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Equities for long term and reforms forever

May 29, 2004 14:57 IST

There was more bad news in store for investors this week too, as markets continued their southward journey. Markets reacted adversely to the central government's common minimum program by shedding more than more than 200 points on the final day.

The BSE Sensex posted a loss of 2.6% and closed at 4,835 points, while the S&P CNX Nifty was down by 3.2% to end at 1,509 points.

Leading Diversified Equity Funds

Diversified Equity Funds NAV (Rs) 1-Wk 1-Mth 1-Yr 3-Yr Incep. SD SR
BIRLA MIDCAP G 21.12 0.52% -5.71% 78.83% NA 58.71% 7.13% 0.54%
UTI THEMATIC MID CAP 9.65 0.21% -4.36% NA NA -5.02% NA NA
SUNDARAM SELECT MIDCAP 22.89 -0.23% -9.36% 79.23% NA 58.19% 8.56% 0.44%
GIC GROWTH II 15.50 -0.39% -10.46% 51.81% 10.37% 5.32% 6.07% 0.28%
GIC FORTUNE 94 12.75 -0.55% -15.51% 67.10% 32.35% 3.28% 8.83% 0.30%
(Data sourced from Credence Analytics.)
(NAV data as on May 28, 2004. Growth over 1-Yr is compounded annualised)
(Standard deviation indicates by how much the values have deviated from the mean of the values.
It measures by how much the investor has diverged from the mean return either upwards or downwards.
It highlights the element of risk associated with the fund.)

Most diversified equity funds found themselves languishing in negative terrain with the exception of Birla Midcap (0.52%) and UTI Thematic Midcap (0.21%). Funds which invest predominantly in midcap stocks dominated the proceedings yet again. Category leaders Franklin India Bluechip (-2.68%) and HDFC Top 200 (-3.33%) had a poor week as well.

Investors in mutual fund schemes often tend to perceive large sized funds as better quality ones. The rationale is 'if so much money is being invested in a given fund, it must to be a good one.'

Investment decisions based on such flawed thinking can often backfire. The fund's performance, its management style, adherence to stated objectives, expenses incurred and a host of other factors together contribute to making a good fund.

There is enough evidence to show that a fund's performance is divorced from its asset size. So the next time a fund starts boasting about its asset size, just turn a blind eye. For a mutual fund scheme, size doesn't matter!

Leading Income Funds

Income Funds NAV (Rs) 1-Wk 1-Mth 6-Mth 1-Yr Incep. SD SR
ESCORTS INCOME PLAN G 20.13 0.18% 0.15% 3.87% 8.01% 12.28% 0.41% 0.77%
TATA DYN. BOND FUND B (REG) 10.19 0.10% -0.36% 2.20% NA 4.42% 0.73% -0.29%
DSP ML FLOATING RATE G 10.52 0.10% 0.39% 2.32% 4.99% 4.97% 0.02% -5.95%
BIRLA FLOATING RATE LTP G 10.51 0.09% 0.38% 2.29% NA 5.06% 0.07% -1.90%
PRU ICICI FLOATING RATE G 10.58 0.09% 0.37% 2.31% 4.97% 4.97% 0.03% -4.71%
(Data sourced from Credence Analytics.)
(NAV data as on May 28, 2004, Growth over 1-Yr is compounded annualised)
(The Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument)

The 10-year benchmark 7.37% 2013 GOI yield closed at 5.24% (May 28, 2004), 5 basis points above the previous weekly close. Rising yields lead to falling bond prices, which in turn have an impact on NAVs of debt fund.

Expectedly floating rate funds made it to the top performers list, thanks to their ability to provide hedge in a volatile interest rate environment. Escorts Income Plan (0.18%) emerged as the leader in the income funds category, while the second position was shared by Tata Dynamic (0.10%) and DSP ML Floating Rate (0.10%).

Leading Balanced Funds

Balanced Funds NAV (Rs) 1-Wk 1-Mth 1-Yr 3-Yr Incep. SD SR
FT INDIA INFLATION G 11.97 -0.47% -1.74% 12.10% NA 9.48% 1.07% 0.30%
SUNDARAM BAL G 16.14 -0.61% -7.09% 43.18% 19.15% 12.52% 4.82% 0.34%
LIC BALANCE C G 22.70 -0.72% -9.79% 27.38% 12.15% 4.66% 3.98% 0.27%
FT INDIA CONSERVATIVE G 13.15 -0.77% -4.47% 24.48% NA 14.38% 2.10% 0.40%
FT INDIA BALANCED G 15.39 -1.03% -10.00% 56.56% 22.51% 8.80% 5.22% 0.37%
(Data sourced from Credence Analytics.)
(NAV data as on May 21, 2004. Growth over 1-Yr is compounded annualised)

Balanced funds had a poor week with both the equity and debt markets running into rough weather. Balanced funds across board found themselves in negative terrain. Funds from the Franklin Templeton AMC made it to the top performers list. Category leader HDFC Prudence (-1.36%) had a mediocre week as well.

The last few weeks have been rather rough on investors; what aggravates the situation is that investors have seen a major bull run in 2003 when the markets looked like they could do no wrong.

Personalfn organised its 4th Investor Empowerment Programme to address the pertinent question "What's next for the stock markets?"

Mahesh Vyas (CEO and MD, CMIE), spoke about the compulsions of politics which force individuals to make ideology-driven statements, while in practice ground realities power the actions.

He drove home the point using examples like reforms continuing unabated even when the United Front government supported by the Left was in place. His contention was that governments are temporary, but reforms are permanent.

Prashant Jain (Head Equities - HDFC Mutual Fund) urged investors to drop the short-term attitude while dealing with equities. He cited the example of investors buying more gold and real estate when prices drop, but the same investors chose to sell equities when prices fall.

The reason - 'lets make a quick buck mentality comes into play while dealing with equities'. Jain reminded investors that lower stock prices must actually be interpreted as an invitation to invest because the perceived risk at those levels is often lower than the inherent risk.

Ajit Dayal (Director Quantum Advisors) warned investors about the repercussions on markets if foreign institutional investors (FIIs) and hedge funds were to exit the Indian bourses.

He opined that 2004 is unlikely to be a cakewalk for investors, but they should use the downswings in markets as buying opportunities.

In conclusion, while the reforms are likely to continue what might change is their pace. It may not be a smooth sail at the markets in the immediate future but then equity investing is about taking bets over the long term.

Rated as one of India's leading portals, Personalfn is focussed on providing independent value-add research and tools for making better financial decisions.