76586326 HDFC Mutual Fund

MATS School of Business & IT

1.1 Introduction:
The project on ‘Portfolio Management’ has been carried out as a part of our
curriculum after the second semester of MBA course. It has been
carried out from 2nd May to 15th June 2005.
I did my Industry Internship project in HDFC Asset Management Company,
Bangalore Branch.
HDFC Asset Management Company Limited was incorporated under the
Companies Act, 1956, on December 10, 1999, and was approved to act as an
Asset Management Company for the Mutual Fund by SEBI on July 3, 2000.
The registered office of the AMC is situated at Ramon House, 3rd Floor,
H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400
020. In terms of the Investment Management Agreement, the Trustee has
appointed HDFC Asset Management Company Limited to manage the
Mutual Fund. The paid up capital of the AMC is Rs. 75.161 crore.
This report gives a snapshot of the mutual fund industry in India and some of
the investment opportunities in stocks and funds, which might offer better
potential and returns.
1.2 BACKGROUND / RATIONALE OF THE STUDY:
I want to pursue my career in marketing as well as finance, so I selected
HDFC Asset Management Company for my Industry Internship project.
Because HDFC Asset Management Company gave me the exposure in both
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the fields as it is a finance company but it also has marketing offices called
Investment Service Centres or Branch offices and so I did my project in
Bangalore Branch.
1.3 OBJECTIVES TO THE STUDY:
Primary Objectives:
 To understand the overall functioning and profile of the organization.
 To get information on the culture and effectiveness of communication
in the organization.
 To analyze the performance of the company over a period of time.
 To understand the role that mutual fund plays in the investment
market.
 To get to know the details regarding the market share, turnover etc. of
various players in the mutual fund industry.
 To understand the products and financial performance of the company
over previous years.
 To study the key business level functions like: Marketing, HR,
Operations and Administration etc.
 On the Job Training.
Secondary Objectives:
 In-depth research study of various investment opportunities.

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 Details regarding the mission, vision, objectives and ambitions of
theCompany.
1.4 SCOPE OF THE STUDY:
 This study helps in understanding the crucial role of mutual funds in
Indian market.
 Provides an insight into the products that the mutual fund companies
offer for the benefit of investor
 Opportunity to apply the concepts practically, which we learnt in first
semester and second semester.
 An idea of the current market share of various mutual fund companies.
 Knowledge on the growth and prospects of mutual fund sector in
India.
 An idea on the future of mutual fund sector in India.
1.5 METHODOLOGY:
It was important to collect detailed information on various aspects for
effective analysis. As “Marketing today is becoming more of a battle based
on information than one based only on sales power”. In today’s information
based society companies with superior information enjoys a competitive
advantage.

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1.Research Design:
Research design can be of three forms:
•

Descriptive Research: It is conducted to ascertain certain magnitudes
and to provide an accurate snapshot of some aspect of the market
environment. For example: Determining the size of the market,
market share, availability of distributors, sales analysis, studies of
consumer attitude etc.

•

Exploratory Research: This is used when one is seeking insight into
the general nature of a problem, the possible decision alternatives, and
relevant variables that need to be considered. Little prior knowledge is
required. Research methods are highly flexible, unstructured and
qualitative. For example: What new product should be developed,
what should be the positioning of our product, what product appeal
would be effective in advertising, or how can our services be
improved? etc.

•

Causal Research: Causal studies are designed to determine whether
one or more variables cause or determine the value of other variables.
It is an evidence of relationships of variables. For example: Whether
decrease in price will lead to an increase in the sales of a product, or
whether the presence of a sales person will help in increasing the sales
in a retail outlet, etc.

These three types can be viewed as cumulative. The research design adopted
for project research is Descriptive Research and Analytical Research.

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Define Research Problem
The problem is to manage the portfolio in the best possible way so as to get
the optimal return. So the Equity Research will be carried out for the purpose
of building optimal portfolio.

1.6 LIMITATIONS
 The study is restricted to a period of 45 days only.
 A thorough analysis will not be possible due to restricted time period.
 Most of the information will be obtained through secondary sources.

 The study is restricted to Bangalore alone.
.

