Quick Gun Morgan

Morgan Stanley Growth Fund has restructured its portfolio this year. A closer look at the changes.

Anybody recommending Morgan Stanley in the last two years would be branded a contrarian by the mild and a lunatic by the rest. Morgan Stanley Growth Fund (MSGF) was, after all, the fund that collected huge sums and put them into falling stocks. The fund was the perfect example of bad market timing. It was launched when the Sensex was around 4000 points and the market was crashing. It also opened the Indian investors eyes to the fact that mutual funds are quoted at a discount to the market price and that super-normal returns are not possible from mutual funds.

 

Despite these factors, The Smart Investor had recommended the fund in August 1995. The market price then was Rs 6.80 and the Sensex was around 3350 points. Our rationale was that it was a well-managed fund with a good portfolio and, above all, the downside was limited. At the entry point of Rs 6.80, it was an attractive bet. Moreover, the attitude was to look at it as a really long term investment option -- the best being, of course, to hold on till maturity.

Since then to now, there are two major changes. The first one is that the net asset value (NAV) which was Rs 8.20 then has gone up to Rs 9.50 as on June 13, 1997. Compared to this, the market price has fallen to Rs 6.50. The discount to the net asset value has thus increased to 31.58 per cent from 17.07 per cent. For the long term investor, this should not be a worrying factor.

The second important change is that the portfolio has undergone a substantial restructuring. The 1996-97 annual report cites two elements; reducing the number of holdings and increasing the concentration levels, and changing the profile of companies held in the funds portfolio.

At one time, the fund had around 300 stocks. This has been pruned to 180 now. The fund manager, Akash Prakash, says, By the end of this financial year, we want it to come down to 150. The restructuring has also resulted in a major change in the weightage of the top 10 holdings. Earlier MSGF was quite a broad-based fund and the top 10 holdings accounted for only 28.2 per cent of the portfolio in 1995-96. Now it has increased to 58.5 per cent as on May 16, 1997. Moreover, the top 50 stocks take up 75 per cent of the portfolio.

The second element involved changing the profile of the fund. The annual report says it all: We strongly believe that there is going to be a clear polarization in Indian industry. The skill set required to succeed in this new environment is quite different from the pre-liberalization era....The strong well-managed players will get stronger and better, while the mismanaged companies will become increasingly marginalised. In restructuring the Funds portfolio, we have also favoured those companies that we feel will benefit from liberalization.

Among the top 10 holdings, there are some changes. Telco, the third largest holding in 1996 at 696,230 shares exits and the current holding remains only 289 shares. Ditto for Madras Cement (No. 6), Crompton Greaves (No. 8), MTNL (No. 9) and Hindalco (No. 10). The new entrants as on May 16, 1997, are Sundaram Finance, Asahi India Safety Glass, Cipla and HDFC Bank -- all scrips riding high.

Exposure to some industries has been marginalised. Investments in automobiles scrips has been reduced from Rs 44.75 crore to around Rs 6 crore, the majority being taken up by Hero Honda and Majestic Auto. Cement has also lost it place as an industry category.

Even last year, it was difficult to find flaws in the stock picks. This year, the fund looks even better. By increasing the weightage of the top 10 holdings, it has obviously bought more stocks of its earlier core holdings like Bhel and Container Corpora-tion. But the average acquisition cost would still remain low.

These are significant changes in the fund and are quite positive for the existing unitholder. For the new investor, it is a good opportunity to enter the fund.