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Sundaram Gets Selective


This eagle will pry on undervalued assets. Just as Warren Buffett does. Buffett believes strongly in his mentor Benjamin Graham's theory that it is wise to ''look for stocks of companies which are undervalued, which will most probably prosper with a little time''. This untraditional approach to portfolio management explains how the son of a stockbroker rose to become a stockmarket wizard and earned the reputation of being the 'World's Greatest Investor'. Perhaps that is what is at the back-of-the-mind of Sundaram Mutual Fund. It isn't deterred by the fact that some tried to ride the value bandwagon, but failed. That's because value investing entails a long haul. And Indian investors are yet to acquire that maturity.

However, Sundaram thinks otherwise. After filing the offer document for a unique bond offering (Sundaram Income Plus), Sundaram AMC has lined up an equity fund, Sundaram Select Value Fund. It is awaiting approval from SEBI. This fund will pick value stocks -- companies believed to be undervalued compared to their intrinsic value, but have the potential to grow their capital over the long term.

This is not the first equity offering from the Sundaram stable. It already has an equity fund, Sundaram Growth, in its kitty. But this fund follows a slightly altered approach vis-à-vis value stocks. This open-end diversified equity fund carries a growth theme: about 50% of assets parked in growth-oriented companies. In other words, companies which are capable of growing faster than others. Rightly so, the fund has spread its exposure to tech stocks by about 16.71%.

Considering the not-so-successful 'value investing' strategy as adopted by its peers, it will be a tough call for Sundaram Select. Its draft prospectus though outlines that it will follow a bottom-up approach -- financial ratios, dividend yields -- to hunt for companies that offer a long-term proposition. But according to industry experts, the concept of triggers, which could unlock value, is virtually alien to India.

Usually, value funds or stocks don't make good first investments. Newcomers are better off in a large-cap fund that includes both value and growth stocks. An individual value stock won't be any less risky than an individual growth stock simply because it's a value stock. Nor will a portfolio of value stocks always lose less when the market is down than growth stocks. It's just as important -- if not more -- to diversify by market cap than by investment style. This is what we think. Now, it is for the investor to decide whether he wants to be a Warren Buffett and make investments on the basis of ''value and not popularity'' or play by the book.