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August 23, 2011

Sharekhans top equity mutual fund picks

Index Equity market overview (August 2011) Top rated equity funds >> Large-cap funds >> Mid-cap funds >> Multi-cap funds >> Tax saving funds >> Thematic funds >> Balanced funds Fund focus >> Reliance Regular Savings Fund Balanced Plan >> HDFC Mid-Cap Opportunities Fund Fund ranking procedure

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Mutual Funds

Mutual Gains

Equity market overview (August 2011)

The credit rating downgrade of the USA by leading rating agency Standard & Poors (S&P) has turned out to be the proverbial last straw on the camels back for the equity markets globally. In India, the benchmark indices have finally broken down from their multi-month trading range of 500odd points on the Nifty. In fact, the bias had already turned negative on account of the higher than expected policy rate hikes by the Reserve Bank of India (RBI) in its policy review meet last month. The global cues were also not supportive with disappointing economic data coming out of the USA. Much before the S&P downgrade, the economic data from the USA was unnerving the equity markets. In Q2CY2011 the real personal expenditure had slowed down on a sequential basis to 0.1%. The US ISM Index had fallen to a two-year low of 50.9% and the new order outlook in July had slid below the important level of 50%, thereby putting a question mark on the manufacturing activity growth in the USA. In Q2CY2011 the US gross domestic product (GDP) had grown at 1.3% sequentially while the Q1CY2011 GDP growth rate had been revised downwards sharply to just 0.4% from the previous estimate of 1.9%. To top it all, the policy makers had been unable to reach a consensus on the debt ceiling hike and had dragged the issue till the last day of the expiry on August 2, 2011. At home, inflation continues to be a thorn in the economys flesh. In July it was placed at 9.22% from that of 9.44% in June. To tame inflation the central bank increased the key policy rates again last monththis time by a good 50 basis points! While the tough measure marked a change in the RBIs stance on inflation indicating a determined war against the sticky devil, it took the market by surprise as a 25basis-point hike is what the Street had expected. In the past 17 months the RBI has raised the interest rates by 325 basis points and more rate hikes have been hinted at since inflation is expected to remain stubbornly high. With its

hard-line monetary tightening the RBI is now hoping to reduce inflation to 7% by March 2012 as against the earlier target of 6%. Meanwhile, the aggressive monetary tightening has already dented industrial activity. The HSBC India Manufacturing Purchasing Managers Index, which measures the health of the manufacturing sector, declined for the third consecutive month in July, dropping to 53.6 from 58 in April. Though the growth in the services sector remains robust as of now, the macro environment would eventually lead to a moderation in the same. Despite the projection of an 8.2% GDP growth by the Prime Ministers Economic Advisory Council, most leading research houses estimate a sub-8% growth for FY2012. With the global turmoil, the risk to further downgrade in the GDP growth estimate has increased considerably now. Given the moderation in industrial growth and demand environment, the robust revenue growth maintained by corporates so far could be at risk. Till now, the volume growth in consumer-driven businesses has been robust but signs of moderation are beginning to appear in consumer durables, and apparel manufacturing and retailing companies. Thus, the risk of earnings downgrades remains as analysts have factored in the margin pressure and higher interest burden but not fully taken into account the possible moderation in the volume-led revenue growth. Thus these are testing times indeed for the market, which has plunged sharply since the US downgrade, and caution is advised. However, such knee-jerk reactions tend to provide attractive buying opportunities for investors. Any positive divergence in India would need to be supported by constructive policy action but for that to happen the government will have to get over its policy paralysis.

Sharekhan

August 23, 2011

Mutual Funds

Mutual Gains

Top rated equity mutual funds

Data as on July 31, 2011

Scheme Name

Stars rating

N AV (Rs)

6 mths

1 yr

Returns (%) 3 yrs

5yrs

Since inception

Large-cap funds
ICICI Prudential Focused Bluechip Equity Fund Franklin India Bluechip Principal Large Cap Fund Birla Sun Life Frontline Equity Fund - Plan A Birla Sun Life Top 100 Fund Indices BSE Sensex 16.54 212.72 27.78 86.63 22.79 18197.2 4.09 1.69 -1.00 0.34 3.00 -0.7124 9.06 5.56 1.02 2.29 6.49 1.8459 19.96 16.94 16.14 15.84 14.12 8.2403 -15.95 15.66 17.74 12.61 11.1204 17.12 26.45 19.58 27.39 15.36

