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1.1 Introduction:
The project on Portfolio Management has been carried out as a part of our
curriculum after the second semester of MBA course. It has been
carried out from 2nd May to 15th June 2005.
I did my Industry Internship project in HDFC Asset Management Company,
Bangalore Branch.
HDFC Asset Management Company Limited was incorporated under the
Companies Act, 1956, on December 10, 1999, and was approved to act as an
Asset Management Company for the Mutual Fund by SEBI on July 3, 2000.
The registered office of the AMC is situated at Ramon House, 3rd Floor,
H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400
020. In terms of the Investment Management Agreement, the Trustee has
appointed HDFC Asset Management Company Limited to manage the
Mutual Fund. The paid up capital of the AMC is Rs. 75.161 crore.
This report gives a snapshot of the mutual fund industry in India and some of
the investment opportunities in stocks and funds, which might offer better
potential and returns.
1.2 BACKGROUND / RATIONALE OF THE STUDY:
I want to pursue my career in marketing as well as finance, so I selected
HDFC Asset Management Company for my Industry Internship project.
Because HDFC Asset Management Company gave me the exposure in both
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the fields as it is a finance company but it also has marketing offices called
Investment Service Centres or Branch offices and so I did my project in
Bangalore Branch.
1.3 OBJECTIVES TO THE STUDY:
Primary Objectives:
To understand the overall functioning and profile of the organization.
To get information on the culture and effectiveness of communication
in the organization.
To analyze the performance of the company over a period of time.
To understand the role that mutual fund plays in the investment
market.
To get to know the details regarding the market share, turnover etc. of
various players in the mutual fund industry.
To understand the products and financial performance of the company
over previous years.
To study the key business level functions like: Marketing, HR,
Operations and Administration etc.
On the Job Training.
Secondary Objectives:
In-depth research study of various investment opportunities.
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1.Research Design:
Research design can be of three forms:
These three types can be viewed as cumulative. The research design adopted
for project research is Descriptive Research and Analytical Research.
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1.6 LIMITATIONS
The study is restricted to a period of 45 days only.
A thorough analysis will not be possible due to restricted time period.
Most of the information will be obtained through secondary sources.
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subscription all through year. An investor can buy or sell the units at
"NAV" (Net Asset Value) related price at any time.
Close-Ended Funds: A Close-Ended fund is open for subscription
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Franklin Templeton) was the first private sector mutual fund registered in
July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The industry
now functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign
mutual funds setting up funds in India and also the industry has witnessed
several mergers and acquisitions. As at the end of January 2003, there were
33 mutual
funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with
Rs.44, 541 crores of assets under management was way ahead of other
mutual funds.
Fourth Phase since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963
UTI was bifurcated into two separate entities. One is the Specified
Undertaking of the Unit Trust of India with assets under management of
Rs.29, 835 crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain other schemes. The
Specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and does
not come under the purview of the Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund
Regulations. With
the bifurcation of the erstwhile UTI which had in March 2000 more than
Rs.76, 000 crores of assets under management and with the setting up of a
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UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and
with recent mergers taking place among different private sector funds, the
mutual fund industry has entered its current phase of consolidation and
growth. As at the end of September 2004, there were 29 funds, which
manage assets of Rs.153108 crores under 421 schemes.
The graph indicates the growth of assets over the years.
GROWTH IN ASSETS UNDER MANAGEMENT
Note:
Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified
Undertaking of the Unit Trust of India effective from February 2003. The
Assets under management of the Specified Undertaking of the Unit Trust of
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India has therefore been excluded from the total assets of the industry as a
whole from February 2003 onwards.
2.5 Asset management companies in India- Key players
1. ALLIANCE CAPITAL MUTUAL FUND
2. BIRLA MUTUAL FUND
3. BOB MUTUAL FUND
4. BOI MUTUAL FUND
5. CANBANK MUTUAL FUND
6. CHOLAMADALAM CAZENOVE MUTUAL FUND
7. DSP MERRILL LYNCH MUTUAL FUND
8. DUNDEE MUTUAL FUND
9. ESCORTS MUTUAL FUND
10.FIRST INDIA MUTUAL FUND
11.HDFC MUTUAL FUND
12.IDBI-PRINCIPAL MUTUAL FUND
13.IL&FS MUTUAL FUND
14.INDIAN BANK MUTUAL FUND
15.ING SAVINGS MUTUAL FUND
16.JARDINE FLEMING MUTUAL FUND
17.JM MUTUAL FUND
18.KOTAK MAHINDRA MUTUAL FUND
19.LIC MUTUAL FUND
20.MORGAN STANLEY MUTUAL FUND
21.PIONEER ITI MUTUAL FUND
22.PNB MUTUAL FUND
23.PRUDENTIAL ICICI MUTUAL FUND
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419
Management 1489
Share (%)
0.27%
0.96%
Services
SBI Funds Management
5296
UTI Asset Management Co.
