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R. Y. Narayanan

The NAVs of some of the prominent equity-based schemes have bounced back by 10-15 per cent in the past one month. This growth is expected to gain momentum in the coming quarters with the fundamentally sound stocks in the old economy segment further gaining in value, apart from sectors like software.

THE mutual fund market seems to be vibrant again, particularly the funds based on equities, with the stock markets staging a comeback of sorts in the last three months and the disinvestment process which faced the threat of being derailed being on track again.

This is significant because the lacklustre performance of the equity-based mutual funds, which witnessed sharp erosion in the NAVs of most of the schemes, had made the people to switch over to debt funds in a big way. But with the frontline companies putting up a good show in the second quarter of this year, the NAVs of some of the prominent equity-based schemes have bounced back by 10-15 per cent in the past one month. This growth is expected to gain momentum in the coming quarters with the fundamentally sound stocks in the old economy segment further gaining in value, apart from sectors like software.

A look at the returns of the equity-based mutual funds in November compared to the previous month would give an indication of the turnaround being witnessed by the MF market. According to Investsmart India Ltd, an IL&FS initiative, the diversified equity funds have dished out a one-month return, as on November 29 of 6.83 per cent compared to negative 3.11 per cent one month yield as on October 25.

Among the sector-specific funds, the highest return was clocked by technology funds which gave a positive return of 13.03 per cent. The MNC/FMCG funds gave a one-month return of 3.48 per cent as against a negative 5.85 per cent in October. The pharma funds also put up a better show with the returns being a modest 2.02 per cent in November compared to - 2.38 per cent in October.

But the performance of the various debt funds during the same month has been substantially better. The return from income funds (annualised) in November worked out to 31 per cent compared to 15.35 per cent in October 2002. This was bettered by the gilt funds that had given a one-month annualised return of 49.50 per cent compared to 14.57 per cent in the previous month. The liquid funds, however, could not match the returns of the other two debt funds and their one month annualised yield was 6.46 per cent as on November 29 compared to 6.58 in October. (All data from `Smart Update', a monthly review from Investsmart dated December 5, 2002).

The market analysts seem to be upbeat on the prospects of the stock market. According to Mr Vipul Dalal, COO, Investsmart India, the recent gas finds by several companies including Reliance and Niko Resources would have a positive impact on the forex revenues as oil imports could decline. India currently imports 70 per cent of its oil needs.

A host of positive developments including higher weightage of Indian markets in MSCI recast (even if marginal), the likely upgrade of India's debt ratings by S&P, the visit of Mr Bill Gates and his commitment to invest over $400 in India's IT sector that would be the highest outside Microsoft's Table PC project, the movement of `smart money' into Indian capital markets etc would act as triggers. He felt that the Sensex could move to 3,400-3,600 range before the Budget.

Zurich MF also exuded optimism and cited two positive signals - the broadbased S&P 500 gaining 6.7 per cent during November and the advances to decline ratio during the month being 410/90. The export competitiveness being achieved in sectors such as IT, BPO and pharma also held out hopes of sustained growth and with financial costs coming down, the bottomline is showing a healthy growth.

According to Mr Chetan Sehgal, Director, Research, Franklin Templeton MF, the passing of the Securitisation Bill by Parliament has given a pep to the banking industry and its successful implementation should help reduce the NPA level of banks, particularly nationalised banks.

The fund said that while the Dow and Nasdaq surged by 6 per cent and 11 per cent respectively in November 2002, `the jury is still out on whether the current rally is really based on fundamentals or is just a case of momentum'.

A comparison of the NAVs of different mutual fund schemes (growth option) should give an idea of the returns one has gained in the last one month - November 15 - December 16. The Alliance 95 Fund, which had an NAV of Rs 43.81 on November 15 has seen the NAV move up to Rs 47.01 on December 16 and the Equity fund's NAV has jumped from Rs 22.80 to Rs 25.22 during this period. The NAVs of other mutual funds on December 16 (November 15 figures in brackets) are as follows: Birla Sun Life-Advantage Fund - Rs 23.80 (Rs 22.27); Franklin Templeton - India Bluechip Rs 22.87 (Rs 20.27), India Prima - Rs 28.45 (Rs 26.55), India Prima Plus - Rs 23.14 (Rs 21.20), Infotech - Rs 14.74 (Rs 13.10); Zurich India- Prudence- Rs 23.47 (Rs 21.95), Equity- Rs 22.20 (Rs 20.20), Top 200- Rs.17.01 (Rs 15.50).

If one considers the fact that the Sensex is still in the 3,300-point range and way below the peak it had witnessed some years ago, the upward potential of the market seems to be substantial. Though the market cyclical witnesses peaks and troughs, the bearishness witnessed by the capital market seems to have gone on for long.

For those who are averse to investing in stocks directly, entry through the mutual funds is the best bet since the investment decisions are taken by experts in the field. With several investment options like real estate or bank deposits proving to be unattractive, investment through the mutual funds would be the next best option to those who do not have the appetite for the risk involved in direct investment in stocks.

The mutual funds also have fine-tuned their administration, with many of them couriering the redemption proceeds inside four or five days and funds like HDFC even providing for investment/redemptions through ATMs that ensure hassle-free transactions. With the mutual fund market maturing and the consolidation being witnessed in the industry, one should look for a more stable performance from this sector that would benefit the retail investors.

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