Equities cheer, debt stable in Sept quarter

CRISIL MUTUAL FUND RANKINGS

The domestic equity market saw a dramatic turnaround in the quarter ended September 2004, over the previous quarter, with most equity investment categories registering large gains.

Foreign and retail investors showed strong interest in equities following the Union Budget, largely because of the liberalisation in foreign investment norms in sectors such as telecom, insurance and civil aviation and the new tax provisions on capital gains tax.

This triggered off a rally on the bourses, which helped most benchmark indices recapture the ground that they had lost in the preceding quarter.

Investors also looked to pick up value in this period. Sustained buying in the small and mid-cap segments saw the CNX MIDCAP 200 index end the quarter with point-to-point returns of 29.96 per cent while the returns generated by the BSE Sensex and Nifty were also strongly positive at 14.17 per cent and 13.81 per cent, respectively.

Moreover, renewed investor interest in the pharmaceutical and software services companies boosted the share prices of such companies. The gains on the bourses were, however, partially offset by some volatility, on concerns about hardening global crude oil prices and rising domestic inflation.

Investor sentiment, nevertheless, remained buoyant in the quarter ended September-2004, because of the new measures pertaining to capital gains tax as proposed in the Budget and in anticipation of higher capital flows into the Indian market.

The good news on the macro-economic front also brought cheer to the equity markets with the gross domestic product (GDP) reported to be growing at a healthy 7.4 per cent in the first quarter of 2004-05.

India's economic growth in 2004-05 is expected to be 5.6 per cent, driven by the buoyancy in the industrial and services sectors at expected growth rates of 6.8 per cent and 8.4 per cent, respectively. This will be partially offset by the envisaged 2.5 per cent decline in farm output.

The debt market witnessed high volatility because of concerns over rising domestic inflation and speculation over an increase in the domestic interest rates on the heels of the hike in the US interest rates.

The Crisil Fund~dX, the index that reflects the performance of long-term debt-oriented funds, remained more or less constant all through the quarter ended September 2004.

The inflation rate is expected to slide from its current level of 7.8 per cent and is likely to settle at around 6.5 per cent by the end of this fiscal.

Interest rates broke their steady upward movement towards the end of September on statements from the government that the interest rate scenario is steady and the overhang of liquidity in the system.

This brought some comfort to debt funds, whose valuations had been impacted so far this fiscal by rising interest rates. A key development in the debt fund segment in recent times has also been the increase in the proportion of investments in floating rate income funds with investors seeking to benefit from a rising interest rate trajectory.

Crisil~CPR for the quarter

Crisil FundServices ranked 150 schemes across eight categories on various composite performance ranking (CPR) parameters in the quarter ended September 2004.

These schemes accounted for 69 per cent of the domestic mutual fund industry's assets under management. Crisil FundServices analysed the performance of equity, income, balanced, gilt-long term funds, and monthly income plan (MIP) schemes over 2 years and that of liquid, floating rate funds and income-short term schemes over a year.

Crisil FundServices revised the computation of the superior return score by adopting a method that resolves the "negative Sharpe Ratio conundrum".

Also, the portfolio-based parameters have been assessed by examining the scheme's holdings in all the months of the quarter rather than on the date of the quarter under review.

Crisil FundServices also revised the corpus size eligibility criteria for the income and income-short-term categories given the relatively lower attractiveness of these categories in recent times and the expectation that this trend would continue going forward.

Besides, Crisil FundServices has introduced the floating rate fund (Floater) category in the current rankings as the eighth category. This takes cognizance of the growing popularity and relevance of floaters in recent times, especially in a scenario where there is an upward pressure on interest rates.

The detailed revised methodology for the Crisil~CPR is available at the Crisil website www.crisil.com.

The Crisil CPR recognises the top performers in various investment categories available to mutual fund investors.

This ranking of mutual fund performance serves as a guidepost to fund investors in terms of asset allocations and in picking the better-performing schemes.

Equity diversified funds

For the quarter ended September 2004, 36 schemes were eligible for the ranking in this category. DSP Merrill Lynch Opportunities Fund retained its Crisil~CPR 1 slot.

It was joined by DSP Merrill Lynch Equity Fund, HDFC Capital Builder Fund and Reliance Growth Fund, which moved up the ranking chart by one notch each. These schemes have improved their ranking because of their relatively higher superior return scores (Crisil FundServices's unique measure of comparing the differential return earned by a fund vis-à-vis its volatility relative to its peers).