18875
GIC Asset Management Co.
204
IL & FS Asset Management
2015
LIC Asset Management
4960
Benchmark Asset Management Co.
78
Cholamandalam Asset Management
1243
Escorts Asset Management
131
J.M.Capital Management
4111
Kotak Mahindra Asset Management Co. 5651
Reliance Capital Asset Management
11204
Sahara Asset Management Co.
345
Sundaram Asset Management Co.
1841
Birla Sun Life Asset Management Co. 9397
Credit Capital Asset Management
131
DSP Merrill Lynch Fund Managers
6389
HDFC Asset Management Co.
16105
Alliance Capital Asset Management 2446
3.40%
12.11%
0.13%
1.29%
3.18%
0.05%
0.80%
0.08%
2.64%
3.63%
7.19%
0.22%
1.18%
6.03%
0.08%
4.10%
10.33%
1.57%
(India)
Duetsche Asset Management (India)
2266
Franklin Templeton Asset Management 17342
1.45%
11.13%
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(India)
HSBC
Asset
Management
(India) 5463
3.51%
Private
ING Investment Management (India)
1472
Morgan Stanley Investment Management 1095
Prudential ICICI Asset Management
16071
Principal Asset Management Co.
4825
Standard Chartered Asset Management 9444
0.94%
0.70%
10.31%
3.10%
6.06%
Co.
Tata Asset Management Co
Total
3.55%
100%
5537
155845
3.1 Vision
To be a dominant player in the Indian mutual fund space, recognized for its
high levels of ethical and professional conduct and a commitment towards
enhancing investor interests.
3.2 Management
HDFC Trustee Company Limited:
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% OF THE PAID UP
PARTICULARS
HDFC
Standard Life Investments
Limited
SHARE CAPITAL
50.10
49.90
Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund,
following a review of its overall strategy, had decided to divest its Asset
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Kong. In order to meet the different needs and risk profiles of its clients,
Standard Life Investments Limited manages a diverse portfolio covering all
of the major markets world-wide, which includes a range of private and
public equities, government and company bonds, property investments and
various derivative instruments. The company's current holdings in UK
equities account for approximately 2% of the market capitalization of the
London Stock Exchange. The Standard Life Assurance Company was
present in the Indian life insurance market from 1847 to 1938 when agencies
were set up in Kolkata and Mumbai. The Standard Life Assurance Company
was therefore keen to re-enter the Indian market and in 1995, signed an
agreement with HDFC to launch an insurance joint venture. HDFC and
Standard Life Investments Limited are neither responsible nor liable for any
loss resulting from the operation of the Scheme(s) beyond their contribution
of an amount of Rs. 1 lakh each made by them towards the corpus of the
Mutual Fund.
3.4 HDFC Mutual Fund Products
SCHEMES
1) EQUITY FUNDS
2) BALANCED FUNDS
3) DEBT FUNDS
VALUE ADDED SERVICES
1) SIP (Systematic Investment Plan)
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Investment Pattern
The corpus of the Scheme will be invested primarily in equity and equity
related instruments. The Scheme may invest a part of its corpus in debt and
money market instruments, in order to manage its liquidity requirements
from time to time, and under certain circumstances, to protect the interests of
the Unit holders.
Investment Strategy & Risk Control
The investment approach will be based on a set of well established but
flexible principles that emphasize the concept of sustainable economic
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approval of the Board of the AMC and Trustees as per the SEBI
Regulations.
The Scheme may invest in listed / unlisted and / or rated / unrated debt or
money market securities subject to limits indicated in the investment pattern.
