JUNE 6, 2004
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Market Research Jitters
The big market research (MR) problem: people, when asked, often tell you what they think you want to hear rather than what they really think.

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Business Today,  May 23, 2004
India's Best Fund Managers
A BT-Mutualfundsindia.com study
Reliance Mutual Fund
Kunj Bansal
HDFC Mutual Fund
Prashant Jain
Templeton Mutual Fund
R. Sukumar

Sundaram Mutual Fund
Anand Radhakrishnan
Birla Sun Life Mutual Fund
K. Ramanathan
IL&FS Mutual Fund
Dheeraj Singh

IL&FS Mutual Fund
Dheeraj Singh
Birla Sun Life Mutual Fund
Navneet Munot
Templeton Mutual Fund
Sameer Kulkarni

Alliance Capital Mutual Fund
Amitabh Mohanty
IL&FS Mutual Fund
Dheeraj Singh
Templeton Mutual Fund
Nilesh Shah

Stability could well be their common middle name. the 10 fund managers listed in the pages that follow-India's best, according to a numbers-plus exercise carried out by Business Today and Mutualfundsindia.com, a Mumbai-based agency that is now part of ICRA Online-are the very definition of the term stable. They are, without exception, bright: several are from one Indian Institute of Management (IIM) or another, and one topped the Chartered Accountant (CA) exams. They read serious stuff: Eliyahu Goldratt, Spencer Johnson, K.M. Munshi and the like. They are into serious pastimes: Hindustani classical music, philosophy, religion, psychology, and yoga. And best of all, most of their own investments are through mutual funds-often, the very ones they manage. That augurs well for investors.

Size Doesn't Matter
Kunj Bansal
, 36, Equity Fund Manager, Reliance Mutual Fund (Reliance Capital Asset Management)

A continuing d-street myth concerns the ability of only very small funds to generate superior returns. Their nimbleness, goes conventional logic, makes it easy for them to take positions (or exit them) to optimal benefit. With combined assets of around Rs 1,400 crore under his management, Kunj Bansal has shattered that myth.

The funds he manages have consistently delivered above-average, often good, returns to investors. This, despite his aggressive fund-management style. After all, Reliance's strategy, as articulated by the company is to reshuffle the portfolio "based on industry- and company-specific developments". So, despite the two funds he manages being largely comprised of 'quality' stocks, Bansal has churned their portfolios and how. For instance, in March 2004, the exposure of Reliance Vision to the banking sector grew from 2 per cent to 6 per cent (it continued to climb and reached 10 per cent by the end of April). Both portfolios also boast significant exposure to mid-cap stocks. This bias has helped them deliver high returns in the past 12 months. Then, the eight-year veteran of the fund management business (the management graduate was Assistant General Manager at UTI before he signed on with Reliance) has always been an aggressive fund manager.

Karma On The Street
Prashant Jain
, 36, Fund Manager, Equities, HDFC Mutual Fund (HDFC Asset Management Company)

If there is a perfect antithesis to the greed-is-good Gordon Gekko image of a market player, it has to be Prashant Jain, an IIT Kanpur, IIM-Bangalore alum who manages six equity-focussed mutual funds at HDFC Mutual Fund. The man, you see, is a believer in the concept of karma, a tenet of Hinduism that states that an individual's future, in this birth, and in future ones, is a function of his or her actions. That could explain Jain's admission that his primary objectives are to fulfill his responsibilities towards work, family, and, sometime in the future, society as a whole. And it can explain his deliberate approach to investing. Jain has had plenty of time to hone his fund management skills: he spent two years with SBI Mutual Fund and 10 at Zurich India Mutual Fund (where he eventually became Chief Investment Officer).

Jain's investment strategy revolves around buying into companies whose business he understands and which, in his opinion, boast sustainable business models and a few competitive advantages to boot. His time horizon is almost always medium- to long-term and emphasis on risk control. "This (risk control) reduces the impact of wrong decisions and can be achieved by effective diversification and by sticking to well managed companies," he explains. Does this work? Well, Jain made a killing by buying software stocks in 1995 and 1996 and selling them in 2000. "There have been other individual stocks that have turned out to be multi-baggers (read: appreciated a few times over), but in my opinion, these two decisions had the maximum impact on fund performance," he says. Jain's own investments are largely in mutual funds, although a small portion goes into direct equity, and he likes to listen to music, travel, read up on religion, and practice yoga. "Right now, work and family leave little time for these," he smiles. "But I believe that a stage in life will come when I will have more time to pursue these."

