'Expect 15-18% returns from equities'

SMART TALK

Krishnamurthy Vijayan

JM Emerging Leaders Fund plans to invest in companies that have the potential to become tomorrow's leaders.

JM Financial Mutual Fund recently launched its new equity offering, JM Emerging Leaders Fund. An open-ended equity diversified scheme, it proposes to invest in companies that operate in the emerging sectors of the economy or have the potential to become tomorrow's leaders. The offer closes today.

The scheme is an addition to the stable of JM Financial Mutual Fund, whose equity schemes include JM Balanced Fund, JM Equity Fund, JM Basic Fund, JM Auto Sector Fund and JM Healthcare Sector Fund.

The fund's other equity diversified scheme, JM Equity, though a middle of the table performer, has given a return of 60.87 per cent for the past one year and has beaten the peer group average of 57.04 per cent. It has also managed to outperform the benchmark Sensex (50.01 per cent) for the one-year period.

As of May 31, 2005, JM Financial Mutual Fund has an AUM (assets under management) of Rs 3,975 crore. Krishnamurthy Vijayan, chief executive officer of JM Financial Asset Management Company, spoke to The Smart Investor about the new scheme apart from his view on the markets in general. Excerpts:

What differentiates JM Emerging Leaders Fund from other equity diversified funds in the market?

The investment strategy is the key differentiating factor as far as the Emerging Leaders Fund is concerned.

Since our portfolio will contain stocks across market capitalisations, the success of the fund will depend on the fund manager's ability to spot the market leaders of tomorrow. We are betting on the stock picking skills of the fund manager, more than anything else. The new offering will also complete our suite of equity products.

Tell us about the scheme's investment strategy...

We will adopt a bottom-up approach to select stocks across market capitalisation segments (large, mid and small) and in the emerging sectors of the economy.

The fund could also take some exposure to companies that are witnessing a turnaround or revival in fortunes apart from stocks which look attractive from a valuation point of view.

We have set an internal benchmark of not having more than 7 per cent exposure to any stock so as to mitigate the risk factor, while our exposure to any single sector will not be more than 16 per cent. We plan to have 22-24 stocks in our portfolio.

Safety is not our main concern as far as Emerging Leaders Fund is concerned. We will be concentrating on risk management by active hedging. We will also be looking at active liquidity management in mid- and small-cap segments which are prone to the maximum risk when markets head southwards.

JM's equity schemes have not been top of the heap in terms of returns...

Though our performance has not been the best in the past, it has started improving in the past six months or so. Hopefully we'll be able to use this fund as a platform to move on and achieve better performance levels.

What are the sectors you are bullish on currently?

I am bullish on the commodity segment as a whole and specifically steel, cement and auto. There are a lot of trading opportunities in IT and FMCG sectors. However, I am not that bullish on the pharmaceutical sector.

What kind of return can one expect from equities going forward?

I am very positive on the markets for the next three years. My view is that there will be a re-rating of Indian companies across sectors during that period.

Though markets will witness short-term corrections, valuations still continue to be very attractive. Over the next three years investors can expect a 15-18 per cent return from equities.

StanChart's Classic offer

The launch of another equity fund is hardly big news these days, especially when it is a plain vanilla one, without any fancy sectoral theme attached to it. However, when a debt fund makes its first foray into the harsh world of equities, it is worth noticing.

Standard Chartered Mutual Fund, who manages debt fund assets worth Rs 8,153 crore and till recently India's only dedicated debt fund managers, has now joined the equity bandwagon, with the launch of the Classic Equity Fund.

By the looks of it Classic Equity Fund is just another among the equity diversified schemes in the market, whose number is well beyond the three-figure mark.

According to the fund, what makes it different is its 'broad idea generation theme,' which means that it will not be limited by diktats of investing in either a particular section of the market (read sector- or market capitalisation-based) or a particular style of investing.

The fund proposes to generate consistent returns rather than flashy volatile returns that are difficult to maintain.

According to the fund, to ensure consistency of returns it will bank on its proprietary 'equity circle process'. The process, which is the basis of the fund's risk management framework, has its own in-built comprehensive tools which continuously tracks various factors spread across three broad areas - business, valuations and market interest.

According to Naval Bir Kumar, managing director of Standard Chartered Mutual Fund, the risk management process will ensure that the companies chosen in the portfolio is a good business that is currently undervalued and with a good potential to perform in the future. It also plans to time its entry into stocks in such a way as to ensure price performance in the ensuing three-four quarters.

In keeping with its philosophy of unrestricted investment style the fund does not plan to invest in a set number of companies.

"The number of stocks in the portfolio will depend on market conditions," says Kumar.

However, the fund will have an 8 per cent exposure limit to individual stocks and a 20 per cent limit on sectoral exposure. It doesn't shy away from investing in loss-making companies or illiquid stocks either, provided it is confidant about future performance. However, holding in such companies will be limited to 3 per cent.

Classic Equity Fund will be benchmarked against the BSE 200 Index. The index has given a return of 52.22 per cent for the past one year and the equity diversified category's returns (the category in which the fund belongs) for the past year amount to 57.04 per cent. 
 

ISSUE SNAPSHOT
IPO	June 27-July 14, 2005
Type	Open-ended, equity
Options	Growth and dividend
Initial offer price	Rs 10
Entry load	2.25 per cent for investments  less than Rs 5 crore
Exit load	2 per cent if exited within  2 years from the date of purchase
Min. application	Rs 5,000

While Standard Chartered MF has done pretty well in the debt fund category, it remains to be seen whether it can replicate the good performance in the equity category as well. But if having good stock selection and risk management processes in place is all that takes to making a mark in equity markets, it may just be able to do it.