SBI MF`s turnaround tale

SPECIAL REPORT

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MMPS-7.82-2.0163.5524.73 BSE 100-8.92-6.4845.4421.28 MEF-8.26-3.8557.6825.15 Nifty-9.12-9.8137.9815.43 MGF1.5212.9587.5334.33 BSE 100-8.92-6.4845.4421.28 MCF-0.5115.7584.2348.08 BS 100-8.92-6.4845.4421.25  The catalyst has been chief investment officer N Sethuram who took over in February 2003. "It was not easy as I had to first understand the business and identify what was wrong and then chart out a corrective course," he says.  What did Sethuram and his team do to manage this turnaround? "We built in safety measures to ensure we do not go wrong drastically at any time," says Sethuram.  He has adopted a three-pronged strategy - delineating internal norms and guidelines, effective monitoring, and timely execution.  Apart from this, Sethuram has also re-positioned schemes to give them distinct identities and restructured their portfolios accordingly.  After the IT boom-bust in 2000, SBI MF was relegated to an inconsequential position. Almost all of its equity schemes were saddled with bad quality new-economy scrips which failed to look up.  Having lived through the consequences of disproportional allocation to select sectors and momentum stocks, SBI MF's fund management team understands the perils better than many others. Sethuram tries to prevent recurrence of problems by defining sector allocation norms and effectively monitoring the same.  "We do a 100 per cent review of performances and portfolio positions of all the schemes every month. This is to ensure that we are in tune with the market and overweight/underweight on sectors at the right time," says Sethuram.  Besides, decision making at the fund house is much quicker now. "We recognised that timing is very important. So we have reduced the time taken to take approvals, etc. effectively," he says.  While the fund does not have a rigid cut-loss policy, Sethuram says, the loss-making positions are tracked more vigorously. First of all, the fund manager has to state upfront whether a stock is a trading buy or a long-term hold.  "At every stage of losses, we review our holdings and do follow-up research. Currently, we have only about 5-10 stocks which are in the stop-loss band," Sethuram says. In the beginning of last year, about 20-odd stocks were in the stop-loss band.  Even as these changes were being effected, some of SBI MF's calls started performing. "At SBI, we were always bottom-up stocks pickers. Some of our stocks, which we had been sitting on since 2001, started performing," says Sandeep Sabhawal, fund manager, SBI Mutual. Such stocks include United Phosphorous, Thermax, Balrampur Chini, Blue Dart and Praj Industries.  Churning of active sectors has also helped. SBI MF's funds have benefited from early entry (or overweight positions) into oil in early 2002.  Similarly, in 2003, they were among the early birds in the automobile sector with substantial exposures to companies like M&M and Tata Motors which beat the Street on the back of robust demand growth.  More recently, SBI MF has benefited from its overweight position in the tech sector. The Magnum Contra Fund, which takes a contrarian view on the market, has done particularly well. The fund's strategy is to build positions in sectors and stocks which are under-owned because there is uncertainty.  Says Sabharwal, "The contrarian strategy actually gives us a better perspective about the market as a whole. Also, since our contrarian strategy has worked well, we run it across other funds also."  Another positive is the change in the character of various fund schemes. A year ago, all the Magnum portfolio looked alike. Especially, SBI's two large equity diversified funds, Magnum Multiplier Plus and Magnum Equity Fund, had very similar portfolios.  Now, funds have been re-positioned in order to bring about a difference with each having a distinct place in the risk-return spectrum. This makes choice for investors pretty much clear.  Magnum Equity Fund is now positioned as a large-cap fund, with 90 per cent of its investments in large blue-chip stocks. Less than 10 per cent is allowed to be invested in debt instruments.  Currently, the fund holds Satyam Computer (7.68 per cent), Tata Motors (5.60 per cent), Wipro (4.97 per cent), Maruti (4.94 per cent) and Reliance Industries (4.81 per cent) as its top holdings.  Magnum Multiplier Plus, the other diversified growth fund, offers a blend of large and mid-cap stocks. About 60-70 per cent is deployed in large-caps and the rest in mid- and small-caps.  Engineering (17.85 per cent), building and construction (13.50 per cent) and automobiles (13.43 per cent) are the three top sector exposures. Thermax (6.90 per cent), United Phosphorous (6.79 per cent), L&T (6.48 per cent), Gujarat Ambuja (6.40 per cent) and Reliance Industries (6.27 per cent) are the fund's top five holdings.  Magnum Global Fund invests largely (about 70 per cent) in mid-caps with United Phosphorous (6.05 per cent), Thermax (4.95 per cent), Man Industries (4.89 per cent), MphasiS (4.71 per cent) and Gujarat NRE Coke (4.65 per cent) as its top holdings.  Magnum Contra Fund has significant exposure to banks and finance (13.89 per cent), building and construction (12.07 per cent) and automobiles (commercial vehicles - 11.85 per cent). Top holdings include ACC (6.56 per cent), KPIT (5.28 per cent, Tata Motors (4.60 per cent), Man Industries (4.26 per cent) and GE Shipping (4.18 per cent).  SBI Mutual has definitely been a stunner in the past one year, rising the ladder through effective restructuring. But it remains to be seen if it is able to maintain the top slot.  Traditionally, SBI Mutual has performed well during bull markets and underperformed during bear runs. One needs to wait and watch SBI MF's performance in the coming few quarters to assess whether its performance was driven by the bull market or mature fund management.