Surf's Up
Sameer Kulkarni
, 35, Vice President & Head, Fixed Income, Templeton Mutual Fund (Franklin Templeton India)

It shouldn't surprise anyone that a man whose bible is Dr. Spencer Johnson's Who Moved My Cheese? Lists the ability to change as the most important factor for personal or professional success. "If you do not change, you become extinct," says Sameer Kulkarni, who likes to offer the metaphor of surfing to describe his job: You find the optimal wave and stay away from those that are too strong or too weak. That and the ability to minimise liquidity-interest rate-and credit-risk, reckons Kulkarni, are the keys to managing a debt fund successfully. When he wants to get away from it all, this fund manager-he also likes the works of John Maynard Keynes and Eliyahu Goldratt-likes to listen to Hindustani classical music. And no, he doesn't surf.

Amitabh Mohanty
, 32, Vice President (Fixed Income) Alliance Mutual Fund (Alliance Capital India)

It seems somehow apt that a manager of debt funds-Amitabh Mohanty oversees all the debt funds and the debt portion of balanced funds of Alliance, apart from directly managing Alliance Cash Manager, the company's flagship liquid scheme-be an ardent follower of Steve 'Tugga' Waugh, the former captain of the Australian cricket team and a man renowned for his sheer grit and resilience. "Safety and liquidity are paramount in a liquid fund and we will not compromise this for a few more basis points," says the Indian Institute of Management, Ahmedabad alum. To ensure that his debt funds generate higher returns (than its peers and competing investment options such as fixed deposits) Mohanty has always focused on what he calls emerging opportunities. Floating rate bonds are one such. These are linked to the Mumbai Inter Bank Offer Rate (MIBOR), and the interest rate risk they carry is zero. "We are pioneers in using floating rate bonds and have been doing so for the past two to three years," says Mohanty. Even better, such bonds are highly liquid. That could explain why Mohanty parks 25-30 per cent of the assets under his management in them.

Soros, Buffet, Gross, And Dare We Suggest, Munot?
Navneet Munot
, 33, Fund Manager, Gilt Funds, Birla Sun Life Mutual Fund (Birla Sun Life Asset Management Company)

The mere fact that Navneet Munot, a chartered accountant who signed on with the Aditya Birla group soon after clearing his qualifying exam, lists George Soros, Warren Buffet, and legendary bond manager Bill Gross among his role models, should please investors. So should his analysis-heavy approach: to maximise risk-adjusted returns for the funds he manages, Munot uses a method that, at once, looks at the relative valuation of the yield curve, and his own view on interest rates formed by studying macro-economic fundamentals. "It is necessary to get the big picture right, yet have a passion for details," he says.

In many ways, Munot is a complete fund manager: apart from studying the methods of his role models, he studies psychology (can't do without it in the money management business, is his verdict), is extremely disciplined, and keeps his eyes and ears open at all times. "There is an immense sense of trusteeship that is necessary in this business as someone else's money is at stake," says Munot. Expectedly, the man who reads books on history, philosophy, and yoga when he gets the time, is a long-term player, whose own investments go into equity (a long-term play) and debt funds in a proportion that he periodically alters. That's scientific.

A Percentage Play
Anand Radhakrishnan
, 35, Fund Manager (Fixed Income), Sundaram Mutual Fund (Sundaram Asset Management Company)

The key to managing a debt portfolio in a situation where interest rate volatility is high is to simply understand where they are headed. "The starting point is to have a view on the interest rate structure," says Anand Radhakrishnan, an iim, Ahmedabad alum who directly manages Sundaram Bond Saver, and who is responsible for all other debt funds and the debt component of balanced funds and Monthly Income Plans (MIPs). This, Radhakrishnan manages with the assistance of an in-house model that incorporates nine variables including money supply, inflation, industrial production and, the interest rate in the US. He compares this with the shape (flat or steep) of the yield curve before making a decision. "As the yield curve is flat right now, we are more into medium- and short-term papers," says Radhakrishnan. The fund manager may be an ardent follower of the 'safety first' approach, characteristic of the corporate policy of the TVS Group of which Sundaram is a part), but he doesn't miss opportunities to earn that bit more by taking calculated risks on rating upgrades. Radhakrishnan bets on quality companies (such as IPCL, Ashok Leyland, or Indian Hotels), whose debt is rated below AAA (highest safety). There's little chance of a rating downgrade in such cases, but a fair chance of an upgrade. "In India, it takes a long time for actual market conditions to be reflected in the rating, and a smart fund manager should be able to use this (to his advantage)," says Radhakrishnan. He or she should.