Pursuant to SEBI Circular No. MFD/ CIR/9/120/2000 dated November 24,
2000; the AMC may constitute committee(s) to approve proposals for
investments in unrated debt instruments. The AMC Board and the Trustee
shall approve the detailed parameters for such investments. The details of
such investments would be communicated by the AMC to the Trustee in
their periodical reports. It would also be clearly mentioned in the reports,
how the parameters have been complied with. However, in case any unrated
debt security does not fall under the parameters, the prior approval of Board
of AMC and Trustee shall be sought.
Fund Manager
Mr. Tushar Pradhan
HDFC Growth Fund (Growth Option)
Investment Objective
The primary investment objective of the Scheme is to generate long-term
capital appreciation from a portfolio that is invested predominantly in equity
and equity related instruments.
Investment Pattern
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The corpus of the Scheme will be invested primarily in equity and equity
related instruments. The Scheme may invest a part of its corpus in debt and
money market instruments, in order to manage its liquidity requirements
from time to time, and under certain circumstances, to protect the interests of
the Unit holders.
HDFC Long Term Advantage Fund (Dividend Option)
Investment Objective
The primary objective of the Scheme is to generate long-term capital
appreciation from a portfolio that is invested predominantly in equity and
equity related instruments.
Investment Pattern
The net assets of the Scheme will be invested primarily in equity and equity
related instruments. The Scheme may invest a part of its net assets in debt
and money market instruments, in order to manage its liquidity requirements
from time to time, and under certain circumstances, to protect the interests of
the Unit holders.
Investment Strategy & Risk Control
The funds collected under the Scheme shall be invested in equities,
cumulative convertible preference shares and fully convertible debentures
and bonds of companies. Investment may be made in partly convertible
debentures and bonds including those issued on a rights basis subject to the
condition that, as far as possible, the non-convertible portion of the
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the SENSEX would do this. A small portion of the net assets will be invested
in money market instruments permitted by SEBI/RBI including call money
market or in alternative investment for the call money market as may be
provided by the RBI, to meet the liquidity requirements of the Plan.
Fund Manager
Mr. Tushar Pradhan
HDFC Index Fund SENSEX Plus Plan (Growth Option)
Investment Objective
SENSEX Plus Plan: The objective of this Plan is to invest 80 to 90% of the
net assets of the Plan in companies whose securities are included in
SENSEX and between 10% & 20% of the net assets in companies whose
securities are not included in the SENSEX.
Investment Pattern
The net assets of the Plan would be invested in such a manner that 80% to
90% of the net assets are invested in almost all stocks constituting the
SENSEX in approximately the same weightage that they represent in the
SENSEX. The balance 10% to 20% of the net assets of the Plan would be
invested in stocks that do not form part of the SENSEX in a manner that
individual stock exposures do not exceed the SEBI stipulated limits. A small
portion of the net assets will be invested in money market instruments
permitted by SEBI/RBI including call money market or in alternative
investment for the call money market as may be provided by the RBI, to
meet the liquidity requirements of the Plan.
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Fund Manager
Mr. Tushar Pradhan
HDFC Equity Fund (formerly Zurich India Equity Fund) (Dividend
Plan)
Investment Objective
The investment objective of the Scheme is to achieve capital appreciation.
Investment Strategy & Risk Control
In order to provide long-term capital appreciation, the Scheme will invest
predominantly in growth companies. Companies selected under this portfolio
would as far as practicable consist of medium to large sized companies
which:
a. are likely achieve above average growth than the industry;
b. enjoy distinct competitive advantages, and
c. have superior financial strengths.
The aim will be to build a portfolio, which represents a cross-section of the
strong growth companies in the prevailing market. In order to reduce the risk
of volatility, the Scheme will diversify across major industries and economic
sectors.
Fund Manager
Mr. Prashant Jain
HDFC Equity Fund (formerly Zurich India Equity Fund) (Growth
Plan)
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Investment Objective
The investment objective of the Scheme is to achieve capital appreciation.
Fund Manager
Mr. Prashant Jain
HDFC Tax Saver (formerly Zurich India Tax Saver) (Dividend
Plan)
Investment Objective
The investment objective of the Scheme is to achieve long-term growth of
capital.
Fund Manager
Mr. Chirag Setalvad
HDFC Capital Builder Fund (formerly Zurich India Capital Builder
Fund) (Dividend Plan)
Investment Objective
The Investment Objective of the Scheme is to achieve capital appreciation in
the long term.
