The road ahead

The road ahead

In the bull run of 2007, this was one fund everybody was watching out for as the next big winner. But the shocking performance of JM Financial MF in 2008, in the wake of the economic slowdown, was a complete turn-off, leaving investors with the feeling that they had probably come down with a bad case of whiplash. Bhanu Katoch, CEO of the fund, lists his strategies to revive the asset management company’s fortunes and restore investors’ faith in it. Edited excerpts:

At this stage, what would your message be to investors?

We believe that in India, growth as a strategy will tend to do exceptionally well over a longer period of time. So a high beta/alpha strategy portfolio will always deliver. We believe that our investment style will offer substantial alpha as and when confidence starts to come back and money starts chasing growth countries and growth stocks. If you look at the recovery period between 5 March and 4 June, and even the period following, JM schemes have done much better than the indices and even their peers. JM Basic Fund delivered 154% during that period and JM Emerging Fund delivered 135%. Our other equity schemes gave returns in the 70-150% range. During this same period, the Nifty returned 77% and the Sensex, 83%.

What can your investors expect in future?

We feel that after a bit of consolidation, the market will move up and we may see 17,000 levels within the next six months. In the next two years, we expect the Sensex to rise above 25,000. Our schemes are well positioned to capture this kind of an up move.

Also See The highs and lows (Graphics)

What disappointed the investors in your opinion?

(The) majority of the money that we manage is in funds where the mandate is growth and the portfolio is more mid-cap oriented. So far, 2009 has been good for us and if our call on the market goes right, then our funds will deliver a very strong performance in the coming months and coming years. When the equity market was in a bullish phase in 2006-07, most of our mid-cap and large-cap schemes performed extremely well. They surpassed the indices by a huge margin. In 2007, the Sensex delivered 47% and the BSE Midcap index delivered 68%. Our flagship funds delivered returns in the 90-111% range. In fact, most of our schemes figured in the Top 50 Lipper world rankings.

In 2008, we witnessed the most severe fall in the history of the Indian stock market. The Sensex fell by 52% and the BSE Midcap index fell by 67%. Against that, our flagship funds fell by 65-75%.

What were the reasons for your dismal performance?

Had we taken a cash call, we would have performed better. But having said that, a 2008 kind of year comes only once in 50 years or so and, therefore, cannot become the basis for any change in our fund management style. We do not believe in taking aggressive cash calls and only in extreme conditions will we use cash as a strategy.

Are you taking steps to ensure there is no undue exposure to illiquid stocks?

All the liquid names in 2007 became illiquid in 2008. And what happened took the entire market by surprise. But several measures have been put in place. We have strengthened our parameters on stock and sector concentration, and stop-loss limits. Our risk parameters now have multiple “flag off" levels that are more stringent than the regulatory requirements. We also have a more pragmatic approach towards risk management, with multiple checks and balances.

Graphics by Ahmed Raza Khan / Mint

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