Life After Super-returns
K. Ramanathan
, 32, Fund Manager, Income Fund, Birla Sun Life Mutual Fund (Birla Sun Life Asset Management Co.)

Like most debt fund managers who rode a falling interest rate regime to register some stunning returns for investors, K. Ramanathan begins most conversations these days by stating that the best is over. "Over the past three years, fixed income funds generated some of the most attractive returns ever," he says, "but investors should not expect such super-normal returns from debt in the future." The engineer-MBA from Regional Engineering College, Suratkal, and Mumbai's S.P. Jain Institute of Management & Research should know: he has lived through the volatile debt markets of the past five years-he joined the Aditya Birla Group in 1998-and witnessed the Asian crisis, 9-11 and the events that followed, and free falling interest rates. "It has been a great learning experience for debt market operators," he says.

Ramanathan, who loves travelling (he loved New Zealand and claims "the serenity of the place was a contrast to the otherwise stressful lives we lead") believes it is only a matter of time before interest rates bottom out and sees this posing the biggest hurdle between funds like the ones he manages and reasonable returns. His take: investors should not expect more than a 5.5 per cent annualised return on income funds. So, what's the smart income fund manager doing? Building aggressive portfolios and looking at longer maturity periods. The excess liquidity in the market, explains Ramanathan (companies aren't borrowing much and foreign debt is still less expensive than that of the domestic variety) bodes well for the bond markets. Paradoxical as this may sound, Ramanathan believes this is the time to invest in equities: almost 70 per cent of his investments are in equity funds. That's where your investments should go, Constant Reader, unless you happen to be risk averse. In that case, your money is safe with Mr. Ramanathan.

Return To Forever
Nilesh Shah
, 36, Former Director & CIO (Fixed Income), Templeton Mutual Fund (Franklin Templeton India)

Nilesh shah may be between jobs-he recently quit Templeton and is yet to join Prudential ICICI Asset Management Company-but the whiz-kid who came first in the qualifying exam to become a chartered accountant (ca) in 1991 is a shoo-in as far as this listing is concerned purely on the strength of his performance managing the liquid funds at Templeton. "SLRs are important," says Shah, who, legend has it, never allowed the Net Asset Value of any fund he managed to fall, not even for a day. "First Safety, then Liquidity, and last, Return." Then, there are the details. Most investors in liquid funds exit in March (due to year-end considerations), and return in April. Shah, accordingly, built portfolios with "papers that matured in March".

In one way, Shah's move to Prudential ICICI is a homecoming of sorts. The avid reader who nurtures his Gujarati provenance-his favourite authors are K.M. Munshi and Uma Shankar Joshi-joined Templeton to manage fixed income funds in 1997, but rose to become the Chief Investment Officer for both equity and debt by 2000. The merger with Pioneer saw him becoming CIO (Fixed Income) of the merged entity but at Prudential ICICI his new designation reads CIO (Equity and Debt). At Templeton, he managed Rs 13,000 crore; at Prudential ICICI, he will Rs 15,000 crore. Not surprisingly, then, Shah is using the time at hand to develop a strategy for equity as well. "I have done this earlier and what is needed is just some brushing up," he smiles.