Investment Strategy & Risk Control
This Scheme aims to achieve its objectives by investing in strong companies
at prices, which are below fair value in the opinion of the fund managers.
The Scheme defines a "strong company" as one that has the following
characteristics:
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A market price quote that is around 30% lower than its value, as
determined by the discounted value of its estimated future cash flows
Fund Manager
Mr. Tushar Pradhan
HDFC Top 200 Fund (formerly Zurich India Top 200 Fund) (Dividend
Plan)
Investment Objective
The investment objective is to generate long-term capital appreciation from a
portfolio of equity and equity-linked instruments. The investment portfolio
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for equity and equity-linked instruments will be primarily drawn from the
companies in the BSE 200 Index. Further, the Scheme may also invest in
listed companies that would qualify to be in the top 200 by market
capitalization on the BSE even though they may not be listed on the BSE
This includes participation in large IPOs where in the market capitalization
of the company based on issue price would make the company a part of the
top 200 companies listed on the BSE based on market capitalization.
Investment Strategy & Risk Control
The investment strategy of primarily restricting the equity portfolio to the
BSE 200 Index scrips is intended to reduce risks while maintaining steady
growth. Stock specific risk will be minimized by investing only in those
companies / industries that have been thoroughly researched by the
investment manager's research team. Risk will also be reduced through a
diversification of the portfolio.
Fund Manager
Mr. Prashant Jain
HDFC Core & Satellite Fund (Dividend Option)
Investment Objective
The objective of the Scheme is to generate capital appreciation through
equity investment in companies whose shares are quoting at prices below
their true value.
Fund Manager
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The primary objective of both the Plans under the Scheme is to generate
long-term capital appreciation. However, there can be no assurance that the
investment objective of the Scheme / Plans will be achieved.
Fund Manager
Mr. Tushar Pradhan
HDFC Balanced Fund (Dividend Option)
Investment Objective: The primary objective of the Scheme is to generate
capital appreciation along with current income from a combined portfolio of
equity and equity related and debt and money market instruments.
Fund Manager
Mr. Tushar Pradhan
HDFC Prudence Fund (formerly Zurich India Prudence Fund)
(Dividend Plan)
Investment ObjectiveThe investment objective of the Scheme is to provide
periodic returns and capital appreciation over a long period of time, from a
judicious mix of equity and debt investments, with the aim to prevent/
minimize any capital erosion. Under normal circumstances, it is envisaged
that the debt: equity mix would vary between 60:40 and 40:60 respectively.
This mix is geared to achieve the investment objective and is expected to
result in regular income, capital appreciation and also prevent capital
erosion.
Investment Strategy & Risk Control
As outlined above, the investments in the Scheme will comprise both debt
and equities. The Fund would invest in Debt instruments such as
Government securities, money market instruments, securities debts,
corporate debentures and bonds, preference shares, quasi Government bonds,
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and in equity shares. In the long term, the mix between debt instruments and
equity instruments is targeted between 60:40 and 40:60 respectively. The
exact mix will be a function of interest rates, equity valuations, reserves
position, risk taking capacity of the portfolio without compromising the
consistency of dividend pay out (in the case of Dividend Plan), need for
capital preservation and the need to generate capital appreciation.
Fund Manager
Mr. Prashant Jain
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The primary objective of the Scheme is to generate credit risk free returns
through investments in sovereign securities issued by the Central
Government and/or State Government.
Fund Manager
Mr. Mustafa Mahmood
HDFC Short Term Plan (Dividend Option)
The primary objective of the HDFC Short Term Plan is to generate regular
income through investment in debt securities and money market instruments.
HDFC Cash Management Fund - Investment Plan (formerly Zurich
India Liquidity Fund - Investment Plan) (Dividend Option)
The investment objective of the Scheme is to generate optimal returns while
maintaining safety and high liquidity. Accordingly, investments will be
made in Money Market Instruments, Government Securities and Corporate
Debt.
HDFC Cash Management Fund - Savings Plan (formerly Zurich
India Liquidity Fund - Savings Plan)
The investment objective of the Scheme is to generate optimal returns while
maintaining safety and high liquidity. Accordingly, investments will be
made in Money Market Instruments, Government Securities and Corporate
Debt.
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Stock picking can essentially be done in two basic ways ------- one is using a
bottom-up approach and the other is using a top-down approach.