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2.1 WHAT IS MUTUAL FUND?
A Mutual Fund is an ideal investment vehicle where a number of
investors come together to pool their money with common investment goal.
Respective Asset Management Company (AMC) manages each Mutual
Fund with different type of schemes. An investor can invest his money in
one or more schemes of Mutual Fund according to his choice and becomes
the unit holder of the scheme. Fund manager in different types of suitable
stock and securities, bonds and money market instruments then invests the
invested money in a particular scheme of a Mutual Fund. Qualified
professional men, who use this money to create a portfolio, which includes
stock and shares, bonds, gilt, money-market instruments or combination of
all, manage each Mutual Fund. Thus Mutual Fund will diversify your
portfolio over a variety of investment vehicles. Mutual Fund offers an
investor to invest even a small amount of money.
Mutual Funds schemes are managed by respective Asset Management
Companies sponsored by financial institutions, banks, private companies or
international firms. The biggest Indian AMC is UTI while Alliance; Franklin
Templeton etc are international AMC's.
Mutual Funds offers several benefits to an investor such as potential return,
liquidity, transparency, income growth, good post tax return and reasonable
safety. There are number of options available for an investor offered by a
mutual fund.
Before investing in a Mutual Fund an investor must identify his needs and
preferences. While selecting a Mutual Fund's schemes he should consider the
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effect of inflation rate, diversification of investment, the time period of
investment and the risk factors. There are various type of risk factors as:
 Market Risk
 Credit Risk
 Interest Rate Risk
 Inflation Risk
 Political Environment
CRISIL's composite performance ranking (CPR) measures the performance
for each of the open-ended scheme of Mutual Fund. There are four
parameters considered to measure the performance of a mutual fund such as
Risk-adjusted returns of the scheme's NAV, Diversification of Portfolio,
Liquidity and Asset Size.
2.2TYPES OF MUTUAL FUND
A Mutual Fund may float several schemes, which may be classified on the
basis of its structure, its investment objectives and other objectives.
A. Mutual Fund schemes by structure:
 Open-Ended

Funds: Open-Ended fund scheme is open for

subscription all through year. An investor can buy or sell the units at
"NAV" (Net Asset Value) related price at any time.
 Close-Ended Funds: A Close-Ended fund is open for subscription

only during a specified period, generally at the time of initial public

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issue. The Close-Ended fund scheme is listed on the some stock
exchanges where an investor can buy or sell the units of this type of
scheme.
 Interval Funds: Interval Funds combines both the features of Open-

Ended funds and Close-Ended funds.

B.Mutual fund schemes by investment objectives:
 Growth Funds: The objective of Growth Fund scheme is to provide

capital appreciation over the medium to long term. This type of
scheme is an ideal scheme for the investors seeking capital
appreciation for a long.
 Income Funds: The Income Fund schemes objective is to provide

regular and steady income to investors.
 Balanced Funds: The objective of Balanced Fund schemes is to

provide both growth and regular income to investors.
 Money Market Funds: The objectives of Money market funds are to

provide easy liquidity, regular income and preservation of income.
C. Other funds:
 Tax Saving Schemes: The objective of Tax Saving schemes is to
offer tax rebates to the investors under specific provisions of the
Indian Income Tax Laws. Investment made under some schemes is
allowed as deduction u/s 88 of the Income Tax Act.
 Industry specific Schemes: Industry specific schemes invest only in
the industries specified in the offer document of the schemes
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 Sectorial Schemes: The scheme invest particularly in a specified
industries or initial public offering.
 Index schemes: Such schemes links with the performance of BSE
sensex or NSE.
 Loan Funds: Loan Funds charges a commission each time when you
buy or sale units in the fund.
 No-Loan Funds: No-Loan Funds does not charge a commission on
purchase or sale of the units in the fund.
2.3 Benefits of Investment in Mutual Fund
Mutual Funds offer several benefits to an investor that unmatched by the
other investment options. The major benefits are good post-tax returns and
reasonable safety, the other benefits in investing in Mutual Funds are:
 Professional Management:
Mutual Funds employ the services of experienced and skilled professionals
and dedicated investment research team. The whole team analyses the
performance and balance sheet of companies and selects them to achieve the
objectives of the scheme.
 Potential Return: Mutual Funds have the potential to provide a

higher return to an investor than any other option over a reasonable
period of time.
 Diversification: Mutual Funds invest in a number of companies

across a wide cross section of industries and sectors

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 Liquidity: The investor can get the money promptly at the net asset

value related prices from the Mutual Funds open-ended schemes. In
close-ended schemes, the units can be sold on a stock exchange at the
prevailing market price.
 Low Cost: Investment in Mutual Funds is a less expensive way in

comparison to a direct investment in capital market.
 Transparency: Mutual Funds have to disclose their holdings,

investment pattern and the necessary information before all investors
under a regulation framework.
 Flexibility: Investment in Mutual Funds offers a lot of flexibility with

features of schemes such as regular investment plan, regular
withdrawal plans and dividend reinvestment plans enabling systematic
investment or withdrawal of funds.
 Affordability: Small investors with low investment fund are unable to

high-grade or blue chip stocks. An investor through Mutual Funds can
be benefited from a portfolio including of high priced stock.
 Well regulated: All Mutual Funds are registered with SEBI, and