Work And Work Alone
Dheeraj Singh
, 35, Fund Manager, Income Segment, IL&FS Mutual Fund (IL&FS Asset Management Company)

It's not really possible to take a break because of the hectic work schedule." That's Dheeraj Singh for you-a mechanical engineer with a post-graduate diploma in management from IIM-Bangalore who is as serious-minded as serious-minded can be. For over 11 years, Singh has managed fixed income funds at JM Financial, Escorts, and now at IL&FS. And he has developed an investment approach all his own. Non-aggression is one element of this; the fund manager prefers to stick to tried and tested securities with AA ratings (this signifies a high degree of safety) rather than try something adventurous. Liquidity is another. Some fund managers believe an income fund should be highly liquid to meet redemption pressure. Not Singh. "The liquidity bit is important to be able to have a nimble portfolio," he says, referring to the fact that a highly liquid fund should be able to churn securities to its advantage. With a change in the interest rate regime unlikely-"A secular change is way off as there is a lot of liquidity in the system," explains Singh-this fund manager's work looks cut out. Thrills? That will have to come from the thrillers he is so fond of and the happenings in the equity market: all his investments are in equity funds.

Rational Exuberance
Sukumar Rajah
, 39, Director And Chief Investment Officer (Equity), Templeton Mutual Fund (Franklin Templeton India)

Few equity fund managers in India enjoy as much recognition as Sukumar Rajah. That shouldn't surprise anyone. At ITI Pioneer, and at Templeton (the former merged into the latter in 2002), the Indian Institute of Management, Bangalore alumnus has managed some of India's best-known and best-performing funds such as Franklin India Prima Plus, Franklin Infotech Fund, Franklin Pharma Fund, and Franklin India Tax Shield. The man himself ascribes much of this to two things. A simple Thomas Carlyle tenet he follows: Conviction is worthless if it is not converted into conduct. And the belief that the key to successful portfolio management is a level head, the ability to step back from the market, and the even rarer ability to make rational decisions. "Markets often throw up surprises and investing is a continuous learning process," says Sukumar, "but what is important is not to concentrate on one or two stocks, but to build a diverse, solid portfolio that will outperform market cycles." And so, the man who swears by Peter Lynch's One Up On Wall Street: How To Use What You Already Know To Make Money In The Market, and Robert G. Hagstrom's The Warren Buffet Way, ensures that his fund managers understand an issue, find out what the right thing to do is, and then actually do it-something that he claims makes Templeton different from the rest.

The Methodology

In March, business today commissioned mutualfundsindia.com, an arm of ICRA Online, and the magazine's partner in presenting monthly and quarterly mutual fund updates, to arrive at a listing of India's best fund managers. Fund managers were to be ranked across four categories: equity, income, liquid, and gilt.

Equity: Includes diversified equity schemes, equity-linked saving schemes and sectoral schemes.

Income: Includes both short-term and long-term income schemes

Liquid: Includes all liquid schemes

Gilt: Includes both short-term and long-term gilt schemes

Monthly income plans (MIPs), index schemes and balanced schemes were not considered. Most fund houses put two people in charge of these schemes who handle the debt and equity parts independently and this makes it difficult to pinpoint who did a better job. Index schemes were also not considered as they tend to replicate the performance of a particular index and do not require fund management skills.

Eligibility criteria were applied at two levels. At the first level, a fund house was considered eligible for ranking under a particular category only if it had assets under management that were at least 1 per cent of the total assets under management of all eligible schemes in the category. At the second level, a scheme was considered eligible if it was open-ended, declared its NAV daily, and had completed a minimum of three years of existence for equity schemes, two years for long term income and gilt schemes and one year in case of liquid and short term income and gilt schemes.

Risk Adjusted Return (SORTINO Equivalent): For equity, income and gilt schemes, the risk adjusted return was calculated as the risk premium (return in excess of peer group average) divided by the downward standard deviation. The idea behind using peer group average was to ensure that the schemes that delivered below-average returns at a very less risk did not end up scoring high on risk adjusted return scale.

In the case of liquid schemes, the magnitude of downward deviations of the schemes' returns from the average call rate for 2003-04 was used.

Once the risk adjusted return/downward deviation was calculated for all the schemes in the category, the appropriate weights were assigned to each. The weightages for each sub-category were decided on the basis of the total industry 'assets under management break up' between these sub-categories. If there was more than one scheme in the same sub-category, the weightage was assigned on the basis of the fund size of the schemes. Thus the scheme having higher fund size got a higher weightage compared to scheme with lower fund size.

On the basis of this methodology, the three top managers in the four categories were identified (See India's Top Fund Managers). Since IL&FS' Dheeraj Singh is present in three categories, the number of fund managers profiled comes down to 10. As Templeton has several schemes (managed by several fund managers), we have featured the fund's CIO R. Sukumar.





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