Total assets under management (AUM) have witnessed a fall of 13.7 per cent from Rs 1,13,000 crore in April 2000 to Rs 97,400 crore in September 2000.

This was, according to the study, mainly due to the poor performance of growth funds, which had the highest net outflow. Barring debt funds, all major categories of mutual funds have seen a severe erosion in their NAVs.

The Growth as well as Sectoral funds have received severe drubbing. The mutual funds industry argues that if the capital markets underperform, mutual funds are bound to suffer too. Apart from the downtrend in the markets, the mutual funds have themselves to blame. They have to do some introspection as to why and where the things went wrong. Moreover, what is perplexing is that returns from mutual funds as given by the Crisil general equity fund index fell 30 per cent compared to a 18 per cent fall in the BSE index.

Mutual fund investors are generally risk-averse and the basic premise of mutual fund investing is that these funds are tools that diversify the portfolio and hedge risks. However, if investments in MFs fare worse than the index, where does the investor go?

The reasons for poor performance of mutual funds are easier to understand. Even the balanced and non-sectoral funds have taken a hit because of the fund managers' infatuation earlier in the year with the IT, telecom and media stocks. Even non-sectoral funds had an alarming overexposure of 45-65 per cent in these sectors. Add redemptions, dividend payouts and the accompanied dividend stripping, pressure on NAVs is obvious. And not surprisingly, the standard deviation of the NAVs and the betas (a measure of risk) of the funds were on the rise as pointed out in this column in March this year.

A beta higher than one denotes that in a rising market the NAV of the fund will rise faster than the comparable index but, it will fall steeper in a falling market . And this perhaps, explains how the mutual fund industry gave higher returns early in the year, but in the latter part, the fall in returns from the mutual funds has been greater than that of the BSE index.

Also, a fund's exposure in excess of 50 per cent in any single sector robs it of the very rationale of investing in a mutual fund that is basically expected to diversify and hedge the risks for investors. Even balanced funds and non-sectoral funds at one stage had very high exposures in such sectors.

The fall from the strong position of the growth funds again has a lot to do with these very factors, besides overenthusiasm of the fund managers to realize high and unrealistic returns too early in the day.

Shree Rama Multi-Tech
Shree Rama Multi-Tech, the second largest player in the packaging industry, upped total income by a healthy 36 per cent to Rs 205 crore (Rs 151 crore) for the year ended September 2000, in spite of flat growth recorded by the FMCG industry, its major customer.

Yet, the institutional investors are far from impressed by the performance. They are probably worried about its future prospects. Total income went up by 54 per cent in the year to September 1999, to come down to 36 per cent in the current year. There is a hiatus between projected growth and performance that adds to the anxiety.

SRML had projected revenues of Rs 221 crore for the year 2000, but could net in only Rs 205 crore, falling short of the target by 8 per cent. Of course, the hiatus is not as large as it was feared. A major bane is the stagnation in the FMCG industry, that is affecting the company adversely. Analysts fear the situation may not turn for the better in the FMCG industry and that spells bad news for the packaging industry in general and SRML in particular.

Although the company has diversified into related areas such as marketing of paper cups, printed cartoons etc, it would be interesting to see whether the fall in the plastic laminated tubes market, which contributes around 35 per cent to total revenue, would be offset by the additional revenue generated through such diversification.

The operating expenditure of the company has risen in tandem with the operating income and stood at Rs 113 crore (Rs 84 crore), up 35 per cent.

Essel Packaging, the company's biggest competitor has set up a subsidiary , in China that has led to excess capacity in the Indian holding company adding to competitive heat. Price war among competitors is feared to lead to profit squeeze. Capacity expansion by the company itself may worsen the situation.

High interest and depreciation cost, due to an increase in the capital expenditure, which affected the growth in net profit to Rs 45 crore. Slower growth of total income as well as net profit with dim future prospects has precluded any significant upward movement in SRML's share price of Rs 64.

Sachchidanand Shukla and Prashant Kothari