Fund Analysis-- DSP BR Opportunities Fund

Fund Objective

The scheme seeks to achieve long term capital appreciation by responding to the dynamically changing Indian economy by moving across sectors such as the lifestyle,pharma, cyclical and technology.

Fund Manager's Biography:- Anup Maheshwari

Since: Nov - 2006

Mr. Maheshwari holds a BCom Degree and is an MBA from IIM (Lucknow). He joined DSPML in April 2001, prior to which, he was with Chescor as Senior Analyst. He has also worked for IRIS and SCICI as analyst and project officer.

Volatility and spectacular returns to be a thing of the past

This one is probably as safe as you can get with an opportunities fund. Consistent returns, a very diversified portfolio with a tilt towards large caps will make investors feel safe here. But in providing this level of comfort, it has moved away from being a true opportunities fund.

But that's not how it started off. In its early years, it stayed loyal to its mandate. To cite just one example, in the three month period between February and April 2001, its allocation to construction moved from 13 per cent to just 3 per cent and back to 17 per cent. During that same period, allocation to diversified moved from 12 per cent to 7 per cent to bounce back to 12 per cent. While energy inched upward from 18 per cent to 21 per cent to drastically drop to 9.77 per cent. It was not just its movement in and out of sectors, it also boldly rode its bets - be it stock specific or sector. Allocation to technology in its early days at one time touched 60 per cent (June 2000) while the number of stocks averaged 21 in its initial years.

But the fund has mellowed over the years to now resemble a more diversified offering. The number of stocks averaged 80 in 2008 and this year has hovered around 70. Since 2003, the allocation to a particular sector has not crossed 20 per cent. Prior to that year, allocation to a particular stock often exceeded 7 per cent but has happened just four times after that. The fund is no longer that nimble and around three quarter of the stocks it has invested in so far, are held for six months or more with stocks like Grasim Industries and Infosys Technologies being there almost since inception. The returns too reflect the tamed nature. In 2003, the fund delivered a return of 138 per cent. No longer will you see such spectacular returns, but neither will you have to deal with volatile ups and downs.

This fund has delivered an annualized return of 16.56 per cent over the past five years (as on April 30, 2009) with the second lowest standard deviation (30.47) in its category. In fact, this is around 2 per cent lower than the average standard deviation of equity diversified funds. Low volatility, consistent returns and lack of aggression are the marks of this oldest player in the opportunities fund category.

Is it the right time to invest???

Opportunity, they say, favours the prepared mind! The one good thing the leftists have done for India is getting off the back of the government and giving Dr. Manmohan Singh an opportunity to realize the potential of an idea (India) whose time has come!

The outcome of the parliamentary elections results caught everyone --retail as well as institutional investors (Local + foreign) unawares! They were left sitting on cash, while the market galloped beyond 15000 levels! The question on top of everyone’s mind is “What now?” The one question that we normally come across is whether now is the right time to invest? If yes, where? If anything, this market has proved the adage that it is not your thinking that makes big money, it is sitting—through good and tough times.

Though in the forthcoming budget it will be extremely difficult to get the fine balance between revenue growth and revenue expenditure but, one thing will be clear that there might be lot of focus on how improve the credit delivery mechanism (due to low interest rate) to those projects which can drive faster economic recovery. Basically, infrastructure spending, in our view, will gain more prominence in the next 18 months so as to get the growth back on track. Therefore, the Government would probably leave the fiscal issue at this point of time as it is and focus on growth through changing the climate for investment in India per se. We feel this will also get added flip and boost confidence, if the monsoon, turns out to be normal from rural India perspective. Any positive feelers on this front would increase the confidence of the Government in bringing down agri commodity lead inflation in the coming months. If we have to summarize the potential outcome and portfolio positioning, it may turn out to be as follows:

Ø Low interest rate regime combined with pro growth stable Government at the centre, we feel there will be renewed focus on – Power & related sectors, Nuclear Power, Rural road, agriculture and Urban development (through metro railways) etc.

Ø Low interest rate and suitable policy environment will create renewed interest in Real Estate and SEZs. Real Estate could be the biggest beneficiaries as this sector not only drives the demand for steel, cement and overall growth in the economy, it also provides huge employment.