Mid-cap funds
IDFC Small & Midcap Equity Fund HDFC Mid-Cap Opportunities Fund DSP BlackRock Small and Midcap Fund IDFC Premier Equity Fund - Plan A Sundaram Select Midcap Indices BSE MID CAP 6915.31 0.68 -6.67 7.51 9.96 18.93 16.51 18.19 33.29 158.21 7.50 12.00 7.71 8.52 9.36 4.35 11.98 5.18 4.30 7.28 28.15 23.61 22.59 21.57 20.12 ---28.07 16.67 20.68 13.01 13.55 22.89 35.90

Multi-cap funds
Birla Sun Life Dividend Yield Plus ICICI Prudential Discovery Fund Reliance Equity Opportunities Fund HDFC Equity Fund Mirae Asset India Opportunities Fund Indices BSE 500 7111.31 -0.24 -1.31 8.79 12.04 85.97 48.89 36.61 277.37 16.45 5.11 3.21 5.83 1.29 3.96 4.21 3.90 6.37 5.54 7.31 25.80 25.59 23.02 22.32 21.01 19.65 17.04 17.99 19.13 -29.09 25.62 22.75 22.18 16.18

Tax saving funds

Religare Tax Plan - Growth HDFC Taxsaver - Growth Fidelity Tax Advantage Fund - Growth ICICI Prudential Taxplan - Growth Franklin India Taxshield - Growth Indices CNX500 18.09 233.49 21.82 141.06 211.79 4424.05 7.94 2.55 2.08 2.75 5.17 -0.01 6.56 4.58 3.07 4.06 8.80 -1.15 20.38 19.79 17.83 17.29 16.95 8.59 -15.30 17.98 13.65 15.48 11.55 13.81 30.43 15.49 24.79 28.15

Thematic funds
Birla Sun Life India GenNext Fund UTI India Lifestyle Fund DSP BlackRock Natural Resources & New Energy Fund Fidelity India Special Situations Fund Kotak Lifestyle Fund Indices S&P Nifty 5482.00 -0.43 2.14 8.17 11.77 25.93 12.38 14.96 18.41 13.99 14.23 12.44 6.86 2.12 6.89 11.70 10.76 8.14 2.26 5.60 18.04 16.14 15.31 14.40 13.02 17.46 --14.28 10.59 17.26 5.58 13.16 12.48 6.47

Balanced funds
HDFC Prudence Fund HDFC Balanced Fund Reliance RSF - Balanced Birla Sun Life 95 UTI Treasury Advantage Fund Indices Crisil Balanced Fund Index 3478.67 1.11 3.60 9.07 10.65
Note: Returns < 1 year - absolute, > 1 year - CAGR (compunded annualised growth rate)

217.77 58.02 22.17 310.70 2554.99

5.26 10.04 1.39 2.26 4.25

7.63 11.47 1.64 3.68 7.63

23.40 20.46 19.38 18.66 6.52

19.34 16.81 15.24 17.26 6.92

21.05 17.53 13.84 23.19 8.09

Sharekhan

August 23, 2011

Mutual Funds

Mutual Gains

Reliance Regular Savings Fund Balanced Plan

Fact sheet Reliance RSF Balanced Fund consists of a hybrid equity oriented portfolio focusing on large as well as mid-cap stocks for having balanced approach towards risk taking ability. It intends to invest about 50 to 75% of net assets in equity instruments while 25 to 50% will be allocated to debt & money market instruments.
Scheme performance
25% Relianc e RSF - Balanc ed - Grow th Cris il Balanc ed Fund Index 19.4% 15.2% 15% 11.1% 10% 9.1% 11.6% 10.7% 13.8% 13.3% Balanc ed f unds Category A v erage

Key features Fund category Launch date Minimum investment Load structure Fund Manager Latest NAV (Growth) Latest NAV (Dividend) Expense ratio AUM (June 2011) Benchmark Index
Balanced Funds 8-Jun-05 Rs500 Entry:0%, Exit:1% if redeemed within 1 Yr. Amit Tripathy & Omprakash Kuckien Rs22.17 Rs13.48 2.11% (30-Jun-11) 828.85 Cr. Crisil Balanced Fund Index