SEBI acts a watchdog, so the Mutual Funds are well regulated.
2.4 History of the Indian Mutual Fund Industry
The mutual fund industry in India started in 1963 with the formation of Unit
Trust of India, at the initiative of the Government of India and Reserve Bank
the. The history of mutual funds in India can be broadly divided into four
distinct phases
First Phase – 1964-87

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An Act of Parliament established Unit Trust of India (UTI) on 1963. It was
set up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was delinked from the RBI and the Industrial Development Bank of India (IDBI)
took over the regulatory and administrative control in place of RBI. The first
scheme launched
by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores
of assets under management.
Second Phase – 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by
public sector banks and Life Insurance Corporation of India (LIC) and
General Insurance Corporation of India (GIC). SBI Mutual Fund was the
first non- UTI Mutual Fund established in June 1987 followed by Canbank
Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian
Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda
Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while
GIC had set up its mutual fund in
December 1990.At the end of 1993, the mutual fund industry had assets
under management of Rs.47, 004 crores
Third Phase – 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund
families. Also, 1993 was the year in which the first Mutual Fund Regulations
came into being, under which all mutual funds, except UTI were to be
registered and governed. The erstwhile Kothari Pioneer (now merged with
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Franklin Templeton) was the first private sector mutual fund registered in
July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The industry
now functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign
mutual funds setting up funds in India and also the industry has witnessed
several mergers and acquisitions. As at the end of January 2003, there were
33 mutual
funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with
Rs.44, 541 crores of assets under management was way ahead of other
mutual funds.
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963
UTI was bifurcated into two separate entities. One is the Specified
Undertaking of the Unit Trust of India with assets under management of
Rs.29, 835 crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain other schemes. The
Specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and does
not come under the purview of the Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund
Regulations. With
the bifurcation of the erstwhile UTI which had in March 2000 more than
Rs.76, 000 crores of assets under management and with the setting up of a
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UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and
with recent mergers taking place among different private sector funds, the
mutual fund industry has entered its current phase of consolidation and
growth. As at the end of September 2004, there were 29 funds, which
manage assets of Rs.153108 crores under 421 schemes.
The graph indicates the growth of assets over the years.
GROWTH IN ASSETS UNDER MANAGEMENT

Note:
Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified
Undertaking of the Unit Trust of India effective from February 2003. The
Assets under management of the Specified Undertaking of the Unit Trust of

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India has therefore been excluded from the total assets of the industry as a
whole from February 2003 onwards.
2.5 Asset management companies in India- Key players
1. ALLIANCE CAPITAL MUTUAL FUND
2. BIRLA MUTUAL FUND
3. BOB MUTUAL FUND
4. BOI MUTUAL FUND
5. CANBANK MUTUAL FUND
6. CHOLAMADALAM CAZENOVE MUTUAL FUND
7. DSP MERRILL LYNCH MUTUAL FUND
8. DUNDEE MUTUAL FUND
9. ESCORTS MUTUAL FUND
10.FIRST INDIA MUTUAL FUND
11.HDFC MUTUAL FUND
12.IDBI-PRINCIPAL MUTUAL FUND
13.IL&FS MUTUAL FUND
14.INDIAN BANK MUTUAL FUND
15.ING SAVINGS MUTUAL FUND
16.JARDINE FLEMING MUTUAL FUND
17.JM MUTUAL FUND
18.KOTAK MAHINDRA MUTUAL FUND
19.LIC MUTUAL FUND
20.MORGAN STANLEY MUTUAL FUND
21.PIONEER ITI MUTUAL FUND
22.PNB MUTUAL FUND
23.PRUDENTIAL ICICI MUTUAL FUND
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24.RELIANCE MUTUAL FUND
25.SBI MUTUAL FUND
26.STANDARD CHARTERED MUTUAL FUND
27.SUNDARAM MUTUAL FUND
28.SUN F&C MUTUAL FUND
29.TATA MUTUAL FUND
30.TAURUS MUTUAL FUND
31.TEMPLETON MUTUAL FUND
32.UNIT TRUST OF INDIA
33.ZURICH INDIA MUTUAL FUND
Unit trust of India (UTI) is the India's largest Mutual Fund organization. UTI
manages funds over Rs. 58,221 crore as on 30/6/2001 and over 41.80 million
investors account fewer than 85 schemes.
UTI was set up in 1964 by an act of parliament and commenced its operation
from July 1964, with a view to encouraging saving and investment and
participation in the income, profit and gain accruing to corporation from the
acquisition, holding, management and disposal of securities.
UTI is a trust without ownership capital and independent Board of trustees.
The first scheme was Unit scheme 1964. The contributors of initial capital of
Rs. 5 crore for US-64 scheme were RBI, LIC, SBI and some foreign banks.
Under the provision of the act, the Government of India would appoint
chairman of the board. Today it has 54 branch offices, 266 chief
representatives and about 67,000 agents.

