Micro, small-cap oriented funds outshine in bull market

In a clear sign that we are in an extended bull market, funds with predominant exposure to growth stocks have outperformed the rest by a huge margin

When mutual funds with a predominant focus on growth stocks like micro, small and mid-cap stocks completely outshine funds with a large-cap bias, one can be certain that the bulls are out in full force in the stock markets.

Moneylife ran a study on the performance of equity-diversified funds between December quarter of last year and March quarter of this year. It is interesting to note that seven out of the top ten performing funds have a bias towards growth stocks, that is, micro, small or mid-cap stocks.

DSP BlackRock Micro Cap Fund emerged the top performer, with absolute returns of 13% compared to its benchmark (BSE Small Cap) returns of 2%. Religare Mid N Small Cap Fund (up 9%) and ICICI Emerging STAR Fund (up 8%) are the next best performers, beating their respective benchmarks (CNX Mid Cap and CNX Nifty Junior), which returned 4% each.

Canara Robeco FORCE Fund is also among the top performers, with returns of 8% over this period, compared to its benchmark’s (S&P Nifty) returns of 1%. The other growth-stock oriented funds in the top ten include IDFC Small and Mid Cap Equity Fund, ICICI Prudential Discovery Fund (up 7% each) and Religare Mid Cap Fund (up 6%).

It is only during an extended rally that small and micro-cap stocks exhibit such stellar performance. The moment the market’s fortunes take a turn for the worse, these very stocks are beaten down the most. The very same funds will then exhibit a different performance altogether. As such, it is important that their current run is not extrapolated too much. Any signs of weakness in the markets should be enough to throw these stocks out of gear.

Among the worst performing funds, JM has taken the cake by throwing up the worst five performing funds in the equity diversified space. All these funds have underperformed their respective benchmarks. These include the JM Emerging Leaders Fund (-6%), JM Core 11 Fund (-5%), JM Small & Mid Cap Fund (-5%), JM Mid Cap Fund (-5%) and JM Multi Strategy Fund (-5%).

These underperformers are followed by the Reliance Natural Resources Fund, which is actually a sector fund, concentrating on companies engaged in discovery, development, production and distribution of natural resources. It has given returns of -3%, compared to its benchmark’s (BSE 200) returns of 1%. Bharti AXA Equity Fund, Taurus Bonanza Fund and Sundaram BNP Paribas SMILE Fund have also witnessed similar underperformance.

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COMMENTS

aniruddha naha

9 years ago

Hi,

I went through your article. I would like to know how these funds have performed on a 2 year and 3 year period basis, which would include periods when the markets were really weak?

FM restores status quo on ULIPs

Finance minister Pranab Mukherjee has said that SEBI and IRDA have agreed to “jointly seek a binding legal mandate from an appropriate court” on the ULIPs issue

Finance minister Pranab Mukherjee has finally stepped in to provide some clarity on the ongoing feud between the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA). He has said that both the regulators have agreed to maintain the status quo that existed before SEBI’s ban on 14 life insurers from raising funds for unit-linked schemes.

Although the arrangement is temporary, Mr Mukherjee has provided some relief to life insurance companies.

“Policyholders of unit-linked insurance plans (ULIPs) offered by different insurance companies are assured that these policies are safe and secure and the matters arising out of the recent orders of SEBI will be addressed expeditiously in the appropriate forum in accordance with law,” IRDA has said on its website.
Before Mr Mukherjee’s decision, Moneylife had spoken to various independent financial advisors (IFAs) and received a mixed bag of reviews from both policy-holders and the distribution community.

“Investors have panicked. We have asked our clients to hold on and explained the position. Clients initially came to us with the intention of closing funds,” said Ramesh Bhatt, a Chennai-based IFA and chief executive of Aniram, a financial services firm.

“Currently, we are not going ahead with our existing prospects. We are waiting for the dust to settle down. We had clearly positioned our products. It has created unnecessary disruption in the market,” said Thiru Murugan, a financial consultant with Wealth Creation & Management Services.

Another certified financial planner, Vivek Rege of VR Wealth Advisors, said that investors will not be impacted.

Many analysts believe that a ban on sale and renewal of ULIPs sold by all insurance companies will lead to Rs75,000 crore being drained from the stock market.

But many insurance companies disregarded SEBI’s order and went along with their usual business. 

Call centres manned by insurance companies were receiving numerous calls today due to SEBI’s decision. An official from Aegon Religare confirmed that even though it was business as usual, many ULIP investors called to ask about their investments.