Ø Domestic lead growth would keep up the interest in telecom sectors even going forward targeting towards much bigger penetration level. Auto sectors will also benefit with lower interest rates and overall improved environment.

Ø FDI could become the big area of focus in sectors that needs huge capital investment. It will be largely in the space of Insurance, Media and Airlines. However, retail FDI may not be the area of focus at this point of time given the sensitivity attached to the local vendors

Ø Banking and Finance would continue to drive the growth. However, we feel Private sector banks could be the biggest beneficiaries as some of them will benefit out of opening up of FDI in areas like Insurance.

Ø Engineering and Capital goods sector will also begin to benefit out of the pro investment policies as we well as potential rupee appreciation again USD.

Ø PSU reforms could be on the agenda; however, this will happen at a slower phase. But, there is a probability of supply of paper in the PSU space through Government divestment to meet the fiscal targets. One may look for public issues from BSNL, NHPC etc.....

Having identified the road map as above of the government coupled with various policy intents of Dr. Manmohan Singh, we believe that over the next 1-2 years focus on the large cap diversified funds along with economy related (which includes infrastructure sector) schemes of Mutual Fund would pay off well. The schemes to be considered and which are included in our universe of schemes are as under:-

ü DSP Blackrock TIGER (The Indian Growth & Economy Related) Fund

ü Reliance Infrastructure Fund (NFO now open)

ü Reliance Diversified Power Sector Fund

ü Reliance Banking Fund

Having focused on the investment avenues, the one answer that all investors want is whether this is the right time to invest – having missed the current rally?

We would not able to comment whether this is the right time to invest or not. However, what we may emphatically answer is that the time to invest has arrived as there is no reason to believe that the current rally will be last one.

If your portfolio does not contain any of the economy related fund then we would strongly recommend investment in Reliance Infrastructure Fund

NFO is now open. Please feel free to contact us for any query; we’re just a phone call away

How Long Term helps

23/05/2009

Some Wealth Inspiring thoughts

Ø      Timing is vital. It is much more important to buy cheap than to sell dear.

Ø      Time in the market is more important than timing the market.

Ø      It is never your thinking that makes big money, it is sitting.

Ø      Success in market usually comes to those, who are too busy to be looking for it.

Ø      Managing money requires more skill than making it.

Wealth as they say is like old wine. The more time it takes the longer it stays for you to savor it!!

Stock Market is generally feared by all! And may be rightly so!! Investors usually see – or rather made to see—the short term fluctuations rather than the long term upside potential which comes steadily but without much of an announcement! It’s the short term upheavals are talked about in every newspaper—much to the contrary!!!

Stock prices are a matter of individual perception and every investor has his own views on a particular stock and its target price. Unfortunately we fail to sell a stock even if our target price is met. For example at Rs. 850 levels (November 2007) TISCO was not that great a company and it is indeed worth much more than Rs.150 levels it fell to in November 2008. In fact we get so carried over by our emotions and views expressed by so called "experts" on business channels that we do just the opposite -- buy at Rs.900 levels and sell off at Rs.150 levels.

Hence we at AIMS believe it is better and much safer to access the stock market through mutual funds rather than practice do-it-yourself equity and burn a big hole in your bank account.

It is not that we despise or discourage direct equity—direct equity is preferable only if you have the habit of digesting the fluctuations and also have the time to do your research because investing in shares without proper research is like playing cards without looking at them.

Another compelling reason for investing in Mutual Funds is highlighted in the last wealth inspiring thoughts stated above—managing money requires more skill than making it!

There are very few options currently available where the real returns -- returns in excess of the inflation—are positive. Hence investments in PPF, Post Office; RBI Bonds or bank deposits tend to depreciate your retirement corpus in real term rather than appreciate. They will in all likelihood not see you through your retirement or even be able to fund your child’s higher education! Only Equity has the power to give you inflation adjusted returns to provide you with the retirement corpus to enable you to “SAR UTHA KE JIYO”. Consider this :- a monthly investment (on 1^st. of every month) of Rs. 1,000/- in DSP Merrill Lynch Equity Fund(Dividend reinvestment option) from 02/05/1997 till date would have grown from Rs. 1,43,000 to about Rs. 7,75,000/-( valuation as on 27/05/2009) -- a compounded annual growth of 25.83% (Source DSP Black Rock Mutual Fund). AND THAT TOO TAX FREE!! AND THAT TOO after all the downfalls over the years.