A top down approach works its way from the macro picture of an economy
to track down certain sectors, which would outperform other sectors. Then
all companies within the short listed sector are analyzed and the best among
them are picked in the portfolio.
Thus it aims to maximize return by staying invested in the best companies in
the most attractive sectors of economic growth in future.
e.g. In India's annual budget major thrust is being provided to infrastructure
and infrastructure projects. This would benefit Indian companies related to
infrastructure like companies in the Capital Goods space, electricity, cement
etc.
Thus analysts picking stocks in the top down approach would look at good
companies in these sectors to invest in.
On the other hand a bottom up approach looks at companies per se and its
micro-economics for deciding on whether to invest or not. They look at
companies, which on their sheer microeconomics would outperform peers in
their sector and achieve higher growth than industry averages.
Value Investing is a kind of bottom-up stock picking wherein stocks are
picked, which are beaten down so considerably that they offer immense
value. Some basic parameters of value stocks are that their PBV (Price to
Book Value) is less than 1 and that they have a high dividend yield of more
than the average index dividend yield.
Such stocks would be chosen inspite of the fact that the sector they are
operating in could underperform in future. Protagonists of this theory
maintain that value stocks offer limited downside and higher upside due to
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the fact that they would be beaten down so much that any good news would
spike up prices.
e.g. Dabur in its recent earnings report stated a rise in operating margins
even at a time when other companies in the same space like Hindustan Lever
Ltd. were facing intense squeeze of margins.
More often than not, investing requires a mix of bottom-up and top-down
approaches wherein some stocks are chosen on sectoral merit and some on
individual. Neither of the approaches should be undermined and a portfolio
is best to include growth stocks and also value stocks through a fine blend of
bottom-up and top-down approaches.
Identified sectors for portfolio management
1.Capital goods ( Orient Abrasives)
2.FMCG (Dabur)
3.Shipping (GE Shipping)
4.Textiles (Century Textiles)
5.Pharma (JB Chemicals & Pharmaceuticals)
6.Fishing (Garware Wall Ropes)
7. HINDUSTAN ZINC
8.Franklin FMCG Fund
9.HDFC Prudence Fund
10.HDFC Core & Satellite Fund
11.Principal Dividend Yield Fund
12.SBI Magnum Pharma Fund.
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14th January 2004,markets close at 6157 levels; with complete euphoria all
around, every market analyst and pundit believing 7000 would be just round
the cornerAlas
17th May 2004,The BSE Sensex touches a low of 4227-intra day; market
pundits are again predicting levels of 3800 for the market bottom.
31st December 2004,the BSE Sensex closes at 6541 and once again market
analysts with renewed energy revise their earlier targets to more than 8000
Well, such volatility would even fox the smartest of punters at Monte Carlo
and shame the best of analysts.
Throughout the year many an event occurred which shook the confidence of
many market participants and pundits alike.
17th of May, now better known as the dreaded Black Monday witnessed
stocks falling like nine pins, reminiscent of the old days of the Harshad
Mehta era as well as the tech bubble.
But, again fundamentalists were vindicated in their faith of looking at
the bigger picture rather than on short-term gains.
Some stocks like Tata Steel which touched a high of Rs.450 in January
plummeted to as low as Rs.230 (intra day) on that scary Monday afternoon.
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Skeptics and short-term participants could have burnt their fingers badly, but
for the brave hearted the stock rallied back from those levels to more than
Rs.570 levels (adjusted for bonus) at the close of 2004.
The latter half of the year also witnessed the emergence of the mid cap space
of the market wherein investor lapped up undervalued stories with good
potential.
This Bull Run, unlike many in the past has been more of a fundamentally led
one with a secular move up.
Most of the upside also has been in stocks with good fundamentals and
future stories, though not to mention that a tide takes up with it everything,
and so there would be the odd stock, the operators delight which might be
lurking around to make you lose every single penny of what has been
pocketed in the past one and a half years of the markets recent rally. The
moral being while sea surfing one should make the most of any high
tides while at the same time staying aware of any tsunami which might
take everything you possess.
The Year 2005 heralds a new era wherein the WTO regime kicks off. This
new phase will gradually bring with it new challenges and opportunities with
it which could prove to be a boon for some while a bane for many others.
The mantra continues to be investing into stocks with good management and
strong financials, but at the same time having a growth story in the making.
