The 30-stock Sensex has risen around 10% from its recent low of 15,404 points on 3 November to close at 17,131 on Tuesday
Driven by better-than-expected corporate earnings in the quarter ended 30 September and recent government announcements on disinvestments, mutual fund managers are showing their optimism by betting on high-growth sectors despite a doubling of stock prices in the past seven months.
The 30-stock Sensex, the bellwether index of the Bombay Stock Exchange, has risen around 10% from its recent low of 15,404 points on 3 November to close at 17,131 on Tuesday. It has gained 77.57% since 1 January.
A Mint analysis of the portfolio data of diversified equity schemes shows that fund managers have significantly higher allocations for automobile, construction and metal sector stocks.
The analysis looked at the month-end portfolio data of diversified equity schemes between 31 March and 31 October. The data was provided by mutual fund tracker Value Research.
While energy and financial stocks continue to command the most investment, allocation to sectors such as consumer goods has come down significantly.
Allocation to auto stocks rose to 4% at the end of October from 2.85% in March. Investments in construction companies almost doubled, from 2.5% to 4.9%. Technology stocks saw increased allocation, up from 4.9% to 7.25%.
The aggressive allocation strategy is a reflection of rising confidence in the economy and businesses, fund managers said.
“Overall economy numbers and other indicators like auto and property numbers are much stronger than expected,” said Suresh Soni, chief executive officer of Deutsche Asset Management (India) Pvt. Ltd, which manages Rs13,795 crore in assets. “However, internationally, central banks are not withdrawing the accommodating monetary policy and have said they will continue the easy monetary policy for a specified period. This has put us in a sweet spot, which is propelling optimism.”
Chennai-based N. Prasad, who runs an independent research firm and is former chief information officer of Sundaram BNP Paribas Asset Management Co. Ltd, said: “Most fund managers are increasing allocation to economy-sensitive stocks in their portfolio. (There’s) nothing wrong with this strategy as most confidence indices are turning positive.”
According to Prasad, the fiscal deficit is no longer a big worry. “The government disinvestment programme is expected to bring it back to FRBM targets.”
The FRBM (Fiscal Responsibility and Budget Management) Act aims to bring down the government’s fiscal deficit to 3% of India’s gross domestic product.
Another important factor that has contributed to the increasing weightages is the movement in stock prices.
Ritesh Sheth, fund manager, SBI Funds Management Pvt. Ltd, which manages Rs38,322 crore in assets, said: “It is not clear whether this increased allocation can be fully attributed to the purchases by fund managers. A lot of it would be due to the price action. For example, a sector like telecom is facing an uncertain period. People are keeping away because there are a lot of ifs and buts. One is not sure on what basis the profitability of these companies need to be calculated in the short term. So, everyone is waiting for the dust to settle.” Allocation to the telecom sector has halved.
Fund managers have also been burnt by a high cash strategy that affected fund returns between March and June. Funds had cash levels of 15-20% and missed the rally triggered by return of the United Progressive Alliance to power at New Delhi in May.
A study of equity funds by Crisil FundServices, a research unit of ratings firm Crisil Ltd, also shows that funds with lower cash holdings have outperformed others in the long run.
While funds with higher cash holdings cut their losses in a falling market, they tend to miss out on a subsequent rally. Further, equity funds with minimal cash holdings fared only marginally lower in a downturn, but benefited considerably more from a rally.
The most notable performance in the downturn came from fully-invested funds that made timely and prudent investment calls in sectors such as pharmaceuticals and consumer goods, the Crisil report said.
“Investing in defensive sectors to negotiate a down market proves to be a more effective strategy as such funds can bounce back faster during a market correction,” said Krishnan Sitaraman, director, Crisil FundServices.
“Investors invest in equity funds primarily because they are perceived as value creators and it helps them diversify from their debt investments. By taking cash calls, funds defeat this very basic objective of investors,” Sitaraman added.
However, Prasad cautioned that valuations could be a dampener for fund managers’ optimism. “Market looks rich largely because earnings are below the long-term trend level of 21%,” he said.
The Sensex, India’s most tracked index, has climbed at least 110% since the lows of March, a rate of growth surpassed only during its rise in the early 1990s during a stock market scam engineered by trader Harshad Mehta.
The index is trading at 20.96 times the estimated earnings for the fiscal year to March. The average range of valuation for the index has traditionally been 14-17 times of earnings.
Soni of Deutsche Asset Management said valuations have to be seen from the perspective that they had been depressed unrealistically when market hit historic lows. “In the near term, it’s a concern. But in the medium term, it’s not.”
Posts
No comments:
Post a Comment