The thought now looming in your mind is “What Now”? “Where will the market stabilize”? Whether this is the right time to invest or not??

We must admit frankly that we are unable to forecast the index level from where the markets would start climbing up! No body in this world – not even the legendary Warren Buffet—will be able to predict the index level!

As for “WHAT NOW” – we can only say that the India story is very much alive and with a heavy discount sale currently on – GRAB IT—before it’s too late!!

At the end we would only repeat what Lord Krishna said to Arjun during Mahabharata – tum karm karo, phal ki chinta mat karo (Do not worry about the results, just do your duty!)

Investing is your duty today!

Happy Investing!!

 

 

A Simple Way

A couple of days ago, I watched a short interview with the legendary investor Warren Buffett on an investment news channel. The interview was conducted shortly after the annual general meeting (AGM) of Buffett’s company Berkshire Hathaway. Buffett said many interesting things—as he always does—but the really educational part of the interview was the contrast between the world that Buffett inhabits and the world that his interviewer seemed to come from. It was like listening to members of two different species talk. If a fly (which lives for perhaps a few hours) and a tortoise (who can survive for a hundred years or more) had a conversation, it would probably sound like Buffett and that interviewer. 

At one point, the interviewer asked Buffett to comment on how his companies would cope with the downturn. Buffett replied that things were certainly down at the moment but he expected them to be OK in three to five years. I could see that the mere mention of a time scale like three to five years had derailed the interviewer’s thought process. Coming as she did from a world where three to five hours or at most three to five days is the standard unit of time; the idea of an investor talking in years seemed to have thrown a spanner in her works. 

Next, she pulled out the day’s newspaper and drew the old man’s attention to a news item that US unemployment was up to 700,000. She wanted to know what he thought of the news. Buffett said that he was sure that five years from now, the employment situation would be much better than it was today. Again, this epic timescale put an end to that line of questioning.

However, this Methuselah of investing had reserved his best shot for the last. When the interviewer asked him about whether the economy was getting any better, Buffett upped the ante sharply. He said that the Dow Jones index had started the twentieth century at 66 points and ended it at 11,000 points. During these hundred years, there had been two world wars, a great depression, an oil shock and countless recessions. But in the end they had all worked out so he wasn’t really worried about the future. 

There is simply no meeting point between an investor who is comfortable with such long time periods and the modern investing ‘process’. As you can see from the stock markets, there is no one around who actually takes the long view. Curiously, the normal investment-industry types frequently express scepticism about what Buffett stands for. 

Some time ago, I read a newspaper article which quoted some investment managers on Buffett. Many of them suggested that Buffett's approach to investing was unrealistic— real investors need to be more 'flexible'. They seemed to suggest that Buffett is a hermit living in a cave whose teachings are too impractical for the real world. Except that Buffett lives in the same real world and his real world investors have made returns of some 5,000 times. 

Taking the arguments in the Indian context, our good old sensex came into being in 1985 with 1979 as the base year. Since its launch the sensex had reached a level of 21000 levels on 09/01/2008. The sensex has given a compounded annual return of roughly about 20% since inception. During this period we have witnessed catastrophes like wars, flood, famines, assassinations, et all. Can we say that the next two, three decades will be any different? The signs of growth are already visible. What requires is the conviction. The question we should be asking ourselves is do we have the same level of conviction as foreigners have about our economy? 

Far from being impractical, Buffett’s success suggests—or even proves—that the only practical way of making money is to do a handful of straightforward things and keep doing them for decades.

