Mutual funds apply for new funds to take advantage of market recovery

Fund managers say stocks in the sector are available at beaten-down valuations, and large-sized banks will play critical role as credit off-take will be key to economic recovery

Mutual funds (MFs) have applied for a clutch of new funds to take advantage of the beaten-down valuations and expand their product basket, with markets showing signs of recovery.

Mahindra MF has filed for a focused equity fund, to build a portfolio oriented towards high-quality stocks. “We expect high-quality stocks to lead the recovery initially. Further, it makes sense to build such a portfolio at this juncture with quality stocks available at attractive levels,” said Ashutosh Bishnoi, managing director and chief executive officer, Mahindra Manulife MF.  

The 50-share Nifty, which has a large weight of blue-chips, has recovered 32.2 per cent from its March lows. 

Broader market indices such as mid- and small-caps have underperformed, with gains of 27 per cent and 28.8 per cent, respectively, in the same period.

“A well-designed focused equity portfolio can help investors recoup losses seen in recent market correction. Investors with suitable risk profile can consider such a fund,” added Bishnoi.

Among other fund houses, HSBC MF will also be launching a focused equity fund in July.

 

 

“We remain positive on companies/sectors that are expected to demonstrate relative resilience in their earnings in the disruptive phase, leading to lesser cut in 2020-21 earnings,” said Tushar Pradhan, chief investment officer (CIO), HSBC Global Asset Management India.

“Remaining selective and relatively concentrated on select investment strategies can help. We believe that focused strategies can help investors build wealth long term,” he added. The fund house has also applied for a mid-cap equity fund.  Meanwhile, Principal MF has filed for a large-cap fund. “From our perspective, it is about building presence in a large equity category, where we did not have presence earlier,” said Rajat Jain, CIO, Principal MF.

Large-cap assets under management account for 19.7 per cent of equity-oriented funds (as on April 30, 2020), shows the data from the Association of Mutual Funds in India. According to industry players, other fund houses are also planning to launch funds oriented to sectors such as banking. 

Fund managers say 

stocks in the sector are available at beaten-down valuations, and large-sized banks will play a critical role, as credit offtake will be key to economic recovery.

Funds houses have also recently applied for products to give international exposure to investors. Taking advantage of its partnership with global asset manager Manulife, Mahindra MF plans to launch a fund on similar lines.  “We are already seeing high-quality businesses in global markets showing recovery. There is no reason why some of the risk-taking investors should not participate in this recovery. Further, global exposure also allows for more diversification," said Bishnoi.

Fund houses are also considering launching products for risk-averse investors. Investors are still reeling from the sharp equity market correction and concerns over debt funds.

Mirae MF has launched an arbitrage scheme. Mahindra MF has also applied for one.

“The risk-aversion towards debt markets has translated into higher flows for the arbitrage category,” said a fund manager.

In April, arbitrage funds saw an inflow of Rs 6,857 crore, while several debt categories continued to see net outflows.