I firmly re-iterate our belief that Investments should be made in
companies and not in stocks, so you grow as the company grows.
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We have listed herein few of our best stock and mutual fund picks.
These picks are based on research and in some cases direct communication
with the company management also.
Mutual Funds are chosen in terms of their fund philosophy, fund manager
and to a certain extent past performance. We wish that Year 2005 would be a
happy year for all of you, with lots of blessings of Godess Lakshmi on your
happiness and prosperity.
600
500
400
300
200
100
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* Some of the brands of the company in India include Rantac and Metrogyl.
* Overseas brands include Doktor Mom,Nicardia etc. (Doktor Mom voted
the best brand in the cold an cough segment in the whole of Europe by
Readers Digest for three consecutive years
* The company is more or less debt free.
* Joint Venture with Spectrum (Us Co.) for marketing generic products in
the USA.
* The company has received US FDA approval for its formulations and
APU plant at Panoli
* Renewal of USFDA approval for its Metronidazole plant at Thane.
* More than 2% of revenue dedicated to R&D which is ever increasing.
* State of the Art production facilities.
* Foray into biotechnology
* Company holds both the ANDA and DMF approvals for marketing
Ciproflaxacin tablets in U.S.
Financials
Turnover FY04----Rs.314.55 crores
PAT (Profit After Tax)--------Rs.51.04 crore
Turnover FY05----Rs.358.1 crores
PAT (Profit After Tax)--------Rs.59.2 crores
EPS-------Rs.7.37 (FY05)
PE--------12.45
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Investment Strategy
The stock has had a good run up post the stock split announcement but since
the highs has also cooled off to settle at 460 levels. Investors with a long run
horizon could invest at current market prices.
But investors not willing to take on high risks, could invest their total
allocation in portions. The first portion could be invested at present levels
and then at lower levels getting themselves fully invested at every fall till the
stock touched 400.
On the upper side a breakout over 500 could take the stock all the way to
550 levels.
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(Stock price chart from 30th Nov.-- 31st Dec04 -------Source www.nseindia.com)
Snippets
One of the largest FMCG companies in India.Consolidated turnover
of Rs.13.3 billion
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FINANCIALS
The company sales for FY 03-04 was Rs. 1151.9 crores and its net profit
was Rs.98.3 crores.
The FY 03-04 EPS was Rs.3.54.
The company sales for FY 04-05 was Rs.1255.55 crores and its net profit
was Rs.147.9 crores
The FY 04-05 EPS was Rs.5.17 and Price earning ratio was 24.91.
OUTLOOK
The company, which was a family owned business, is now truly evolving
into a professionally managed unit. The company has re launched its decades
old banyan tree logo to a newer and more modern image.
The companys foray into food processing and increasing share of the
consumer care division emphasizes the fact that Dabur is on a long-term
growth path.
The company has outperformed most of the FMCG companies in basic
financial parameters since the past two financial years.
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TARGET BASIS
Our target for the stock is Rs.150.This should be achieved within December
2006 as the company continues to grow at more than 20% annually and the
forward earnings for 2006 coupled with price earnings multiple of 20 should
result in a price of Rs.150.
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Snippets (Industry)
The shipping industry has after a long time woken up to a turnaround
in fortunes
Supply would always be in limitations for the next few years, as
regulatory authorities demand mandatory scrapping of single hull
carriers by 2010, which would keep the supply side imbalances in
check.
Shipping sector is directly benefited by an increase in oil demand. Due
to the Iraq factor and other Middle East chaos, oil in our opinion
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would be in short supply for the next few years making for good times
for the shipping industry.
Financials
11.4
24.3
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Century Textiles
Price as on 3rd July05----- Rs.286.65
BACKGROUND
Century textiles are a B.K.Birla group company that has interests in textiles,
cement, paper etc.
The company in the past few years has revamped its operations and has also
gained due to the commodity swing in the cement sector.
SNIPPETS
The company has increased its cement capacity from 5.5.mn.
tones to 6.3 mn. tonnes
Century Textiles produces 100% cotton fabrics.
The company has a dominant export presence in the cotton fabric
segment.
The company also produced denim fabric.
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FINANCIALS
02-'03
Sales (Cr.)
