Capital gains

FUND LAUNCH

Sundaram Capex Opportunities Fund aims to benefit from the growth in the capital goods segment.

Thematic funds are the flavour of the season as far as mutual funds are concerned. There has been several scheme launches looking to exploit the market opportunities in various sectors, especially in the infrastructure segment.

Sundaram Mutual Fund plans to tap into the same sentiment and has launched its Sundaram Capex Opportunities Fund. The fund, which is currently open for subscription, aims to invest in capital goods companies.

Interestingly, the fund has decided to follow the definition of capital goods as done by the ministry of industries. According to the sweeping definition, the sectors that can considered capital goods comprise cement, steel, aluminium, auto ancillaries, computer hardware, construction, engineering, textile machinery and power equipment apart from several sub sectors.

All together there are 21 sectors besides their sub sectors and 385 companies where the fund can make its investments. The performance of the scheme will be benchmarked against the BSE Capital Goods Index.

According to a study, the Indian industry has a whopping Rs 8 lakh crore worth of projects under implementation. The escalation in infrastructure spending is expected to have a cascading effect on many of the companies in the sector, even those not directly related to the sector. Interestingly, the fund has made several subtle differentiations in the nature of companies in which it will invest.

For example, the Capex Opportunities Fund will invest in companies that make light and heavy commercial vehicles (L&HCVs) but it won't invest in car-making companies. Similarly investments will be made in telecom equipment manufacturers but not in service providers.

According to Anoop Bhaskar, head of equities at Sundaram Mutual Fund, capital goods have gained from not only the ongoing capital expenditure plans, but from export markets which are expanding.

"The demand for Indian capital goods is expected to remain buoyant in the overseas markets as the country has a strong advantage in terms of cheap skilled manpower. Domestically, too, companies are gearing up to meet their domestic and overseas orders. As a result, the turnover and profitability of these companies are expected to increase," says he.

The wide sweep of sectors and companies that will form the Capex Opportunities Fund's universe makes it a diversified fund, more or less. The downside is that the fund's fortunes are linked to the performance of companies in the capital goods sector or related to it.

In the event of a downturn in the economic cycle, the sector's fortunes may take a turn for the worse. Also several capital good stocks have already run up quite high and the markets have already priced in the expected growth to an extent.

While a strict comparison with existing schemes is not possible as no other fund has a similar theme, there have been a few schemes which have been launched in the recent past, keeping their eyes on the growth in the infrastructure segment.
 

HOW THEY COMPARE (Returns in % as on August 18, 2005)
Scheme	3 months	6 months	1 year
DSP ML Tiger Fund	23.40	25.58	70.55
Tata Infrastructure Fund	15.63	23.58	-
BSE Sensex	21.16	18.64	55.04

While Prudential ICICI's Infrastructure Fund was launched very recently, the other two funds in the segment - DSP Merrill Lynch TIGER Fund and Tata Infrastructure Fund - have done reasonably well. The average diversified fund return for the period amounted to 69.68 per cent. The Capex Opportunities Fund's benchmark BSE Capital Goods index has given a return of nearly 100 per cent in the past year.

Sundaram Mutual Fund's other equity schemes have a good record. The fund's largest scheme, Sundaram Select Midcap has done quite well, beating its benchmark CNX Midcap Index over the two-year and three-year periods.

As with most other mid-cap funds, it has managed to stay well clear of average diversified fund returns, too, over various time periods. Other recently launched funds such as Sundaram India Leadership Fund and Sundaram SMILE Fund has also performed admirably, which is an indication of good fund management.

Considering the vast universe of companies that straddles the capital goods segment as defined by the fund, the performance of Capex Opportunities Fund will depend on the fund's stock-picking ability more than anything else.

Issue closes on September 5, 2005