Funds for growth

For investors, the last three months were easily the worst in a long time. The BSE Sensex lost 26 per cent from its peak of 21,207 as more than half the stocks traded on the BSE are close to their or at 52-week lows. But given the recent carnage, many stocks have started looking attractive once more, particularly if you look at them as a long-term investment.

So, isn’t this a good time to take a look at equities? “Yes, indeed. This is as good a time to buy,” says Manish Mehrotra, VP (Wealth Management), Religare Securities.

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“The subprime woes have impacted markets globally, but Indian markets will recover faster than others. At a price-to-earning multiple (P-E) of 14-15 times 2008-09 earnings, the market looks fairly valued now. And investors looking at a longterm horizon can take this opportunity to invest money in equities.”

But bad news on subprime continues to haunt the market, so you may not want to put all your eggs in the market right now. Says Hemant Rustagi, CEO, Wiseinvest Advisors: “You can invest half your investing surplus in this market. And the best way out for investors (especially retail) would be to come through mutual funds.”

Mutual funds returns over the last two months have mimicked the market. But long-term returns are still positive. Diversified equity funds, on average, registered a 4 per cent gain over the last six months. Over the last one and two years, however, the returns stood at 33.4 and 18.5 per cent, respectively, suggesting that long-term investors definitely gain compared to those who look for quick returns.

The blue-chip funds

In fact, this is a good time to accumulate units in diversified equity funds whose assets comprise beatendown-growth stocks. You can invest in them slowly for the long haul so as to have a sizeable chunk of units when the next up-tick comes. The funds that are poised to do well have good portfolios of large-cap stocks as they are the larger, well-entrenched companies with good market shares. Says R. Swaminathan, VP, IDBI Capital Market: “Invest in funds that have a good amount of large-cap exposure. Once the market recovers, large-cap stocks will be the first to move up followed by mid- and small-caps.” Besides, some sectors posting strong growth—infrastructure, commodities and consumption— should also be on your investment radar. Adds Rustagi: “Invest in funds that have huge growth potential as well as those that will outperform the benchmark in times of recovery.”

Among the top equity picks, experts feel that investors should look at ICICI Infrastructure Fund, Sundaram BNP Paribas Select Focus and DSPML Top 100. Apart from their large-cap focus, these funds have cash to capitalise on buying opportunities during corrections. The market has pounded the infrastructure stocks recently, but that has made them more attractive.

says Rustagi: “India’s growth story is still intact. And if our GDP is to grow at 8 per cent, spending on infrastructure is inevitable. Therefore, it’s necessary to have an infrastructure exposure in the portfolio.”

Picks from the pack Experts recommend a diverse range of funds that you can choose from.
Hemant Rustagi,  CEO, Wiseinvest Advisors DSPML Top 100 Equity Fund Kotak 30 ICICI Prudential Infra. Fund Reliance Growth Sundaram BNP Paribas Select Focus	R. Swaminathan, Vice President, IDBI Captial ICICI Prudential Infra. Fund Sundaram BNP Paribas Select Focus Reliance Vision Franklin Templeton Prima Plus Tata Infrastructure	Amit Majumdar, Executive Director, Angel Broking Reliance Pharma JM Auto Tata Select Equity Sundaram BNP Paribas Select Focus ICICI Prudential Infra. Fund	Manish Mehrotra, VP (Wealth Management),} Religare Securities HSBC Equity DSPML Top 100 Reliance Banking Reliance Diversified Power Reliance Growth

Even short-term investors can consider infrastructure and large-cap funds as safe as these stocks have been battered. But when the market bounces back, they are the ones that are expected to do well. Among infrastructure funds, experts prefer ICICI Infrastructure Fund, DSPML TIGER Fund and Tata Infrastructure Fund.

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But for conservative investors, a DSPML TIGER Fund scores over the ICICI Infrastructure Fund, as the latter is more aggressive. Among large-cap funds, Sundaram BNP Paribas Select Focus Fund and DSPML Top 100 Equity Fund are among the funds that are ripe for investment. On the other hand, banks were under selling pressure on account of the debt waiver to farmers as well as over subprime losses. But their stocks have come down significantly and they have turned good value buys.

Sundaram BNP Paribas Select Focus Fund and DSPML Top 100 Equity Fund have about 11.5 per cent and 11 per cent exposures, respectively, in banking stocks. Says Mehrotra: “Banking stocks have been battered lately. Following the correction, these are now attractively priced and investors can value pick at these levels.” Mehrotra is willing to take a concentrated bet on banking stock and is recommending Reliance Banking Fund. Among other large-cap funds that have the eye of the mutual fund experts are Kotak 30 and HSBC Equity, which are also expected to gain from the rebound.

Then, the massive meltdown in the market has presented investors with an opportunity to enter growth sectors that have turned cheaper, and where the business conditions have turned favourable.

“We are recommending auto and pharma funds to our investors as a cut in excise duties will benefit them,” says Amit Majumdar, Executive Director, Angel Broking, whose top picks include Reliance Pharma and JM Auto Fund.

Apart from sectoral bet, experts also recommend the Reliance Growth Fund, which is diversified fund with a focus on mid-caps. The fund has a tidy cash reserve to buy on declines. Says Mehrotra: “We have been recommending Reliance Diversified Power and Reliance Growth Fund. They are sitting on cash, which will allow them to pick good stocks. Besides, they are growth-oriented funds.”

Further, experts are recommending that investors treat the recent fall in prices as an opportunity to build a good portfolio by using the systematic investment plan (SIP). Says Rustagi: “If investment is through SIP, then greater weightage should be given to infrastructure and power funds.” There’s no better time to add more mutual fund units than now. Blue chip funds are available cheaper and, given sufficient time, the returns will definitely show.

The next round After doing away with entry loads for direct investors, the Securities and Exchange Board of India (SEBI) has further sweetened mutual fund investments by abolishing issue expenses that close-ended funds charged investors and amortised over the tenure of the scheme. With this, fund houses are likely to start actively marketing older schemes, instead of launching new ones. Says R. Rajagopal, CIO, DBS Chola Mutual Fund: “The initiatives (removing initial issue expenses and entry loads for direct investments) will increase the cost of launching NFOs (new fund offers) and this could lead a slowdown in NFOs. It will also result in funds houses concentrating more on selling existing funds.” The pace of NFO launches may have already started to slacken. Only two open ended funds were launched since February 2008. By comparison, the same period last year saw the launch of 10 NFOs, half of them close ended. Over the last three years, there has been a gradual increase in the popularity of close ended funds. While calendar year 2005 saw two closeended fund launches, 2006 had 18 and in 2007 a whopping 31. Over the coming years, the number of close ended fund launches could decline. And as fund houses refocus on existing schemes to attract investments, the onus will be back on performance and on track record. At last.