Financial Daily from THE HINDU group of publications
Saturday, Jan 11, 2003
Financial Daily from THE HINDU group of publications Saturday, Jan 11, 2003 |
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Markets
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Mutual Funds Sensex-based funds on free float `must rebalance portfolios' Nilanjan Dey
KOLKATA, Jan. 10 INDEX funds based on the Sensitive Index (Sensex) of the Bombay Stock Exchange, which is expected to go on free float, will need to rebalance portfolios in order to align them with the changed weightages. At the moment, there are a number of index funds based on the Sensex, and although they are outstripped by funds based on the Nifty of National Stock Exchange, their ranks seem to be swelling. The latest to join the group is Prudential ICICI MF's exchange-traded fund (SPIcE). "Free float will exclude all kinds of promoter holdings, holdings by group companies of the promoter, strategic investments by corporate bodies and ESOP shares with lock-in of more than one year," Mr Amit Sahi of the BSE index cell explains, adding that an example of `strategic investments by corporates' would be Grasim's holding in Larsen & Toubro. According to MF circles, the number of Sensex trackers could increase in the not too distant future as the idea of going free float is expected to go down well with fund houses that still do not have index-based products. JM Mutual, for instance, does not manage an index fund yet, and plans to come out with its own version. Mr Krishnamurthy Vijayan, CEO of JM MF, believes that the local fund industry will generally view the BSE proposal in a favourable manner. `We will have our own Sensex-tracking fund in course of time," he notes. According to Mr Rajat Jain, CIO of IDBI Principal, the decision to go free float should not lead to a major impact on index funds as the stock exchange is expected to serve a notice well in advance. IDBI Principal, it may be mentioned here, does have a Nifty-based fund. "One should be given sufficient time to react to such changes. As far as fund managers are concerned, it will be an operational issue. The plan is to protect investors from the likelihood of any slips that may occur," he said.
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