DSP Merrill Lynch Equity Fund has performed well on the liquidity parameter, which has helped to propel its ranking. Crisil~CPR 1 indicates 'very good performance' among the peer group.

A relatively higher proportion of investments in mid-cap stocks helped boost the performance of HDFC Capital Builder Fund and Reliance Growth Fund.

During the quarter ended September 2004, HDFC Capital Builder Fund increased its exposure in the CNX MIDCAP 200 index from 38.87 per cent to 45.39 per cent of its corpus while Reliance Growth Fund increased its exposure from 37.86 per cent to 44.76 per cent.

The Crisil FundeX, the benchmark for equity diversified funds, generated an annualised point-to-point return of 16.55 per cent for the quarter.

The most popular stocks among fund managers of general equity schemes in September 2004 were Infosys Technologies, Reliance Industries, State Bank of India, Grasim Industries, and Oil and Natural Gas Corporation of India, while the most popular industry was software services followed by pharmaceuticals and banking.

Crisil FundServices's Popularity Index measures the propensity of a fund manager to commit a given percentage of his portfolio to a particular stock (Click here for Table 1).

The next 20 per cent of the schemes in the ranking universe are clustered at CPR~2, which indicates 'good performance' among the peer group.

While most of the schemes retained their ranking, Alliance Basic Industries Fund, HDFC Top 200 Fund, and UTI Growth Value Fund moved down the rankings to Crisil~CPR 2 because of their relatively lower superior return scores.

The Crisil~CPR 3 cluster (which indicates 'average performance') did not see too many changes in the rankings over the previous quarter. Tata Select Equity Fund and UTI Index Select Equity Fund moved up the rankings by one notch each because of their relatively higher superior return scores.

ING Vysya Select Stocks Fund has moved out of the rankings in the current quarter as its corpus level has fallen below the eligibility mark.

Income Funds

Twenty schemes were eligible for ranking in the Income category for the quarter ended September 2004. Principal Income Fund and Reliance Income Fund have retained their Crisil~CPR 1 rank.

In the Crisil~CPR 2 cluster, Grindlays Super Saver Income Fund and Tata Income Fund have moved up the ranking by one notch because of a relatively higher superior return score.

While the former has also done well on portfolio-related parameters such as company concentration, debt liquidity and asset quality, the latter has obtained good scores on the industry concentration parameter.

CanIncome Growth Plan has entered the ranking at Crisil~CPR 3. In the same cluster, Sundaram Bond Saver and UTI Bond Fund have moved up because of higher superior return scores, while Templeton India Income Builder Account has moved down the charts due to its relatively lower scores on almost all the parameters.

Kotak Bond Wholesale and Prudential ICICI Income Plan-LTP have moved out of the ranking exercise for the current quarter (Click here for Table II).

Income"�short-term

In the Income Short-Term category, Crisil FundServices evaluated 17 eligible schemes for the quarter ended September 2004. Principal Income Fund-Short-Term Plan and UTI Liquid Short-Term Plan continued to top the charts at Crisil~CPR 1.

Birla Bond Plus-Retail and Reliance Short-Term Fund too retained their Crisil~CPR 2 rank and were joined by LIC MF Short-Term Plan, which entered the ranking after meeting the minimum corpus eligibility criterion.

In the Crisil~CPR 3 cluster, most of the schemes retained their rankings except for Deutsche Short-Term Maturity Fund, which moved up as it had relatively higher scores on the asset size and company concentration parameters, and JM Short-Term Fund, which moved down one notch due to its relatively lower scores on the volatility, asset size and company concentration parameters.

The Crisil STBEX, which is a benchmark for short-term funds, generated point-to-point annualised returns of 2.71 per cent in this period.

Monthly Income Plans

In the MIP category, nine schemes were eligible for the ranking. FT India Monthly Income Plan retained its Crisil~CPR 1 rank while Alliance Monthly Income and Templeton Monthly Income Plan remained at Crisil~CPR 2.

Birla Monthly Income Plan C and Tata Monthly Income Fund remained at Crisil~CPR 3 and were joined by Prudential ICICI Monthly Income Plan, which moved up the ranking chart by one notch. The Crisil MIPEX, the benchmark for monthly income plans, registered an annualised point-to-point return of 6.68 per cent for the quarter ended September 2004.

Liquid Funds

Twenty-five schemes were ranked in the liquid fund category for the quarter ended September 2004. Liquid funds have attracted considerable investor attention in recent times because of their risk and maturity profile. This category has witnessed the largest number of ranking changes among all mutual fund categories.

