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K.Venkatasubramanian

Investors can retain their units in HSBC India Opportunities Fund (HSBC Opportunities), considering its reasonable track record in delivering steady returns and ability to contain downsides better than peers during market falls.

HSBC Opportunities has a mandate that allows it to invest in stocks across the market capitalisation range of small-, mid- and large caps. The fund has, over the past year, moved towards large-cap oriented portfolio , from a near equal asset allocation between large and mid cap stocks, seen a year ago.

Since inception in 2004, the fund has managed to deliver a compounded annual return of 14.2 per cent, which compares favourably with the good diversified funds.

The fund may be suitable for investors who are not looking for top-of-the-chart returns but are keen on minimising downsides.

HSBC Opportunities has managed to better the returns of its benchmark — the BSE 500 — over one, and three-year periods.

The fund has delivered returns that have exceeded those of peers such as Franklin India Opportunities and DSP BR Opportunities. In fact, over a three-year period, this fund’s returns rank only behind Kotak Opportunities in this category.

HSBC Opportunities had invested as much as 40 per cent of its portfolio in midcap stocks (less than Rs 7,000 crore market capitalisation) last year. But with the severe de-rating of midcap stocks, the fund has reduced exposure to such stocks and increased large-cap exposure. Currently only 17 per cent of its portfolio is invested in midcap stocks while 60 per cent is in large-caps. These moves, together with some allocation to debt, have helped the fund contain downside in returns.

A large-cap bias is preferable in the current market conditions as these companies have better earnings visibility and may be quicker to recover, ahead of mid- or small-cap stocks.

Even during the market boom, HSBC Opportunities had limited exposure (less than 10 per cent of portfolio) to the momentum sectors of 2007, such as construction, finance and capital goods, which may explain why it could not rank among the top performing funds.

Over the last several months the fund’s sector preferences indicate a more defensive approach. In the November portfolio, sectors such as consumer non-durables and software were among the top sectors held.

These sectors have tended to suffer less in a broader market correction. Banking and petroleum also figure among the top sectors.

The number of stocks has been brought down from 38 last November to a more compact 30 stocks presently.

Fund Facts

The NAV per unit of the growth option is Rs 19.4. Mr Jitendra Sriram and Mr Mihir Vora manage the fund.

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