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2.6 Market Share
The market share of the various asset management companies is shown in
the given chart:
Name of the AMC

Assets under Management (in Market
Rs. Crore)

BOB Asset Management
Canbank
Investment

419
Management 1489

Share (%)
0.27%
0.96%

Services
SBI Funds Management
5296
UTI Asset Management Co.
18875
GIC Asset Management Co.
204
IL & FS Asset Management
2015
LIC Asset Management
4960
Benchmark Asset Management Co.
78
Cholamandalam Asset Management
1243
Escorts Asset Management
131
J.M.Capital Management
4111
Kotak Mahindra Asset Management Co. 5651
Reliance Capital Asset Management
11204
Sahara Asset Management Co.
345
Sundaram Asset Management Co.
1841
Birla Sun Life Asset Management Co. 9397
Credit Capital Asset Management
131
DSP Merrill Lynch Fund Managers
6389
HDFC Asset Management Co.
16105
Alliance Capital Asset Management 2446

3.40%
12.11%
0.13%
1.29%
3.18%
0.05%
0.80%
0.08%
2.64%
3.63%
7.19%
0.22%
1.18%
6.03%
0.08%
4.10%
10.33%
1.57%

(India)
Duetsche Asset Management (India)
2266
Franklin Templeton Asset Management 17342

1.45%
11.13%

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(India)
HSBC

Asset

Management

(India) 5463

3.51%

Private
ING Investment Management (India)
1472
Morgan Stanley Investment Management 1095
Prudential ICICI Asset Management
16071
Principal Asset Management Co.
4825
Standard Chartered Asset Management 9444

0.94%
0.70%
10.31%
3.10%
6.06%

Co.
Tata Asset Management Co
Total

3.55%
100%

5537
155845

3.1 Vision
To be a dominant player in the Indian mutual fund space, recognized for its
high levels of ethical and professional conduct and a commitment towards
enhancing investor interests.
3.2 Management
HDFC Trustee Company Limited:
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A company incorporated under the Companies Act, 1956 is the Trustee to
the Mutual Fund vides the Trust deed dated June 8, 2000, as amended from
time to time. HDFC Trustee Company Limited is a wholly owned subsidiary
of HDFC Limited.
HDFC Asset Management Company Limited (AMC):
It was incorporated under the Companies Act, 1956, on December 10, 1999,
and was approved to act as an Asset Management Company for the Mutual
Fund by SEBI on July 3, 2000. The registered office of the AMC is situated
at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation,
Churchgate, Mumbai - 400 020. In terms of the Investment Management
Agreement, the Trustee has appointed HDFC Asset Management Company
Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs.
75.161 crore.

The present share holding pattern of the AMC is as follows:

% OF THE PAID UP

PARTICULARS
HDFC
Standard Life Investments
Limited

SHARE CAPITAL
50.10
49.90

Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund,
following a review of its overall strategy, had decided to divest its Asset

