Mumbai: On Sunday, several fund managers at a leading domestic asset management company found themselves in office. They had assembled to take stock of the vulnerability of their portfolios to sharp and unexpected fluctuations in the stock markets. The fund managers used to do this every fortnight, but have started doing it more often in recent days as the Sensex has fallen sharply and, on occasion, risen equally sharply.
As the market continues to remain volatile, working Sundays is just one of the things fund managers are doing to keep their heads about them. After gaining around 45% in 2007, Sensex, the benchmark index of the Bombay Stock Exchange, had lost around 26% till last week. In the past four trading sessions, however, the index has been on the rise and the fall to date this year is around 20%.
The sharp correction in Indian stocks, coming as it does, after an extended bull run, is keeping fund managers and analysts at large asset management companies on their toes. All of them are grappling with the falling net asset values (NAVs) of their equity funds. With the fall in the Sensex, equity funds’ NAVs has dropped between 20% and 33%.
Most fund managers and chief investment officers say they didn’t expect such a steep fall. Now, they are working overtime to ensure the NAVs of their funds do not fall further.
“If the broader markets move in a narrow range or keep going up, you can think of spending more time on meeting companies and finding new ideas. But times like this keep you on your toes,” saysA. Balasubramanian, chief investment officer at Birla Sun Life Asset Management Company Ltd. He manages Rs36,000 crore of funds and leads a team of 25 fund managers and analysts. The working hours for the team have gone up over the past two months.
Balasubramanian adds that with the kind of volatility being witnessed now, fund managers will have to keep a closer watch on their portfolios and keep their antennae up for any kind of news flow that can impact stock prices. Simultaneously, with the financial year coming to a close, they need to keep a watch on the companies also. Balasubramanian also ensures that his analysts do not miss out on any conference calls with the companies they research.
At SBI Funds Management Pvt. Ltd, the seventh largest asset management company in the country that manages Rs26,437 crore, apart from the daily morning meetings, there is more brainstorming these days. Sanjay Sinha, chief investment officer of the fund house, says the core process of fund management doesn’t change. He adds that in uncertain times such as these when the flow of news from global and domestic markets does not necessarily converge, fund managers need to study the impact of everything minutely.
So after the morning meetings, the 30-member fund management team identifies key issues, selects team leaders who will look into them in detail and then studies their impact on the sectors and stocks in which their funds have invested.
Fund managers and chief investment officers at asset management companies with international partners are also spending more time interacting with their colleagues in other offices. Anup Maheshwari, executive vice-president and head of equities and corporate strategy at DSP Merrill Lynch Fund Managers Ltd interacts more often with senior executives in the global offices of Merrill Lynch.
“There’s a lot of noise which comes your way in this kind of a market. So it becomes crucial to identify which event or news will make a fundamental difference to the stocks in the portfolio,” says Maheshwari who is encouraging analysts in his team of seven to revisit the management of the companies they have invested in. “Prices have moved irrationally in so many stocks. So one has to revisit the stock ideas to see if the price offers value or not,” he adds.
The recent disclosure by ICICI Bank Ltd about its exposure to credit derivatives and the potential losses on account of this led fund managers and analysts across the board to check if other banks have had any exposure to such instruments. “For our team members, the scope of work has certainly gone up but the working hours remain the same,” says Prasad N., chief investment officer at Sundaram BNP Paribas Asset Management Company Ltd.
The challenge in these times, he says, is in reacting to the information flow that is coming at a fast pace and from unknown sources. “We need to look beyond the financials of the companies. We are now trying to understand the impact of global credit market indicators such as i-Traxx Europe index which tells about the state of global credit markets and link such indicators to domestic liquidity.”
For some other asset management firms, it’s business as usual. Tata Asset Management Ltd is one of them. Ved Prakash Chaturvedi, managing director of the firm, says his team is spending more time on “reassessing the earnings of the companies” for the last quarter of the fiscal year that will soon end.
Tridib Pathak, chief investment officer at Lotus India Asset Management Co. Pvt. Ltd, too, claims nothing much has changed. “We strictly adhere to our investment process and do not deviate from it. This is the best way to tide over any kind of market” he says.
Apart from protecting the net asset value of their funds, chief investment officers and fund managers are answering panic calls from large investors and distributors who sell their funds. “When there is a lot of bad news, we need to gauge in advance the possible reaction of the investors to such events. We need to handhold them at every step and update them about how will such events or news affect their investments,” says a fund manager who didn’t wish to be identified.
SBI Funds’ Sinha has been travelling to centres, explaining the market situation to distributors and investors.
“The tolerance level of investors has gone up. They have made enough money over the past three-four years and haven’t pressed the panic button this time around,” says Balasubramanian of Birla Sun Life.
“The number of investor queries have been not as many we we had got when the market turned volatile in 2004 and 2006,” adds Prasad of Sundaram BNP Paribas.