2207.3
Profits (Cr.) 70.1
EPS
7.54
PE (Forward)
03-'04
2253.3
76.5
8.23
04'-'05
2514.3
112.5
11.78
21.47
Outlook
The company in the past two years is truly evolving into a professionally
managed organization and interests in textiles and cement should see the
company post immense gains in the future.
A good export presence currently would also help the company in
generating larger orders in the present post-quota regime.
Target
Our long-term target for the stock is Rs.270 as that would discount its 20052006 earnings by around 15-17 times which should be a reasonable target
Investors can invest at the current market prices but once again, conservative
investors should invest their sums in lots and not in a single shot.
ORIENT ABRASIVES
Price as on 3rd July05----- Rs.261.15
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Portfolio Management
03-'04
150.8
14.8
26
04'-'05
190
21
36
6.11
TARGET
Orient Abrasives is trading at a substantial discount to its stock market
peers like Grindwell Norton and Carborandum Universal, both of
which enjoy double digit price multiples. The stock going by the present
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Portfolio Management
trends and the future earnings should attain a price target of Rs.350 within
2005 as at a price of Rs.350 the stock would still be at a single digit price
multiple.
HINDUSTAN ZINC
Price as on 3rd July05----- Rs.146.15
Hindustan Zinc is the largest producer of Zinc in India and enjoys a
monopoly situation in respect to Zinc production
Hindustan Zinc earlier a government concern was taken over by the Vedanta
group.
The group has even post the acquisition continued to buyback shares from
the open market, a clear vindication of the managements faith in the
companys future outlook and current stock prices.
The company is growing very fast and being a monopoly is adding to the
companys growth prospects.
Outlook
Hindustan Zinc is a stock only for investors having a two year horizon and
willing to take into stride the volatile movements of the stock.
The stocks price in the short run being extremely sensitive to commodity
news,is very volatile.
The next few years could also see Hindustan Zinc coming out with another
open offer to control the remaining 30% of government stake in the
company which would further boost the stock price.
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Portfolio Management
Target
Our two-year target for the stock is Rs.300. Firstly the monopoly situation
would lead to growing gains for the company. Secondly the management
buying back shares from the open market is a clear indication of the stock
price being undervalued.
Financials
The company is currently discounts its FY04 earnings by somewhat less
than 10 times while discounting its 06 earnings by around 8 times.
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Portfolio Management
This could be substantially less as the company could make immense profits
on the wake of rising demand for fishing nets after the tsunami effect.
The company is a consistent dividend payer.
In the past financial year the company paid a dividend of Rs.2.20/- per share
which itself approximates to a dividend yield of 4.6 percent at current levels.
Target
Our two year target for the stock is between 90-100, which could be even
earlier if the company is able to capitalize on the huge opportunity in front of
it.
Investment Strategy
Investors can enter the stock at current levels .The stock faces immense
resistance at 51-55 levels and a breakout above those levels would imply a
clear bullish trend which might immediately take the stock up to 70 levels.
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Portfolio Management
The fund was launched in March 1999 to take advantage of the increasing
purchasing power in the rural sector, which would directly benefit the
FMCG sector.
But as it turned out, due to natural reasons wherein monsoons had a major
dent on the rural markets, which impacted FMCG stocks negatively.
Top Holdings
Stock
ITC
Nestle
Marico
Godrej
Tata Tea
% of portfolio
23.51
8.91
8.66
8.39
8.36
Returns
Time
1 month
3 month
1 year
3 year
5 year
Returns
6.03
21.19
23.34
23.81
4.11
Outlook
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Portfolio Management
We feel that 2005 would the year of FMCG stocks coming back into their
own.With the rural thrust on agriculture imparted by the present
government,this should rub off on the sector as a whole.
The fund is well managed and a look at the portfolio emphasizes its
conservative stance.
Investors willing to place sectoral bets could look at the Franklin FMCG
Fund with a two year horizon.
Top Holdings
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Portfolio Management
Name
Description %
SBI
Equity
6.76
11.4 GOI 2008NCD
5.43
RIL Ind
Equity
4.12
SBI
NCD
3.83
Amtek Auto Equity
3.62
Returns
Time
1 month
3 month
1 year
3 year
5 year
Returns
4.02
11.45
21.92
42.28
20.64
Outlook
The fund, inspite of being a balanced fund was outperforming a lot of
diversified equity funds till a year back providing a testimony to the fact
that this fund is a better fund in times of volatility.
