Difficult Time For Fund Managers

With stock markets at a record high, fund managers are having a difficult time finding value stocks to deploy the record inflows.

- Mahesh Nayak

Three years ago, 40 per cent of HDFC Mutual Fund’s equity portfolio was underperforming its benchmark. The fund house had booked profits in many FMCG and pharmaceutical stocks as its fund managers – led by Chief Investment Officer (CIO) Prashant Jain – felt these sectors were overvalued. Instead, they bet on stocks focused on infrastructure. The call initially seemed a mistake as infrastructure-related stocks remained sluggish, while FMCG and pharmaceutical sectors continued to rally. HDFC Mutual Fund suffered, losing its No. 1 position among equity funds.

“We did temporarily lose out by taking that call,” says a senior official at the fund on condition of anonymity. But there was no panic reversal of strategy. HDFC Mutual Fund stuck to its guns, continuing with the spread it had banked on. In time, it paid off. A year ago, FMCG stocks, after a spectacular rise, began to taper off, just as the fund managers had suspected, while pharmaceutical stocks were hit by the US Food and Drug Administration actions related to quality and pricing issues. Some pharmaceutical stocks have fallen 50 per cent in the past one year. Indeed, 100 per cent of HDFC Mutual Fund’s equity funds have beaten their benchmark in the last one year, and 97.5 per cent for a period of three years and five years. “We did not hesitate to book profits when valuations crossed our expectations,” says another HDFC insider, who does not want to be named. “We did not get euphoric when FMCG or pharmaceutical stocks began shooting up.”