Strange Facts -- for a change

In the 1400's a law was set forth in England that a man was allowed to beat his wife with a stick no thicker than his thumb. Hence we have 'the rule of thumb'
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 Many years ago in Scotland , a new game was invented. It was ruled 'Gentlemen Only...Ladies Forbidden'...and thus the word GOLF entered into the English language.
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The first couple to be shown in bed together on prime time TV were Fred and Wilma Flintstone..
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Every day more money is printed for Monopoly than the U.S. Treasury.
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Men can read smaller print than women can; women can hear better.
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Coca-Cola was originally green.
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It is impossible to lick your elbow.
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Intelligent people have more zinc and copper in their hair.
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The first novel ever written on a typewriter: Tom Sawyer.
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The San Francisco Cable cars are the only mobile National Monuments.
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Each king in a deck of playing cards represents a great king from history:

Spades - King David Hearts - Charlemagne Clubs -Alexander, the Great Diamonds - Julius Caesar
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111,111,111 x 111,111,111 = 12,345,678,987,654,321
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If a statue in the park of a person on a horse has both front legs in the air, the person died in battle. If the horse has one front leg in the air the person died as a result of wounds received in battle. If the horse has all four legs on the ground, the person died of natural causes.
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Q. Most boat owners name their boats. What is the most popular boat name requested?
A. Obsession
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Q. If you were to spell out numbers, how far would you have to go until you would find the letter 'A'?
 A. One thousand
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Q. What do bulletproof vests, fire escapes, windshield wipers, and laser printers all have in common?
 A. All were invented by women.
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Q. What is the only food that doesn't spoil?
A. Honey
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In Shakespeare's time, mattresses were secured on bed frames by ropes.

When you pulled on the ropes the mattress tightened, making the bed firmer to sleep on. Hence the phrase......... 'goodnight, sleep tight.'
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It was the accepted practice in Babylon 4,000 years ago that for a month after the wedding, the bride's father would supply his son-in-law with all the mead he could drink. Mead is a honey beer and because their calendar was lunar based, this period was called the honey month, which we know today as the honeymoon.
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In English pubs, ale is ordered by pints and quarts... So in old England , when customers got unruly, the bartender would yell at them 'Mind your pints and quarts, and settle down.'

It's where we get the phrase 'mind your P's and Q's'
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Many years ago in England , pub frequenters had a whistle baked into the rim, or handle, of their ceramic cups. When they needed a refill, they used the whistle to get some service. 'Wet your whistle' is the phrase inspired by this practice.
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At least 75% of people who read this will try to lick their elbow!
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 - Now....

Don't delete this just because it looks weird. Believe it or not, you can read it.

I cdnuolt blveiee that I cluod aulaclty uesdnatnrd what I was rdanieg. The phaonmneal pweor of the hmuan mnid Aoccdrnig to rscheearch at Cmabrigde Uinervtisy, it deosn't mttaer in what oredr the ltteers in a word are, the olny iprmoatnt tihng is that the first and last ltteer be in the rghit pclae. The rset can be a taotl mses and you can still raed it wouthit a porbelm. This is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the word as a wlohe. Amzanig huh?

 

Two Sides of a Story

We are just through with a week which has seen an upsurge of hope in investment markets around the world. All around the world stocks are up and there's talk that a turnaround is now visible. Every major index is up from anything between five to fifteen per cent over just a few days. So is this it? Are the dark clouds lifting? Is there a turnaround on the way which the markets have foreseen? It's possible but there are plenty of solid arguments against this view. Let's see what the arguments on both sides of the investments picture are.

 The Turnaround is here: It's true that the world economy is taking a severe beating, but equity prices have more than kept pace. In every equity market around the world, prices have fallen so sharply that there are plenty of great stocks available at ridiculously low prices. Sure, the economic downturn will impact many companies' profits, but eventually the profits will rise again. Such stocks will never again be available at such bargain basement prices. In any case, this is not about stock prices alone. From anecdotal evidence like Citibank's two profitable months to the improvement in the India's IIP to improving consumer confidence around the world, there's evidence that the global economic decline is not as bottomless as the doomsayers would have had us believe.

 They may have been slow of the blocks, but governments around the world have done a great deal to stave off the worst effects of the crisis. It takes some time for these actions to have an impact at the ground level, but the massive interventions of governments will start showing up strongly from now on. All things considered, there appears to be strong evidence that the worse is behind us and the turnaround is in sight.