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Management business in India. The AMC had entered into an agreement
with ZIC to acquire the said business, subject to necessary regulatory
approvals. On obtaining the regulatory approvals, the Schemes of Zurich
India Mutual Fund has now migrated to HDFC Mutual Fund on June 19,
2003. The AMC is managing 18 open-ended schemes of the Mutual Fund
viz. HDFC Growth Fund (HGF), HDFC Balanced Fund (HBF), HDFC
Income Fund (HIF), HDFC Liquid Fund (HLF), HDFC Tax Plan 2000
(HTP), HDFC Children's Gift Fund (HDFC CGF), HDFC Gilt Fund
(HGILT), HDFC Short Term Plan (HSTP), HDFC Index Fund, HDFC
Floating Rate Income Fund (HFRIF), HDFC Equity Fund (HEF), HDFC
Top 200 Fund, (HT200), HDFC Capital Builder Fund (HCBF), HDFC Tax
Saver (HTS), HDFC Prudence Fund (HPF), HDFC High Interest Fund
(HHIF), HDFC Sovereign Gilt Fund (HSGF) and HDFC Cash Management
Fund (HCMF). The AMC is also managing the respective Plans of HDFC
Fixed Investment Plan, a closed ended Income Scheme. The AMC has
obtained registration from SEBI vide Registration No. - PM / INP000000506
dated December 22, 2000 to act as a Portfolio Manager under the SEBI
(Portfolio Managers) Regulations, 1993. The Certificate of Registration is
valid from January 1, 2001 to December 31, 2003. The AMC is also
providing portfolio management / advisory services and such activities are
not in conflict with the activities of the Mutual Fund.
3.3 Sponsors
Housing Development Finance Corporation (HDFC):
HDFC was incorporated in 1977 as the first specialized housing finance
institution in India. HDFC provides financial assistance to individuals,
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corporate and developers for the purchase or construction of residential
housing. It also provides property related services (e.g. property
identification, sales services and valuation), training and consultancy. Of
these activities, housing finance remains the dominant activity. HDFC
currently has a client base of over 5,00,000 borrowers, 13,00,000 depositors,
1,00,000 shareholders and 52,000 deposit agents. HDFC raises funds from
international agencies such as the World Bank, IFC (Washington), USAID,
CDC, ADB and KfW, domestic term loans from banks and insurance
companies, bonds and deposits. HDFC has received the highest rating for its
bonds and deposits program for the eighth year in succession. HDFC
Standard Life Insurance Company Limited, promoted by HDFC was the first
life insurance company in the private sector to be granted a Certificate of
Registration (on October 23, 2000) by the Insurance Regulatory and
Development Authority to transact life insurance business in India.
Standard Life Investments Limited:
The Standard Life Assurance Company was established in 1825 and has
considerable experience in global financial markets. In 1998, Standard Life
Investments Limited became the dedicated investment management
company of the Standard Life Group and is owned 100% by The Standard
Life Assurance Company. With global assets under management of
approximately US$126 billion as at May 15, 2003, Standard Life
Investments Limited is one of the world's major investment companies and
is responsible for investing money on behalf of five million retail and
institutional clients worldwide. With its headquarters in Edinburgh, Standard
Life Investments Limited has an extensive and developing global presence
with operations in the United Kingdom, Ireland, Canada, USA and Hong
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Kong. In order to meet the different needs and risk profiles of its clients,
Standard Life Investments Limited manages a diverse portfolio covering all
of the major markets world-wide, which includes a range of private and
public equities, government and company bonds, property investments and
various derivative instruments. The company's current holdings in UK
equities account for approximately 2% of the market capitalization of the
London Stock Exchange. The Standard Life Assurance Company was
present in the Indian life insurance market from 1847 to 1938 when agencies
were set up in Kolkata and Mumbai. The Standard Life Assurance Company
was therefore keen to re-enter the Indian market and in 1995, signed an
agreement with HDFC to launch an insurance joint venture. HDFC and
Standard Life Investments Limited are neither responsible nor liable for any
loss resulting from the operation of the Scheme(s) beyond their contribution
of an amount of Rs. 1 lakh each made by them towards the corpus of the
Mutual Fund.
3.4 HDFC Mutual Fund Products
SCHEMES
1) EQUITY FUNDS
2) BALANCED FUNDS
3) DEBT FUNDS
VALUE ADDED SERVICES
1) SIP (Systematic Investment Plan)
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2) STP (Systematic Transfer Plan)
3) SWAP (Systematic Withdrawal Advantage Plan)
Types of Equity funds:
HDFC Growth Fund (Dividend Option)
Investment Objective
The primary investment objective of the Scheme is to generate long term
capital appreciation from a portfolio that is invested predominantly in equity
and equity related instruments.

Investment Pattern
The corpus of the Scheme will be invested primarily in equity and equity
related instruments. The Scheme may invest a part of its corpus in debt and
money market instruments, in order to manage its liquidity requirements
from time to time, and under certain circumstances, to protect the interests of
the Unit holders.
Investment Strategy & Risk Control
The investment approach will be based on a set of well established but
flexible principles that emphasize the concept of sustainable economic

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earnings and cash return on investment as the means of valuation of
companies.
Five basic principles serve as the foundation for this investment approach.
They are as follows:
•

Focus on the long term: There is substantive empirical evidence to
suggest that equities provide the maximum risk adjusted returns over
the long term. In an attempt to take full advantage of this
phenomenon, investments would be made with a long-term
perspective.

•

Investment confers proportionate ownership: The approach to valuing
a company is similar to making an investment in a business.
Therefore, there is a need to have a comprehensive understanding of
how the business operates. The key issues to focus on are growth
opportunities, sustainable competitive advantage, industry structure
and margins and quality of the management.

•

Maintain a margin of safety: The benchmark for determining relative
attractiveness of stocks would be the intrinsic value of the business.
The Investment Manager would endeavor to purchase stocks that
represent a discount to this value, in an effort to preserve capital and
generate superior growth.

