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Banking Funds Rule The Roost

In an interview on CNBC-TV18, Dhirendra Kumar talks about various aspects prevailing in the markets

Dhirendra Kumar, CEO, Value Research Online said that cash levels are down a bit and it is at 6.5%. He told CNBC-TV18 that NFOs still have reasonable cash and are not fully deployed.

Kumar added that banking funds are the best performing fund over the past three months and in April as well.


Excerpts from CNBC-TV18's exclusive interview with Dhirendra Kumar:

Q: What is your take on whether cash levels have come down substantially over the last one month for the mutual fund industry?
A: Yes, cash levels are down a bit. It was at 8% at the end of March and now it is down to about 6.5%. In terms of scale, it is just as much because 6.5% is on a larger asset base. What I am saying is as percentage of total net assets. Last month, we witnessed 11% appreciation overall.

Q: What about some of the large NFOs which collected significant amounts of money in the first quarter of this calendar? Have they deployed substantial amount of those funds or do they remain substantially in cash?
A: They still have reasonable cash and are not fully deployed; they are far from being fully deployed.

Q: Are there any redemption pressures that you are hearing about from some of these funds?
A: No, April proved to be very nice. I was looking at the kind of subscriber mails that we get. If it had lasted for another two-weeks, to the beginning of April, then things would have been very different.

Investors were just beginning to dip into their capital at that point when the market turned around. So, the turnaround in April of 11% has been able to keep investors cheerful and they have been able to drop their redemption plan. That is because a lot of investors and their attitude towards their investment is very different.

Losing your gains is fine but losing your capital is something which they are unable to reconcile with and that is a psychological barrier. A lot of money came in Q2 and Q3 of 2007 and that money would have gone into a little erosion of capital and that was quite a significant amount. It was about Rs 14,000 crore, which came in that period in a couple of large funds. So, I don't see any significant redemption pressure.

Q: There is a gold fund open as well. What kind of interest are you seeing on some of the commodity funds, specifically for precious metals like gold?
A: This is the second such gold fund. The first one was DSP Merrill Lynch Gold Fund and it was so successful that this is almost a follow up. It is a fund of fund. The performance of the underlined fund of the AIG Fund is almost identical to the Merrill Lynch Gold Fund. There are 3-4 other funds in the pipeline.

Tata has also filed an offer document. So, there are 2-3 of them in the pipeline. I don't know when they will come. But the ideal time to invest in gold fund or gold was 2001. As the run prevails, investors like chasing performance and so far it has been profitable. So, investors should look at this as a very opportunistic thing. One shouldn't buy into the whole theory of diversification and gold as an asset class and so on. But it is good till it runs.

Q: A couple of thematic funds are also being launched now; there are entertainment opportunities and financial services from Sundaram. Is there appetite for thematic funds in this kind of a market situation?
A: Fund companies are through with their full range of products. So, in that sense they have to do something differently or pretend to be doing something differently. So, in that sense Sundaram has been so regular in launching funds that it has exhausted many of the fund ideas, so it was forced to launch the sector fund. But Sundaram Fund Managers were quite upbeat about the financial services fund. Investors should look at it very closely and it will be the fourth such fund in the open-end category. Besides this, there are a couple of ETFs which the investor can choose from.

His hypothesis and his orientation was that he is quite upbeat on the public sector bank stocks and he thinks that the core story is the dividend yield and high growth, which makes it a very good combination. That is the core investment premise. But there is a fourth fund which investors will have and investors will also have other options to choose from. There is the JM Financial Services Fund, Reliance Banking Fund and the UTI Fund and this will be fourth such fund.

<b>Q: Tell us about the ICICI Prudential Focused Equity Fund. It has the option of a narrow portfolio of 15-20 largecap names. Is that an attractive option for you?
A: No, I would like to warn investors that they should be careful about investing in such a fund because this fund will always be at the top or at the bottom. If the Fund Manager does well, then it will impact the fund. So, the whole rationale, which drives you to be into a fund, is that you can't take your own decision, are trying to moderate your return and reduce your risk by gaining diversity. So, it is a lower take on diversity and concentration.

Q: For the first quarter of this calendar year, what's been the best performing fund across houses?
A: Banking funds are the best performing fund over the past three months and in the month of April too. If you look at where investors have saved a lot of money, where they have faced least of decline that should be something which the investor should look at. That is where I feel that fund managers, who were not there in the racy funds but were diversified across all times and who have stayed away from momentum stocks, they have been able to hold much better in the past 3-4 months.