 OK, that was one side of the argument, now let's hear it from the side that thinks that the worse is still ahead: Equities don't turnaround when they ought to turn around, but when investors start buying them in serious numbers. The evidence for this is still thin.

 The sudden upsurge in world stock prices is entirely the work of short-sellers scrambling for cover and short-term traders. In India, none of the constituencies of stock buyers are about to start pouring money into stocks. This holds for everyone from the biggest institutions (both domestic and foreign) to the retail investors. Moreover, the collapse in sales and profits has barely started showing up in corporate results yet. To think that the

impact on stock prices is over and done with is a mistake. What governments are doing is to try and re-inflate the same bubble, and what the cheerleaders are doing is to try and convince us that the clock is about to turn back eighteen months. If this downturn teaches one thing, it is that the situation is unpredictable. The markets are supposed to be foreseeing good times to come, but don't forget, the same 'markets' haven't been able to foresee anything correctly for almost two years now.

 Those are two sides to the debate and the logic for both is impeccable. Which one will appeal to you more depends on what sort of a mood you are in. That probably depends on how the downturn is affecting you personally. Which is where the key to understanding the situation lies. At this point of time, the real malaise is the tremendous loss of confidence in the future that has happened to individuals, businesses and institutions.

 Would you care to predict when that will get cured?

TIME TO PLUNGE INTO INCOME FUNDS

There was a joke going around a few years ago that Alan Greenspan (then the U.S. Federal Reserve Chairman) would be remembered more for his phrase making than his monetary policy making. In 2005-06 he coined the term “bond market conundrum” to refer to the decline in U.S. bond yields in the face of Fed-induced increases in money market interest rates and rising U.S inflation.

Now we have Navneet Munot, CIO, SBI Mutual Fund, refer to it in our context of the RBI lowering rates and pumping liquidity as inflation, bank credit and industrial growth fall. “Bond traders like recession and deflation, conditions when bond prices move up. But alas! The widening government deficit is playing spoilsport and interest rates have actually moved up almost 200 bps over the last 2 months,” he says. Just today, bond yields once again rose ahead of fresh debt supplies this week. Early this morning (March 17), the yield on the 6.05% maturing in 2019 was at 6.48%, above the previous day’s (March 16) close of 6.40%. Munot observes that the “yield curve is in complete disarray with several 'illiquid bonds' offering massive yield pick-ups”. 

The market is clearly worried about the large borrowing programme of the government and is not responding to the indications given by RBI. At the beginning of FY 2008-09, we were expected to borrow 100,000 crore. By the end of 2009, government will be borrowing almost Rs 300,000 crore and for next year we are looking to raise Rs 360,000 crore a year, which is almost Rs 1,500 crore per working day. The size of the borrowing programme is unnerving investors. 

RBI’s recent rate cuts did not result in lower yields. On the contrary, we have witnessed RBI’s recent rate cuts did not result in lower yields. On the contrary, we have witnessed yields going up. Though the market is moving against the wish of the RBI, the central bank has many tools with which it can effectively get desired results. And there is no doubt that the RBI wants to bring down interest rates. 

Munot admits to the chaos but offers some advice: “There is lot of panic and gloom in the bond market. Yields may inch up a bit more but investors with some risk appetite should use that opportunity to move in.”

As of now, there are a number of factors favouring entry into income funds when the 10- year benchmark yield is at 7% levels: 

• Globally interest rates are nearing zero…Bank of England - 0.50%, ECB -  1.50%, FED: 0-0.25%, JAPAN: 0%.

• The WPI is expected to decline and become negative between May and September 2009

• Pressure of government’s borrowing programme will ease in the second half of March 2009

• Banks may turn buyers of gilts for year-end valuation. On December 31, 2008, 10 year G-Sec was valued at 5.25%. Today it is at 7% and banks are expected to reduce their mark to market losses as much as possible.

• RBI will take further action on OMOs and may give the rate signals.

 

Investors can look at entering income plans but should patiently remain invested… as they say patience pays….