20%

5% 1.4% 0%

2.5% 1.1% 1.6%

2.9%

3.6%

Holding by market cap Particular

3 Y ears 5 Y ears Since Inception

% 24.7 18.7 4.8 -19.0 33.3

6 Months

1 Y ear

BSE Sensex BSE Midcap BSE Small cap Benchmark (Crisil Balanced Fund Index)

Returns < 1 yr: Absolute, >1yr: CAGR

Style box analysis

Large Cap Mid Cap Small Cap
Growth Blend Value

Top 5 holdings Top 10 holdings

Top 10 stock holdings (Total no of scrips: 31) Company name HDFC Bank Ltd. Divis Laboratories Ltd. Infosys Ltd. Bharat Heavy Electricals Ltd. Areva T & D India Ltd. Maruti Suzuki India Ltd. State Bank of India Glenmark Pharmaceuticals Ltd. Tata Motors Ltd. Bharat Forge Ltd. % of net assets 4.65 4.19 3.53 3.51 3.13 3.07 2.99 2.94 2.78 2.52

Top 5 sectors

Banks Pharmaceuticals & Biotechnology NBFC Softw are and Consultancy Services HFC 10.99% 10.38% 8.18% 7.68%

15.34%

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0

Scheme analysis
More than six years in existence, Reliance RSF - Balanced fund has grabbed the attention of many investors owing to its performance. The fund has outperformed its peer group as well as its benchmark, the CRISIL Balanced Index, by a huge margin over longer time frames. Over the last five years, the fund has generated a 15.24% compounded annual growth rate (CAGR) return, while the benchmark and the category on an average grew by 10.65% and 11.58% respectively. Over the last three years as well the fund grew by an impressive 19.38% (CAGR), while the category on an average grew by 11.06%. Though the fund can go upto 75% in equity exposure, it has never touched the limit. However, it has been seen increasing the equity exposure (about 73%) during 2011 taking the advantage of attractive valuations. On the debt front, it had largely stuck to investment in cash and equivalent instruments. However, since March 2010 it started vesting funds in debt instruments as well taking the advantage of rising yields and kept the average maturity to a meager 140 days over the past one year. The equity portfolio is very actively managed, which is obvious by the very high portfolio turnover ratio. Such quick movements are visible in sector allocation as well. It kept on diversifying its portfolio over and above the 30 scrips since the last one year and reduced concentration risk. The fund blends its portfolio between large and mid caps; large-cap stocks accounted for about 38.06% of net assets while mid-cap stocks accounted for 24.99%.

Sharekhan

August 23, 2011

Mutual Funds

Mutual Gains

HDFC Mid-Cap Opportunities Fund

Fact sheet The fund intends to create a portfolio that is substantially constituted of equity and equity related securities of Small and Mid-Cap companies which offer higher return potential. It intends to invest about 70 to 95% of its net assets in mid-cap companies, while allocating 5 to 15% in small-cap companies. Key features Fund category Launch date Minimum investment Load structure Fund Manager
Scheme performance
30% 25% 20% 15.2% 15% 10% 5% 1.2% 0% 6 Months -5% -10% 1 Year -4.7% 3 Years 5 Years Since Inception 1.1% 12.0% 6.6% 12.0% 13.2% 13.1% 15.6% 13.0% 8.1% HDFC Mid-Cap Opportunities Fund - Grow th 23.6% Mid-cap funds Category Average CNX Midcap

Mid Cap Funds 25-Jun-07 Rs. 5000 Entry:0%, Exit:1% if redeemed within 1 Yr. Chirag Setalvad Rs16.51 Rs16.51 2.01% (31-Mar-11) 1296.98 Cr. CNX Midcap)

Latest NAV (Growth) Latest NAV (Dividend) Expense Ratio AUM (June 2011) Benchmark Index
Holding by market cap Particular BSE Sensex BSE Midcap BSE Small cap Benchmark (CNX Midcap) Top 5 holdings Top 10 holdings
Large Cap Mid Cap Small Cap

% -40.57 16.13 25.29 17.04 28.36

Returns < 1 yr: Absolute, >1yr: CAGR

Style box analysis

Top 10 stock holdings (Total no of scrips: 45) Company name Carborundum Universal Ltd. IPCA Laboratories Ltd. Bata India Ltd. Lupin Ltd. Vesuvius India Ltd.
14.28% 10.33% 10.00% 6.14%

% of net assets 4.35 4.22 3.10 2.84 2.53 2.44 2.32 2.29 2.14 2.13

Growth Blend Value

Top 5 sectors
Pharmaceuticals & Biotechnology Banks Industrial Products Auto & Auto Ancillaries Chemicals

Solar Industries India Ltd. Exide Industries Ltd. Indian Bank Tube Investments of India Ltd. Federal Bank Ltd.

