Mutual Funds

Yet another bet on economic revival

K Venkatasubramanian | Updated on September 21, 2014

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SBI Equity Opportunities hopes to cash in on the India growth story



As the economy steers itself out of a slowdown and gets to the recovery path, a host of sectors are expected to benefit from this revival. Of course, several cyclical sectors have already run up spectacularly over the past one year; more so after the elections gave a decisive verdict for a stable government.

Betting on revival

SBI Equity Opportunities is the latest in a series of new scheme launches which hope to cash in on the India growth story over the next few years.

The SBI fund, while having a multi-cap focus, is likely to have a bias towards mid-cap stocks, given that it is benchmarked against the BSE 500.

So, with such a tilt, it has sought to make the scheme a close-ended one for a period of three years, which would make it immune to redemption pressures and allow it to take a medium-term view on stocks.

That investors would be able to invest only during the NFO period and will not be able to start systematic investments in the scheme suggests higher risk, given that SBI Equity Opportunities would have substantial mid-cap exposure.

Though there are concerns regarding debt on balance sheets for several economy-sensitive players, a revival can turn things around. Possibly lower interest rates from next year, softening of raw material as well as crude oil prices are expected to lower operating costs. The June quarter GDP growth numbers coming in at 5.7 per cent, the best in several quarters, may signal green shoots.

A majority of the sectors that will get a leg-up on improvement in economic growth, such as auto, auto ancillaries, capital goods, consumer durables, construction and banks, have had a great run over the past one year. There may not be too many value picks available.

But this fund is geared more towards a growth bet, a strategy that doesn’t shackle it to stocks backed by attractive valuations.

Additionally, though the benchmark Sensex and Nifty have zipped past earlier highs, the mid- and small-cap indices are still to get to their previous peaks in 2007.

The company, according to a Motilal Oswal report, expects earnings growth for FY14-17 to be 17.8 per cent annually, more than twice the levels of 8.2 per cent witnessed during FY08-14.

That said, investors do have existing multi-cap schemes such as the Reliance Equity Opportunities fund, which has delivered top-quartile returns over the past five years. SBI Magnum Multiplier Plus, which invests in a blend of market-caps, is also a proven performer.

Many other new fund offers too are coming up with very similar themes. It may be a case of too many funds chasing the same set of stocks.

Published on September 21, 2014

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