The rural India may have anchored the country out of the global economic storm last year, but one of the few mutual fund schemes that focus on the hinterland, Sundaram BNP Paribas Rural India, is all at sea with many investors abandoning it.
Launched in April 2006, the fund’s objective was to predominantly invest in companies that gain from an expansion in the economic activity in rural India. It has however seen its asset size shrink from more than Rs 1,000 crore in Dec ’06 to less than Rs 300 crore in Aug ’09.
Launched in April 2006, the fund’s objective was to predominantly invest in companies that gain from an expansion in the economic activity in rural India. It has however seen its asset size shrink from more than Rs 1,000 crore in Dec ’06 to less than Rs 300 crore in Aug ’09.
PERFORMANCE
Since its launch Sundaram Rural India has delivered just about 22% absolute returns till date, which is nearly half of about 43% returns posted by the Sensex and Nifty, and even 37% returns by its benchmark index, the BSE 500, during this period. This despite the fact that this fund had earlier outperformed the market indices in the first two years after its launch. It generated about 20% returns in 2006 against BSE 500’s 16%, while in 2007 it posted more than 68% returns, way ahead of the BSE 500’s 62%, Sensex’s 46% and Nifty’s 53%.
The fund, however, saw its fund value tumble by 62% in 2008 when BSE 500 fell by around 58% and the Sensex and the Nifty lost about 52% each in that one year when markets around the world crumbled like a pack of cards.
Here one can conveniently argue that the fund’s high beta of 1.08 explains to some extent its larger-than-market fall in the bear run. However, a logical counter argument to this is that a high beta also implies that the fund ought to perform better than the market in an upturn. The same, however, is not reflected in the performance of Sundaram Rural India so far this year. The fund has managed to generate just about 50% returns since January against the market returns of nearly 64%.
PORTFOLIO
Despite its rural focus, it is difficult to distinguish this fund’s portfolio with that of any other diversified equity scheme. This is because almost all large companies have a presence in rural India as all of them are looking for a pan-India presence with the village folks driving demand in everything from mobile phones to cars and bikes. Sundaram Rural India’s portfolio also comprises popular companies like Bharti Airtel, Punjab National Bank, SBI, Tata Motors, Maruti Suzuki, L&T , Mahindra & Mahindra and Hero Honda Motors, among others – stocks highly popular with any other diversified equity scheme. Thus, Sundaram Rural India is not threads apart from any other diversified equity scheme. But what differentiates it from the rest is its sectoral allocation.
This fund has always been heavy on consumer goods segment and has been increasing its exposure in this particular sector since Jan ’09. Today, more than onefourth of its portfolio is dedicated to this sector that includes consumer goods and sugar stocks. Recently it has hiked its exposure in sugar to more than 10% of the portfolio. Given the rising demand for sugar, if the sugar stocks are to see a further run-up , this fund is sure to benefit. The other prominent sectors include fertilizers and automobiles that account for about 15% each of the fund’s portfolio. The fund currently is well-diversified to accommodate around 40 stocks.
OUR VIEW
A different investment theme is not enough to attract investors unless it is backed by a lively performance. Rural India may be categorised as a different thematic fund. It however fails to compete even with its sibling funds like Select Focus, CAPEX and SMILE that have been recognized amongst some of the outstanding diversified equity schemes of the country today. Sundaram Rural India, thus, needs to put in a lot of hard work to match the performance of other schemes in Sundaram’s basket.
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