There is value and opportunity available in the secondary market already

Updated: Jan 27 2008, 06:35am hrs
ICICI Prudential is one of the largest asset management houses in India. They have been at the forefront of building the large mutual fund sector that investors witness now. Nilesh Shah, CIO and MD of ICICI Prudential spoke with Akash Joshi of the Financial Express on their plans, how the company intends to add value through their products and also about the investing scenario in India. Excerpts.

It seems that mutual funds are not that keen on launching new fund offers, especially equity funds. Is there any special reason for this

No there is no such reason. We have been launching funds on a regular basis and will keep doing so. Also, one must understand that it takes time to develop a product that meets the exact customer requirement.

We just cannot launch products overnight. At ICICI Prudential, we interact with our customers and also with the distributors and build products. If we are developing a new product that is unique, then it takes around one to three years. If we are launching a generic product, then it just takes around three months. And we have around two NFOs open at the moment.

Can you tell us about both of them Let's start with Fusion

This is the third part of the Fusion series actually. We had launched the fund earlier in February 2006 and collected around Rs 500 crore. It met with great success, so we launched another; the Fusion II in February 2007 and collected Rs 1,000 crore. Now, with both the funds being successful, we have launched the Fusion III series.

The fund will look at capturing the best of the market in terms of momentum and value. The fund will start investing first in large-cap stocks, especially where the impact of buying and selling is not that high, and then move on to the mid-cap range where there is high growth available. This way, it will be a fusion of both the opportunities available in the market today and aim to outperform.

What about the FMP33, is there anything special behind this name Tell us more

This is a product for people who want to gain from the market growth and also see that their losses do not wipe out their principal investment. Something my mother likes!

So we will invest 80% of the money in equity market linked debt instruments and the rest would be in pure corporate debt. Over the years, the corporate debt portion will ensure that the principal is not wiped out, as we will be investing in highly rated paper. These will be acquired through private placements in blue chip corporates.

The equity-linked part is interesting the coupon or the interest to be received will be linked to the average movement of the benchmark equity index. Interest payments will be based on an average return of a 90-day period, at regular intervals. So investors will be able to participate in equity growth as well.

Who offers such instruments And why would companies offer products that have a chance of seeing rising outflows

No, let me put it straight. Such bonds are not offered by corporates as such. There are many sound quality investment banks, which keep structuring such products. They in turn use strategies like delta hedging for their benefit.

Now, there is the huge IPO opportunity that is in the offing this year. How do you plan to utilise this opportunity Do you intend to have a dedicated IPO fund

While there is opportunity in the IPO market, there are other hassles as well. The extent of allotments, the listing price, and the uncertainty over price discovery later. There are opportunities available in the secondary market as well. IPO is just one way to participate in the market. You can always get opportunities in the secondary market. We have a Power fund that will look at utilising the IPO opportunity, along with other powerful opportunities.

Can you tell us about some special and exciting funds that you have planned in the future

Yes, we will be launching the Focus Equity fund soon. It will focus on 20 strong stocks that have been identified by the fund manager. There are people who reckon that if we are such good fund managers, then we should isolate a focussed cluster of stocks that will outperform the indices. So this fund will do exactly that.

What about structured funds They have been gaining popularity overseas. Would you be launching those as well

Well, structured products or quantitative funds work on the basis of past performance models and are successful if the size is small. Size is usually a constraint here. Quant funds work when everything is going according to a plan, and when there are strong variances then they get into trouble. We believe that there is no substitute to diligent and savvy research.

Now, about the market and the downtrend we witnessed. What is your view on this slide and what can we expect from the market

The downturn was caused due to various factors, some were not expected and there were some, which we could have seen coming. We did not expect the extent of the losses that Citibank would report. And the impact of the sell-off was not known to us. The Chinese markets slid and valuations started appearing attractive there.

This is something that we could have anticipated. Amidst the steady sell-off by overseas institutions, retail investors who had taken over leveraged positions had to liquidate. Hence, there was a large slide. Going ahead, matters will improve as the leverage positions unwind.

Over the year, we will see a lot of supply of quality paper coming into India through the IPO route, and this will broaden the market.

I think the Indian story is very intact and with FY09 earnings looking at 16 times, the level is something that makes India attractive.