While some distributors were advising their clients not to panic, a few others were saying that ULIPs were largely mis-sold by distributors, agents, insurance firms and IRDA. “It is a highly mis-sold product in the country. There is no regulation. The regulator, the insurance companies and the distributor, all are responsible. They are all giving projections on returns based on past performance, which is not correct. It is not an appropriate product for the investor,” said Harish Mohan, managing director, Time Financials.

Many players could not figure out why the Life Insurance Corporation of India (LIC), which dominates more than 50% of the life insurance market, was spared the ban. “It is a right decision by SEBI. LIC’s ULIP products should also be banned. The seven-year highest NAV (net asset value) product launched by LIC is neither profitable for investors nor does it provide long-term insurance cover as it is restricted to ten years. Charging investors by cancellation of units is an injustice to investors,” a reader named Sadanand Thakur had commented on the Moneylife website, on one of our earlier stories related to ULIPs.

As of now, the status quo continues. But if there is a long-drawn battle in the courts over ULIPs, the regulatory war may have investors caught in the crossfire.

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COMMENTS

Harbinder Mehra

9 years ago

SEBI has done what it should have done long time back. IRDA is run like an association for the profit mongers insurance companies in India.The way ULIP are positioned and sold in India can be considered height of miss selling.ULIP are sold in villages of India as FD products by Insurance companies by having tie up with Nationalized banks.

SEBI has taken a long term view for the overall stability of market whereas IRDA move smacks of short term motives to protect insurance companies.

I think that for overall benefit SEBI's effort should be lauded and supported in every forum.

DQ Entertainment to foray into animated feature films

The company, which listed on the BSE, has new plans for expansion and broadening its revenue base

DQ Entertainment (DQE), a global animation, gaming and live-action entertainment production & distribution company, listed on the Bombay Stock Exchange (BSE) on Monday. Its order book stands at $95.50 million (spread over 2.5 years), said a top official. The company is also producing two animated 3D stereoscopic feature films which will hit global screens by the winter of 2011.

The shares of the company listed at Rs135 on the BSE on Monday (29th March), a premium of 68.75% against the issue price of Rs80 a share. “We hope to increase our order book of $95.50 million, as we are coming up with a series of new projects,” said Sanjay Choudhary, financial controller, DQE.

Apart from the television series, the company is ready to foray into television feature films ranging from 85 minutes to 90 minutes. “We completely own both the properties, but we need to raise funds for the production of the two movies. We will have to part with around 50%-60% of ownership to raise the fund. There will be around two distributors for each film. The distributors will own 50%-60% stake in these two films. The revenue earned from the distribution will be divided among these two distributors (for each film) according to the stake they own,” said Tapaas Chakravarti, chairman and CEO, DQE.

“Besides the ownership revenue, we will also receive the revenue earned by the movies in the box office. This will not be shared with the distributors,” he added.

The company has also signed a co-production deal with Hive Enterprises Ltd for a new animated series—‘The Hive’. DQE will produce 78 episodes of 3D computer-generated imagery (CGI) ranging for 7 minutes each for each episode of ‘The Hive’. The total cost of production of the series is Rs24 crore. The company has still not finalised the global satellite broadcaster for this series.

Moneylife had earlier reported on how DQE has tied up with Walt Disney for co-producing three animated series. The company on Monday announced that it is partnering with Marvel Animation, LLC, a wholly-owned subsidiary of the Walt Disney Company and Method Animation for co-producing 26 new episodes for the second season of the animated series, ‘Iron Man: Armored Adventures Season Two’. The production budget for ‘Iron Man’ stands at Rs60 crore.

“We have signed one co-production deal with Disney and we are in the process of signing two more. Disney has already bagged the pay television rights for ‘Jungle Book’ for 29 countries. The rights are for four years,” confirmed Mr Chakravarti.

The company holds 20% equity stake in ‘Iron Man’. DQE will earn 20% of the total revenue from the series. The company also expects a substantial amount from merchandising, licensing and publishing agreements for this series. Earlier, the company was earning 95% of its revenue from production and the balance from merchandising, licensing and publishing agreements. Currently the company is looking at earning around 10%-15% from these marketing activities.

DQE is planning to employ 600 fresh recruits over the next two months, which will raise its employee strength to 3,800. The new recruitments are mainly for 3D HD stereoscopic animation production. Around 90% of the content produced by the company is in the 3D stereoscopic format.

“We produce 90% of our content in 3D stereoscopic (format) and we have plans to launch a series based on this format. We will be launching ‘Jungle Book’ by this calendar year. Next year, we will be launching ‘Peter Pan’, ‘Iron Man: Armored Adventures Season Two’ and ‘Charlie Chaplin’. All these series will be (in) 3D stereoscopic (format),” said Mr Chakravarti.

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