MFs set eyes on services sector

The boom in services sector has caught the attention of domestic mutual funds. While there are any number of schemes which invests in stocks which fall under the broad category called 'services', the number of schemes that invests only in stocks of the services industry was limited to only one till now.

While Tata Mutual Fund launched its Service Industries fund in February, 2005, the latest one to join the bandwagon is Prudential ICICI Mutual Fund who recently launched their own Services Industries Fund.

An open-ended equity fund, Prudential ICICI Services Industries Fund, seeks to invest across sectors such as auto components, banking, financial industries, health care, hotels, media & entertainment, retail, IT & IT enabled services, telecom and transportation etc. The fund will follow a bottom up approach to investing. The new fund offering period will close on November 11, 2005.

The interest towards service-related industries are nothing as far as mutual funds are concerned.

Apart from Tata Mutual Fund, Birla Sun Life Mutual Fund has also launched a fund (Birla India GenNext Fund) on similar lines.

While Tata's Service Industries Fund seeks to invest in sectors such as IT, banking, financial services, retail, tourism and hotels, transportation, media apart from infrastructure, Birla's Gen Next Fund expects to benefit from the rising consumption patterns in India, which in turn is fuelled by high disposable incomes of the young generation.

This fund also has set its eyes on the above mentioned sectors among others, though IT is an exception.

According to Deven Sangoi, senior fund manager at Prudential ICICI Mutual Fund, India's GDP growth is now mainly driven by services segment which constitutes about 55 per cent of GDP.

"The high growth potential offered by the services sector is what makes investment in the service sector a promising proposition," says Sangoi.

He notes that the main growth drivers for the service sector is the availability of quality man power in India, comparatively cheap labour costs, rising affluence of India's middle class population apart from the easy availability of finance, lower interest rates and certainty about future income, which is prompting millions of Indians to prepone their consumption.

According to Sangoi, service sector is still growing and it is likely that many more investment opportunities will come into the sector as more and more companies in the sector gets listed.

He notes that compared to the past, when stocks in sectors such as health care, telecom, financial services, software and banking led the growth in the services sector, the future growth will be determined by sectors such as tourism, retail, media, BPO and aviation.

"Investors should look for making long-term investments in the sector," he says. Prudential ICICI Services Industries Fund will be benchmarked against the S&P Nifty and will invest in close to 30-35 stocks.

Among the Tata Service Industries fund has a reasonable track record and has given a 19.93 per cent return over the past six month period and 4.11 per cent in the past quarter. Birla's Gen Next fund has also done relatively better than its benchmark index, Nifty over the past month.