The Hindu Business Line : Sundaram BNP Select: Invest

With the equity markets hovering near a new low, investors looking to build an equity portfolio have an opportunity to acquire a basket of large cap stocks at reasonable valuations at today’s market prices. The Sundaram BNP Paribas Select Focus Fund, an equity fund that invests in large-cap stocks, is a good option for such investors looking to buy the large-cap basket. The fund provides focussed exposure to frontline stocks.

The recent correction in the Sensex, to its mid-2007 levels has clipped the valuations of several quality stocks to reasonable levels and these may be the first to participate in any recovery. This apart, large companies may be better placed than their smaller peers, to handle current economic concerns of surging inflation and high interest rates.

Given this background, Sundaram BNP Select Focus Fund, with a concentrated portfolio, appears well placed to deliver good returns over the long term. The fund has returned 14 per cent over the past one year, beating its peers as well as its benchmark S&P CNX Nifty by a huge margin. The fund also showcases a good three and five year track record.

In 2008, however, the fund took a sharp hit, its NAV declining more than other large-cap diversified funds. This is explained by the fund’s high exposure to energy, metals and financial services – sectors that were among the worst hit in the recent decline. These sectors, due to their sensitivity to the broad economy, hold considerable potential and are likely to deliver strong performance, once the current slowdown is behind.

The Sundaram BNP Select Focus Fund faced its worst ever quarter between January and March 2008, losing as much as 33 per cent of its NAV. The fund appears to be since handling the correction better as it managed to contain losses as well as its peers over the last couple of months. The fund’s beta (indicative of the stock/portfolio returns in relation to the market) of 1.17 suggests that it is likely to deliver above-market returns during a rally; while also declining more than the index in a falling market. The fund held about 17 per cent in cash in its latest portfolio; this may enable opportunistic buying at attractive levels. The fund’s NAV per unit under the growth option was Rs 74.75 on June 20.

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