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Sundaram BNP Paribas Leadership: Taking a ride with the leaders
December 06, 2006
If it is consistency that you are looking for, there are few strategies to beat one that aims to invest in market leaders. Sundaram BNP Paribas Leadership Fund invests 70-100 per cent of its corpus in companies that are the leaders - the top two or three - in their sectors by revenues.
It follows a top down approach to stock-picking and first identifies the sectors in which it wants to invest. Then it picks up the leaders in these sectors. For instance, SLF believes that interest rates should stabilise soon and, perhaps, even begin to fall within the first three months of 2007.
This scenario, coupled with the acceleration in credit growth, is attractive for the banking sector. The fund has, therefore, invested in the sector's leaders like State Bank of India and ICICI Bank.
This simple strategy seems to be paying dividends as the scheme scores on account of a good risk-adjusted return and stands eighth out of the 86 diversified equity schemes that we considered.
In the past one year, SLF's one-year rolling return was 64.5 as against 53 per cent returned by the Sensex and a category average of 51.1 per cent. The top three sectors of SLF as per its October 2006 portfolio are technology, banking and fast-moving consumer goods.
The fund is bullish about the technology sector as Indian software companies are in the middle of increasing prices of their products. The fund believes that this improves the chances of growth in their profits and could lead to a revaluation.
FMCG companies, too, look good to this fund since they are getting an impetus from increased rural growth.
Volatility has risen considerably in the equity market in the past one year and it pays if your scheme invests in resilient companies that deliver consistent performance. Such stocks, usually large-cap, are also liquid. SLF invests a smaller part of its corpus in stocks that need not be leaders within their respective sectors, but enjoy good valuations - Infotech Enterprises, Tech Mahindra, Madras Cement, Bajaj Hindustan and HCL Technologies.
Says fund manager Srividhya Rajesh: "The fund also invests in emerging leaders and these may need a three- to five-year period to fulfil their inherent potential." Like all Sundaram equity schemes, SLF is adequately diversified across scrips and sectors.
Srividhya has been with Sundaram BNP Paribas since the fund's inception in 1996, but took over as fund manager when SLF was launched in June 2004. She specialises in picking large-cap companies and also manages aggressive schemes like Sundaram BNP Paribas Select Focus.
Srividhya's speciality is in being able to stay ahead of the market. That Srividhya, herself, is a moderately aggressive investor who prefers to put her own money in equities as well fixed deposits bodes well for the scheme's future.