This is largely because of the changes in the parametric weightages on concentration in fixed deposits, downside risk probability and average maturity.

Templeton India Treasury Management Account retained the Crisil~CPR 1 rank, and was joined by HDFC Cash Management Fund-Savings Plan and Reliance Liquid Fund-Treasury Plan. In the Crisil~CPR 2 cluster, all the schemes changed their ranks in relation to the June quarter.

Grindlays Cash Fund, HDFC Liquid Fund, Tata Liquid Fund-RIP, and UTI Liquid Cash Plan moved up a notch each to Crisil~CPR 2 while Prudential ICICI Liquid Plan moved down one slot from its earlier rank.

JM High Liquidity Fund and Sundaram Money Fund moved up by one notch to Crisil~CPR 3 while Alliance Cash Manager Fund, Birla Cash Plus-Retail and Principal CMF Liquid moved down one notch.

Alliance Cash Manager Fund moved down the rankings because of its relatively lower scores on the mean, volatility, asset size and downside risk probability parameters.

UTI Money Market Fund has moved out of the ranking for the current quarter as its corpus has fallen below the eligibility criterion and Templeton India Liquid Fund has been merged with Templeton India Treasury Management Account (Click here for Table III).

Gilt-long funds

The gilt funds category was the only one to end the quarter in negative territory. The Crisil MF-Gilt Index generated a negative annualised point-to-point return of 0.67 per cent.

Fourteen gilt schemes were eligible for the CPR ranking for the quarter ended September 2004. Templeton India G-Sec Fund-Long-Term Plan retained its Crisil~CPR 1 rank while Chola Gilt Investment-Cumulative and LIC MF G-Sec Fund moved up one notch each over their previous ranking to Crisil~CPR 2.

Templeton India G-Sec Fund-Composite Plan moved down one notch to Crisil~CPR 2. The ranking changes were due to changes in the schemes' relative superior return scores.

In the Crisil~CPR 3 cluster, CanGilt (PGS) and Prudential ICICI Gilt-Investment moved up one notch each, the former having scored well on the liquidity and average maturity parameters. Birla Gilt Plus-Regular moved down by one spot to Crisil~CPR 3.

Grindlays G-Sec Fund-Investment Plan and UTI Gilt Advantage Fund-Long Term Plan have moved out of the ranking as their corpus levels have dropped.

Balanced funds

The Crisil Fund~bX, the benchmark for balanced funds, generated annualised point-to-point returns of 14.03 per cent for the quarter ended September 2004, helped by the upsurge in the equity market.

Seventeen schemes were eligible for ranking in this category for the quarter ended September 2004. DSP Merrill Lynch Balanced Fund and HDFC Prudence Fund continued their reign at Crisil~CPR 1. Prudential ICICI Balance Fund moved up by one notch to Crisil~CPR 2.

It was joined by Birla Balance Fund and FT India Balance Fund, which retained their ranks. In the Crisil~CPR 3 cluster, GIC Balanced Fund and UTI Unit Scheme 1995 (US-95) moved up by one notch each while Alliance 95 Fund and SBI Magnum Balanced Fund moved down by one rank each.

The schemes shifted ranks because of changes in their relative superior return scores.

ING Vysya Balanced Fund has moved out of the ranking exercise for the current quarter since its corpus has fallen below the eligibility mark (Click here for Table IV).

Floating rate funds

Crisil FundServices ranked 12 schemes in this category for the quarter ended September 30, 2004. The category reported an average point-to-point annualised return of 4.56 per cent for the 6-months ended September 30, 2004, as compared to the Crisil Fund~dx at -2.64 per cent and Crisil MF Gilt Index at -4.56 per cent in the same period.

HDFC Floating Rate Income Fund-Short-Term Plan-Growth topped the charts at Crisil~CPR 1 while Grindlays Floating Rate Fund-Growth and Prudential ICICI Floating Rate Plan-Option B-Growth ranked at Crisil~CPR 2.

Six schemes were tied at Crisil~CPR3. These were Birla Floating Rate Fund-Long Term-Growth, Birla Floating Rate Fund-Short-Term-Growth, DSP Merrill Lynch Floating Rate Fund-Growth, Templeton Floating Rate Income Fund-Long-Term Plan-Growth, Templeton Floating Rate Income Fund-Short-Term Plan-Growth and UTI Floating Rate

Fund-Short-Term Plan-Growth (Click here for Table V).