•

Maintain a balanced outlook on the market: the investment portfolio
would be regularly monitored to understand the impact of changes in
business and economic trend as well as investor sentiment. While
short-term market volatility would affect valuations of the portfolio,
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this is not expected to influence the decision to own fundamentally
strong companies.
•

Disciplined approach to selling: The decision to sell a holding would
be based on either the anticipated price appreciation being achieved or
being no longer possible due to a change in fundamental factors
affecting the company or the market in which it competes, or due to
the availability of an alternative that, in the view of the Investment
Manager, offers superior returns.

In order to implement the investment approach effectively, it would be
important to periodically meet the management face to face. This would
provide an understanding of their broad vision and commitment to the longterm business objectives. These meetings would also be useful in assessing
key determinants
of management quality such as orientation to minority shareholders, ability
to cope with adversity and approach to allocating surplus cash flows.
Discussion with management would also enable benchmarking actual
performance against stated commitments.
In summary, the Investment Strategy is expected to be a function of
extensive research and based on data and reasoning, rather than current
fashion and emotion. The objective will be to identify "businesses with
superior growth prospects and good management, at a reasonable
price".
The Scheme may invest in listed / unlisted and/or rated / unrated debt or
money market securities subject to limits indicated in the investment pattern.
Investment in unrated debt securities will be made after obtaining the prior

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approval of the Board of the AMC and Trustees as per the SEBI
Regulations.
The Scheme may invest in listed / unlisted and / or rated / unrated debt or
money market securities subject to limits indicated in the investment pattern.
Pursuant to SEBI Circular No. MFD/ CIR/9/120/2000 dated November 24,
2000; the AMC may constitute committee(s) to approve proposals for
investments in unrated debt instruments. The AMC Board and the Trustee
shall approve the detailed parameters for such investments. The details of
such investments would be communicated by the AMC to the Trustee in
their periodical reports. It would also be clearly mentioned in the reports,
how the parameters have been complied with. However, in case any unrated
debt security does not fall under the parameters, the prior approval of Board
of AMC and Trustee shall be sought.

Fund Manager
Mr. Tushar Pradhan
HDFC Growth Fund (Growth Option)
Investment Objective
The primary investment objective of the Scheme is to generate long-term
capital appreciation from a portfolio that is invested predominantly in equity
and equity related instruments.
Investment Pattern

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The corpus of the Scheme will be invested primarily in equity and equity
related instruments. The Scheme may invest a part of its corpus in debt and
money market instruments, in order to manage its liquidity requirements
from time to time, and under certain circumstances, to protect the interests of
the Unit holders.
HDFC Long Term Advantage Fund (Dividend Option)
Investment Objective
The primary objective of the Scheme is to generate long-term capital
appreciation from a portfolio that is invested predominantly in equity and
equity related instruments.
Investment Pattern
The net assets of the Scheme will be invested primarily in equity and equity
related instruments. The Scheme may invest a part of its net assets in debt
and money market instruments, in order to manage its liquidity requirements
from time to time, and under certain circumstances, to protect the interests of
the Unit holders.
Investment Strategy & Risk Control
The funds collected under the Scheme shall be invested in equities,
cumulative convertible preference shares and fully convertible debentures
and bonds of companies. Investment may be made in partly convertible
debentures and bonds including those issued on a rights basis subject to the
condition that, as far as possible, the non-convertible portion of the

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debenture so acquired or subscribed shall be disinvested within a period of
12 months.
It shall be ensured that funds of the Scheme shall remain invested to the
extent of at least 80% in securities specified above. In exceptional
circumstances, this requirement may be dispensed with by the AMC, in
order that the interests of the Unit holders are protected.
Pending investment of funds of the Scheme in the required manner, the
AMC may invest the funds of the Scheme in short-term money market
instruments or other liquid instruments or both. After 3 years from the date
of allotment of the Units, the Mutual Fund may hold up to 20% of net assets
of the Scheme in short-term money market instruments.
The investment approach will be based on a set of well established but
flexible principles that emphasize the concept of sustainable economic
earnings and cash return on investment as the means of valuation of
companies.