This fund is a perfect fund for the conservative investor seeking good returns
with an adequate cushion of safety
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Portfolio Management
SBI
9.88
ITC
8.23
Satyam Computers 6.93
L&T
6.92
Reliance
Industries
6.61
Returns
Industry
Returns %
Average
1-month6.41
3-month 19.25
9.43
22.39
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Portfolio Management
FUND PHILOSOPHY
The fund maintains two portions of the portfolio, namely the core and the
satellite portions. The core portion would consist of stocks, which are more
of large cap in nature with strong fundamentals and good managements.
The remaining 20% would be invested in small and mid cap stocks which
are presently not fundamentally sound or of mediocre management but
which are expected to turn around in the immediate future.
OUTLOOK
Investor seeking higher returns with an iota of additional risk should
invest in this fund with a three-year horizon in which they be able to
maximize returns.
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Portfolio Management
Fund Philosophy
The fund has described would only invest 65% of the assets into high
dividend yielding stocks which have a dividend yield of more than 2 times of
the Sensex dividend yield.
Outlook
The fund is well managed and has been able to deliver superior returns
inspite of the fact that a lot of the funds assets are in cash .
The past five years has seen that investing in high dividend yielding
stocks outperform all other indices (known as the dividend dog theory in
the United States). The same has been statistically proven in the Indian
markets too.
Being a high dividend yielding fund, the fund would also be less volatile Vis
a vis other diversified equity funds.
We strongly recommend a buy on the fund wherein investors can be
sure of generating healthy returns with a nominal amount of risk.
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Portfolio Management
The sudden change in the fund performance can be well attributed to the fact
that the fund house now operates as an autonomous body and not within the
purview of SBI.
Performance
The fund has outperformed the only other two funds under its category,
namely the Reliance Pharma Fund and the JM Healthcare Fund
Outlook
The year 2005 would be a good year for many pharma companies which can
take on the challenges of the new product patent regime while at the same
time prove to be a disaster for many as they buckle under huge pressure.
The SBI Magnum Pharma Fund has been a top performer and could prove to
be an outperformer this year also, if some of its pharma calls stand
vindicated.
Investment Strategy
The fund being a sectoral fund would be prone to high risks and high
rewards. But unlike technology funds in the year 2000 which were trading at
price multiples of more than 75 and in some cases 100, the pharma sector is
trading at multiples of 25-30.
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Portfolio Management
A S.I.P would be a better strategy on this fund as lot of the volatility can be
captured.
Investors willing to take a call on the pharma sector, should look to invest in
this fund as it would provide better diversification rather than investing
directly in pharma stocks
The Indian mutual fund industry, which manages assets close to 1.50 lakh
crore, is passing through its biggest transitional phase. While domestic
players continue to look at consolidating their market share, new big foreign
players have entered Indian markets. More banks sponsored and foreign
players will be entering the market in the coming years. But (existing) top
asset management companies will able to garner a bigger share of the
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Portfolio Management
customer base, as they will have the capability to pour in more funds, put up
better infrastructure and are able to educate investors. The players who are
committed to the investors and who stay tuned to the times will prosper. The
weaker players could, over time, be marginalized and be taken over.
The biggest challenge before the industry continues to attract new investors.
Here Foreign-bank sponsored asset management companies have led the
way.
From providing plain vanilla products like equity, income and liquid funds,
these funds have launched products that have responded to market and
investors requirements, like asset allocations funds, dynamic asset allocation
funds (based on market price-earning or index levels), floating funds, short
term income plans, exchange traded funds and fund-of-funds and thematic
funds. Going forward, both the bond and equity markets are likely to remain
choppy and hence it is important that a proactive fund management style is
adopted towards asset allocation.
An asset management company can hope to make money only if it reaches
critical mass in terms of assets. Without size, it is impossible to generate a
reasonable return on investment.
The mentioned stocks and funds are just a few of the universe of stocks
which exist, and there would be many of them which might offer better
potential and returns. But, I have listed the few which I feel offer good scope
of appreciation and more importantly stocks which I know about, businesses
which I fully understand.
On a final note, I would like to sum up by saying that investing is all about
capping ones downside and uncapping the upside.
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Portfolio Management
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Portfolio Management
BIBLIOGRAPHY
Internal Records.
Annual Reports.
Company manuals and documents.
Companies Websites
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Portfolio Management