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In Rising Markets, NFOs Dry Up

Fund managers have refrained from unveiling new fund offers despite the rally

The stock markets are hot. And they have been in that state of affairs for more than six months. Consider, Sensex has virtually doubled, since March 9, from the lows that the global meltdown had forced it to. And when stocks are selling like hot cakes, can the mutual funds be far away from looking to participate in the money-making opportunity?

Well, perhaps they can be far, very far indeed. This time they seem to have got their timing mixed up, looking at how they launched just 14 equity schemes new fund offers (NFOs) during the rally against 19 during the time the market was plumbing the lows.

The 14 schemes that have been launched managed to collect Rs 3,841 crore from investors. However, when the markets were down in the period between April and August, 2008, mutual fund houses launched as many 19 equity schemes and collected Rs 2,489 crore, according to Business Standard. The only factor pointing towards a rising market in the 2009 data is that NFOs collected more money from a lesser number of schemes.

To put things in perspective, in March, 2005, with the Sensex at 7,000-point mark, some 8 NFOs raised Rs 7,016 crore, in March, 2006 the collections by 12 schemes were Rs 10,228 crore (Sensex too jumped above 10,000 points). With the Sensex at an all-time high in January, 2008, just 6 NFOs raised a whopping Rs 9,000 crore.

Fund managers look to have been scared off approaching investors with new schemes as they may well have feared a distributor backlash that had its source in the SEBI-sponsored ban on distributor commissions that was imposed, effective August 1. The ability of funds to go it alone is suspect, especially in rural and other outlying areas.

As a result, the attention of investors shifted to the initial public offers (IPOs) of various companies that happened in the same period, including Oil India, Adani Power, and NHPC, all of which were oversubscribed despite the belief that they were overpriced and more are lining up – just in the realty space Emaar MGF Land, Lodha Developers, Sahara Prime City, Ambience Ltd and DB Realty are all looking to raise money too to the extent of Rs 12,500 crore. In fact, in the current fiscal 10 IPOs have collected a staggering Rs 10,000 crore.

That there was good retail participation in them is clear from just one case, where National Stock Exchange data shows that the Adani IPO got bids for more than 26 crore shares, while only 8.8 crore shares were reserved for them.

The significance in that piece of news is that the retail investor is getting very picky and choosy and does eye those investments favourably that have something new and interesting to offer.