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Diversify and prosper!

With the old economy stocks staging a comeback, it is beginning to show on funds as well. And the key beneficiary of the boom are once again the well-diversified funds and old-economy focussed sector funds.


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Every dog has its day. And the old economy comeback proves that. As this happens, it is beginning to show on funds as well. And the key beneficiary of the boom are once again the well-diversified funds and old-economy focussed sector funds. This change in investment strategy has given a fresh lease of life to old-fashioned funds. Of course there are fundamental reasons behind the change in outlook. The key reason is the declining interest in tech stocks besides the attractive valuation of old economy stocks, given the market's prolonged disinterest, which was busy in the tech party. This apart, the takeovers moves, bank mergers, run up in cement stocks on a standard cyclical upswing and renewed interest in PSU stocks with announcements of dis-investment and strategic sale have boosted the sentiment. Good enough reasons for a more broad based and hopefully a sustainable rally in old economy stocks.

Incidentally, last February's top technology stocks and funds are now at the bottom of the heap with below average returns. "No longer is the investment pattern skewed totally in favour of a few limited sectors. The implication therefore is that the risks of a single sector are not likely to impact overall market performance, as happened in the last year,'' says Divya Krishnan, Chief Investment Officer, SBI Mutual Fund.

The aggressive buying by foreign institutional investors, which has largely been concentrated in economy and PSU stocks, has further bolstered returns. With a double dose of Fed's magic potion, foreign investments are pouring in markets with relatively cheap assets. Since the beginning of the year, FIIs are estimated to have pumped in a net of Rs 4400 crore in equities. "We are positively and pleasantly surprised by the government's bold decisions to privatise VSNL and CMC. Decisions like these can change long held negative perceptions about India and bring in significant investments,'' says Samir Arora, head, Asian Emerging markets, Alliance Capital.

With a broadbased rally gradually percolating to second-tier (mid-cap) stocks as well; funds with a higher exposure to this segment of equities are also witnessing their NAV gallop. The case in point is the mid-cap focussed Kothari Pioneer Prima Fund, which has gone ballistic since the start of the calendar. The fund invests in fast growing mid and small cap stocks. With a well spread out portfolio from auto ancillaries to metals and textiles to electric equipment, the fund has gained sharply - 26% in the one month ended February 12, 2001.

"The buying has been more broadbased on expectations that the budget will push reforms further and boost infrastructure," says K N Siva Subramanian at Kothari Pioneer. Adds Krishnan, "the resurgence of interest in old economy stocks has actually resulted in them outperforming the TMT sector and the rally across a broader spectrum of stocks and sectors is a healthy sign for the stock markets."

Takeovers and acquisition attempts are also boosting fund returns. Corporates with huge asset base and rock bottom stock prices have become a "sitting duck" for predators and have witnessed a spurt in both volumes and prices. Take for example Taurus Starshare. The fund, with an 18% exposure to cement manufacturer Jai Prakash Industries, has gained 13.63% return in the last one month.

While sector specific funds like UTI Petro have obviously gained by virtue of their investments in the fancied sectors, some funds have been quick to change tack from technology stocks to a more diversified portfolio. For instance, Zurich India Top 200 from Zurich Asset Management has slashed its technology exposure from 39% in September 2000 to a mere 4.5% in January 2001. The "diversification" mantra has seen the fund hike its exposure to sectors like automobile, chemicals, refining, power, engineering and diversified companies like Larsen &

 
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