5.46%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0 12.0 14.0 16.0 % % % %

Scheme analysis
The fund debuted in June 2007 and contained loss better than peers in 2008 and even outperformed the benchmark index. The fund has consistently outperformed its peer group as well as its benchmark CNX Midcap Index by a huge margin over different time frames. Over the past three years the fund has grown by 23.61% (CAGR), while the CNX Midcap index and the mid-cap funds category on an average grew by 13.16 and 15.24% respectively. Over a shorter time frame of six months, the fund grew by 12%, while the benchmark index grew by a meager 1.2%. The fund also stands very well on statistical measures such as Sharp and Information ratio within the category. The strategy of focusing on a buy-and-hold approach at most times and balancing the same with a rational approach to selling when the valuations become too demanding even in the face of reasonable growth prospects in the long run has paid off very well. The fund doesnt shy away from choosing niche players. And to reduce risk, the fund also maintains a well diversified portfolio. Over the past one year, the fund has been diversifying portfolio over about 52 scrips, where the maximum exposure to a single scrip went uptill 5% of net assets. It has maintained a blend of value and growth stocks in the portfolio. The fund increased its exposure to value stocks in 2010 which helped it to be a good performer last year and with lesser volatility.
Sharekhan 5 August 23, 2011

Mutual Funds

Mutual Gains

Fund ranking procedure

We have identified the best equity-oriented schemes available in the market today based on the following five parameters: the past performance as indicated by the one, two and three year returns, the Sharpe ratio and Information ratio. Sharpe indicates risk-adjusted returns, giving the returns earned in excess of the risk-free rate for each unit of the risk taken. The Sharpe ratio is also indicative of the consistency of the returns as it takes into account the volatility in the returns as measured by the standard deviation. Information Ratio is one of the most important tools in active fund management. It is the ratio of active return (the return over the index return) to active risk annualized. A higher Information Ratio indicates better fund manager. We have selected the schemes upon ranking on each of the above five parameters and then calculated the maximum value of each of the five parameters. Thereafter, we have calculated the percentage underperformance or over performance of each scheme (relative performance) in each of the five parameters vis a vis maximum value among them. For our final selection of schemes, we have generated a total score for each scheme giving 60% weightage each to the relative performance as indicated by the one, two and three year returns, 20% weightage to the relative performance as indicated by the Sharpe ratio and the remaining 20% to the relative performance as indicated by the Information ratio of the scheme.

Sharekhan mutual fund ranking scale Stars Description For top 10 percentile of the eligible schemes Next 22.5 percentile of the eligible schemes Next 35 percentile of the eligible schemes Next 22.5 percentile of the eligible schemes Bottom 10 percentile of the eligible schemes

Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest that you get in touch with our Mutual Fund Advisor before investing in the best funds.

Disclaimer: Mutual fund investments are subject to market risk. Please read the offer document carefully before investing. Past performance may or may not be sustained in the future.

Disclaimer
This document has been prepared by Sharekhan Ltd.(SHAREKHAN) This Document is subject to changes without prior notice and is intended only for the person or entity to which it is addressed to and may contain confidential and/or privileged material and is not for any type of circulation. Any review, retransmission, or any other use is prohibited. Kindly note that this document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report. The information contained herein is from publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (SHAREKHAN and affiliates) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. We do not represent that information contained herein is accurate or complete and it should not be relied upon as such. This document is prepared for assistance only and is not intended to be and must not alone betaken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. SHAREKHAN & affiliates may have used the information set forth herein before publication and may have positions in, may from time to time purchase or sell or may be materially interested in any of the securities mentioned or related securities. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. Any comments or statements made herein are those of the analyst and do not necessarily reflect those of SHAREKHAN.

Sharekhan

August 23, 2011