The Hindu Business Line : Can fund houses sustain the current trend?

THE first working day of the New Year may not be the best time to think about last year's failures, but this may well be the most opportune moment to consider the funds that failed to live up to expectations, including those that ended at the bottom of their respective categories.

Let us for the time being check out the equity funds that disappointed the most vis-à-vis their better-performing peers. This is not to suggest that the poor performers did necessarily disappoint their unit holders, but the category leaders did create new benchmarks that could have been replicated, market conditions permitting.

The laggards: For the record, the funds that ended 2005 with comparatively pedestrian - some may call them uninspiring - scores included LIC Equity (23 per cent) among diversified equity funds, Principal Personal Tax Saver (23 per cent) among ELSS, Kotak Tech (40 per cent) among IT funds and SBI Magnum FMCG (35 per cent) among FMCG funds. These figures, pertaining to December 29, have been compiled by Value Research.

It is important to go into the how's and why's of their performance, but we could perhaps deal with these later. What is far more relevant is the realisation that not all funds will be able to satisfy investors in the same manner. In fact, a critical section is likely to remain unhappy even during the best of times. The extent of dissatisfaction will vary from one investor to another, but some of us will always be wondering how we went so terribly wrong!

Star performers: The comparison (with those that generally did better) will be extremely painful, given the fact that 2005 was quite good for most equity funds - a detail underlined by their rising NAVs. A look at some of the star performers will not be out of place at this juncture. These include SBI Magnum Emerging Business (81 per cent) in the diversified funds category, Birla Sun Life New Millennium (54 per cent) among IT funds, and SBI Magnum Taxgain (99 per cent) among ELSS. We could have written about a few others, but space is a limiting factor here.

Fresh challenges ahead: Given the state of the markets, most fund managers are of the view that stock-picking will be a shade more difficult in 2006. Will the New Year be more volatile? Will it mark the end of the current bullish phase? Will there be a significant retraction of positive sentiments? These are questions that clients are asking everywhere. The months ahead, it is also pointed out, are likely to throw up fresh challenges to funds that have recently raised money. Deployment of cash, when so many stocks are riding a high, will not be a very easy task for them.

To end this column on a sweeter note, let us remind you that the past year saw fund managers hone their skills even further. A number of them managed to provide good returns, thanks to some smart stock selection. Assets grew in tandem.

Many schemes declared impressive dividends. There were a lot of NFOs, supported by a growing tribe of dedicated, enthusiastic distributors. In fact, talking of new offerings, the pipeline seems "full and bursting", as a senior MF executive pointed out recently.

We will have to see whether fund houses can sustain the trends that took shape in the year that has just gone by.

Feedback may be sent to nilanjan@thehindu.co.in

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