HDFC Long Term Advantage Fund (Growth Option)
Investment Objective
The primary objective of the Scheme is to generate long-term capital
appreciation from a portfolio that is invested predominantly in equity and
equity related instruments.
Investment Strategy & Risk Control

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The funds collected under the Scheme shall be invested in equities,
cumulative convertible preference shares and fully convertible debentures
and bonds of companies. Investment may be made in partly convertible
debentures and bonds including those issued on a rights basis subject to the
condition that, as far as possible, the non-convertible portion of the
debenture so acquired or subscribed shall be disinvested within a period of
12 months.
It shall be ensured that funds of the Scheme shall remain invested to the
extent of at least 80% in securities specified above. In exceptional
circumstances, this requirement may be dispensed with by the AMC, in
order that the interests of the Unit holders are protected.
Pending investment of funds of the Scheme in the required manner, the
AMC may invest the funds of the Scheme in short-term money market
instruments or other liquid instruments or both. After 3 years from the date
of allotment of the Units, the Mutual Fund may hold up to 20% of net assets
of the Scheme in short-term money market instruments.
Fund Manager
Mr. Chirag Setalvad
HDFC Index Fund Nifty Plan (Growth Option)
Investment Objective
Nifty Plan: The objective of this Plan is to generate returns that are
commensurate with the performance of the Nifty, subject to tracking errors.
Investment Pattern
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The net assets of the Plan will be invested predominantly in stocks
constituting the S&P CNX Nifty and / or in exchange traded derivatives on
the S&P CNX Nifty. This would be done by investing in almost all the
stocks comprising the S&P CNX Nifty in approximately the same weightage
that they represent in the S&P CNX Nifty Index and / or investing in
derivatives including futures contracts and options contracts on the S&P
CNX Nifty Index. A small portion of the net assets will be invested in
money market instruments permitted by SEBI / RBI including call money
market or in alternative investment for the call money market as may be
provided by the RBI, to meet the liquidity requirements of the Plan.
Fund Manager
Mr. Tushar Pradhan

HDFC Index Fund SENSEX Plan (Growth Option)
Investment Objective
SENSEX Plan: The objective of this Plan is to generate returns that are
commensurate with the performance of the SENSEX, subject to tracking
errors.
Investment Pattern
The net assets of the Plan will be invested predominantly in stocks
constituting the SENSEX and / or in exchange traded derivatives on
SENSEX. Investing in almost all the stocks comprising the SENSEX in
approximately the same weightage that they represent in the SENSEX and/or
investing in derivatives including futures contract and options contracts on
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the SENSEX would do this. A small portion of the net assets will be invested
in money market instruments permitted by SEBI/RBI including call money
market or in alternative investment for the call money market as may be
provided by the RBI, to meet the liquidity requirements of the Plan.
Fund Manager
Mr. Tushar Pradhan
HDFC Index Fund SENSEX Plus Plan (Growth Option)
Investment Objective
SENSEX Plus Plan: The objective of this Plan is to invest 80 to 90% of the
net assets of the Plan in companies whose securities are included in
SENSEX and between 10% & 20% of the net assets in companies whose
securities are not included in the SENSEX.
Investment Pattern
The net assets of the Plan would be invested in such a manner that 80% to
90% of the net assets are invested in almost all stocks constituting the
SENSEX in approximately the same weightage that they represent in the
SENSEX. The balance 10% to 20% of the net assets of the Plan would be
invested in stocks that do not form part of the SENSEX in a manner that
individual stock exposures do not exceed the SEBI stipulated limits. A small
portion of the net assets will be invested in money market instruments
permitted by SEBI/RBI including call money market or in alternative
investment for the call money market as may be provided by the RBI, to
meet the liquidity requirements of the Plan.

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Fund Manager
Mr. Tushar Pradhan
HDFC Equity Fund (formerly Zurich India Equity Fund) (Dividend
Plan)
Investment Objective
The investment objective of the Scheme is to achieve capital appreciation.
Investment Strategy & Risk Control
In order to provide long-term capital appreciation, the Scheme will invest
predominantly in growth companies. Companies selected under this portfolio
would as far as practicable consist of medium to large sized companies
which:
a. are likely achieve above average growth than the industry;
b. enjoy distinct competitive advantages, and
c. have superior financial strengths.
The aim will be to build a portfolio, which represents a cross-section of the
strong growth companies in the prevailing market. In order to reduce the risk
of volatility, the Scheme will diversify across major industries and economic
sectors.
Fund Manager
Mr. Prashant Jain
HDFC Equity Fund (formerly Zurich India Equity Fund) (Growth
Plan)

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Investment Objective
The investment objective of the Scheme is to achieve capital appreciation.
Fund Manager
Mr. Prashant Jain
HDFC Tax Saver (formerly Zurich India Tax Saver) (Dividend
Plan)
Investment Objective
The investment objective of the Scheme is to achieve long-term growth of
capital.
Fund Manager
Mr. Chirag Setalvad
HDFC Capital Builder Fund (formerly Zurich India Capital Builder
Fund) (Dividend Plan)
Investment Objective
The Investment Objective of the Scheme is to achieve capital appreciation in
the long term.
Investment Strategy & Risk Control
This Scheme aims to achieve its objectives by investing in strong companies
at prices, which are below fair value in the opinion of the fund managers.
The Scheme defines a "strong company" as one that has the following
characteristics:
•

