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Mutual Fund Review: Reliance Regular Savings Equity

The fund manager attempts to capitalize on valuation differentials between mid- and large-cap stocks

When Omprakash took over the fund in November 2007, it was only around Rs 290 crore. He rapidly changed its complexion and used the flexibility that a small fund offers to the hilt. Exposure to Construction shot up to 28 per cent with almost 21 per cent cornered by Pratibha Industries and Madhucon Projects. Exposure to Engineering was yanked up (18.50%) while Financial Services lost its prime slot (dropped to 6.69%) and Auto was dumped. His moves paid off. In the December 2007 quarter, he delivered 54.66 per cent (category average: 25.70%). That has changed. Now with a corpus that has crossed Rs 3,000 crore, he still takes strong sector bets but plays it safe with individual stock bets. Nevertheless, he still has managed to impress and in 2009 beat the category average by 20 per cent (102%). Though the portfolio is well balanced between large and mid caps, last year had he bet more on mid caps and lowered his cash holdings rapidly as soon as the market rallied, he would have probably delivered even more. "Last year we had a tremendous amount of inflows. The issue with mid caps is that you need to get the requisite quantity at the right price, which is a problem when volumes are poor. But we did add mid caps wherever we could," he says. Going by the current YTD returns, his large-cap bets have certainly worked out well.

The fund manager attempts to capitalize on valuation differentials between mid- and large-cap stocks which at times could result in aggressive churning. "I churn my portfolio in a choppy market because there one finds a lot of opportunity, not in a trend market," he says. The direct fallout of such a strategy is that the market cap keeps changing. This fund started off as a large-cap fund but resembled a pure mid-cap offering by the end of 2007. During the last two months that year, exposure to large caps stood at a meagre 20 per cent. Since January 2009, it took on a distinct large-cap tilt and today is evenly balanced between large caps and mid- and small-caps. A while back Omprakash confessed to adopting a wait-and-watch strategy to see how interest rates pan out and how inflation is dealt with. He still believes interest rates are firm given that inflation has not tamed down. He also feels that the market is fairly valued and though he has a decent exposure to Banking, he has increased his Pharma exposure.

 

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