, it gained about 20 per cent.
Even sector-specific funds that focus on consumer products did not match the
comparable benchmarks. Gains in this sector appear to have come as a windfall for fund
houses.
Even the few diversified funds that capitalised on the consumer products theme did not
have a level of holdings high enough to make a difference.
The rise of Hindustan Lever from the lows of about Rs 100 has been a key driver of
indices that track this sector. But domestic fund managers have been lukewarm to the
stock.
HLL did not, for instance, figure in the portfolio of Alliance Buy India - the top performer.
A preference for ITC ahead of Hindustan Lever is evident in several fund portfolios.
The returns that the sector-specific funds in this category sport have come mainly from
their exposures to retail plays such as Pantaloon Retail and Trent, and FMCG plays
such as Dabur, Godrej Consumer and Asian Paints.
Mid-caps lose fizz
It was one of those rare quarters over the past two-and-half years when mid-cap stocks
ceded the centre-stage to large-cap plays. Several mid-cap funds turned in a modest
performance with Sundaram Midcap leading the way. This fund has yet again exhibited
its ability to stay clued in to what is happening on the street and aggressively capitalise
on buy-and-sell opportunities.
Despite this, however, its NAV just managed to stay ahead of the CNX Midcap Index by
a percentage point.
For a mid-cap oriented fund with an asset base of over Rs 1,500 crore, Franklin Prima
lived up to expectations. However, it now has several stocks that have graduated to, or
are nearing, large-cap status.
It is no longer well-placed to capitalise on opportunities in the small-cap space, as even
an attempt to deploy 10 per cent in this segment will make for tough fund management.
If there is no further accretion to the asset base, Prima may remain among the premier
performers in the diversified funds group.
A few funds fizz
In such a backdrop, the performance of several of SBI Mutual's funds point to superior
stock selection. Magnum TaxGain, Magnum Global, Magnum Equity and Magnum
Contra benefited from a focus on well-chosen mid-cap and small-cap stocks. The small
asset base of most of its funds also provides for a high degree of flexibility in portfolio
management.
Its core set of stocks - Crompton Greaves, IVRCL, KEC International, Praj Industries,
Thermax, KPIT Cummins and Pantaloon Retail - have been in the portfolio for several
months now.
It has woven an aggressive selection strategy around this core, but kept tight limits on
exposure levels to individual stocks. SBI Mutual also benefited from well-timed entry into
Hindustan Lever.
A couple of funds from the HDFC stable have also adopted a similar strategy with rich
dividends for close to five years now.
The tryst with mid-cap stocks has ensured HDFC TaxSaver and HDFC Long Term
Advantage remain top performers. Goodlass Nerolac, Shanthi Gears, Balkrishna
Industries, Crompton Greaves, MICO, Carborundum Universal and Asahi India Safety
Glass are the core holdings of these two funds.
Eye-catching trends
Only a few funds with large-asset bases and a focus on large-cap stocks outdid the
Sensex and the Nifty.
Among funds with an asset base of more than Rs 500 crore, only Reliance Growth
outpaced the Sensex; HDFC Equity and HDFC Top 200 Fund went one better than the
Nifty though they lagged the Sensex. The rest trailed both the benchmarks. But this may
not be reflective of a long-term trend, as the late surge in the Reliance group stocks lifted
the indices towards the end of the quarter.
Several funds had only moderate exposures in the Reliance pack, as the family
ownership controversy was settled only in late June.
The insipid showing of Franklin Bluechip, Reliance Vision and HSBC Equity - it was a
rare bad quarter for the last-named fund - is a cause for worry as the degree of lag with
the benchmark is substantial; they need to be tracked closely for a possible shuffling of
your portfolio if the insipid trends continue.
HDFC Prudence continues to impress in the balanced funds category. SBI Magnum
Balanced Fund appears to be accumulating a track record that may push it into a
'preferred status' in this space.
Of the several new fund offers in 2004, only a few, such as Magnum Emerging
Businesses Fund, PruICICI Emerging S.T.A.R, Sundaram S.M.I.L.E, Kotak
Opportunities and Franklin India Flexi Cap Fund, started off on an impressive note. Fund
managers are under pressure to deliver great returns in new funds. They are expected
to make the most of a bullish market, as the funds have been launched at high equity
price levels. The pressure may also be greater as most such funds have garnered
several hundred crores of rupees as corpus. We believe investors should steer clear of
new fund offers and opt for funds with a long-term track record that is impressive in
returns and consistency.
Preferred plays
If you are interested in the action in the mid-cap and small-cap space, go for funds from
SBI Mutual and HDFC Mutual.
They seem more adept at tapping opportunities. Investors who are building a portfolio of
diversified funds should examine tax-saving funds as an option. This would entail a
three-year lock-in period. But the quality of performance of such funds suggests that the
lock- in period may not add to risk. Investing in a phased manner using systematic
investment plans can minimise the risks.
Preferred plays from funds with a long-term track record are: HDFC TaxSaver, HDFC
Long-Term Advantage, Reliance Growth, HDFC Equity, HDFC Top200, Magnum
TaxGain, Magnum Contra, Templeton India Growth and Franklin Prima.
Dark-horse plays: Reliance Diversified Power, Magnum Emerging Businesses Fund,
Sundaram S.M.I.L.E, Kotak MNC and Reliance Banking.
S. Vaidya Nathan