Strong management, characterized by competence and integrity
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•

Strong position in its business (preferably market leadership)

•

Efficiency of operations, as evidenced by profit margins and asset
turnover, compared to its peers in the industry

•

Working capital efficiency

•

Consistent surplus cash generation

•

High profitability indicators (returns on funds employed)

In common parlance, such companies are also called 'Blue Chips'.
The Scheme defines "reasonable prices" as:
•

A market price quote that is around 30% lower than its value, as
determined by the discounted value of its estimated future cash flows

•

A P/E multiple that is lower than the company's sustainable Return on
funds employed

•

A P/E to growth ratio that is lower than those of the company's
competitors

•

In case of companies in cyclical businesses, a market price quote that
is around 50% lower than its estimated replacement cost

Fund Manager
Mr. Tushar Pradhan
HDFC Top 200 Fund (formerly Zurich India Top 200 Fund) (Dividend
Plan)
Investment Objective
The investment objective is to generate long-term capital appreciation from a
portfolio of equity and equity-linked instruments. The investment portfolio
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for equity and equity-linked instruments will be primarily drawn from the
companies in the BSE 200 Index. Further, the Scheme may also invest in
listed companies that would qualify to be in the top 200 by market
capitalization on the BSE even though they may not be listed on the BSE
This includes participation in large IPOs where in the market capitalization
of the company based on issue price would make the company a part of the
top 200 companies listed on the BSE based on market capitalization.
Investment Strategy & Risk Control
The investment strategy of primarily restricting the equity portfolio to the
BSE 200 Index scrips is intended to reduce risks while maintaining steady
growth. Stock specific risk will be minimized by investing only in those
companies / industries that have been thoroughly researched by the
investment manager's research team. Risk will also be reduced through a
diversification of the portfolio.
Fund Manager
Mr. Prashant Jain
HDFC Core & Satellite Fund (Dividend Option)
Investment Objective
The objective of the Scheme is to generate capital appreciation through
equity investment in companies whose shares are quoting at prices below
their true value.
Fund Manager
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Mr. Prashant Jain
HDFC Core & Satellite Fund (Dividend Option)
Investment Objective
The objective of the Scheme is to generate capital appreciation through
equity investment in companies whose shares are quoting at prices below
their true value.
Fund Manager
Mr. Prashant Jain

Types of Balanced Funds:
HDFC Children's Gift Fund Investment Plan (Growth Option)
Investment Objective
The primary objective of both the Plans under the Scheme is to generate
long-term capital appreciation. However, there can be no assurance that the
investment objective of the Scheme / Plans will be achieved.
Fund Manager
Mr. Tushar Pradhan
HDFC Children's Gift Fund Savings Plan (Growth Option)
Investment Objective

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The primary objective of both the Plans under the Scheme is to generate
long-term capital appreciation. However, there can be no assurance that the
investment objective of the Scheme / Plans will be achieved.
Fund Manager
Mr. Tushar Pradhan
HDFC Balanced Fund (Dividend Option)
Investment Objective: The primary objective of the Scheme is to generate
capital appreciation along with current income from a combined portfolio of
equity and equity related and debt and money market instruments.
Fund Manager
Mr. Tushar Pradhan
HDFC Prudence Fund (formerly Zurich India Prudence Fund)
(Dividend Plan)
Investment ObjectiveThe investment objective of the Scheme is to provide
periodic returns and capital appreciation over a long period of time, from a
judicious mix of equity and debt investments, with the aim to prevent/
minimize any capital erosion. Under normal circumstances, it is envisaged
that the debt: equity mix would vary between 60:40 and 40:60 respectively.
This mix is geared to achieve the investment objective and is expected to
result in regular income, capital appreciation and also prevent capital
erosion.
Investment Strategy & Risk Control
As outlined above, the investments in the Scheme will comprise both debt
and equities. The Fund would invest in Debt instruments such as
Government securities, money market instruments, securities debts,
corporate debentures and bonds, preference shares, quasi Government bonds,

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and in equity shares. In the long term, the mix between debt instruments and
equity instruments is targeted between 60:40 and 40:60 respectively. The
exact mix will be a function of interest rates, equity valuations, reserves
position, risk taking capacity of the portfolio without compromising the
consistency of dividend pay out (in the case of Dividend Plan), need for
capital preservation and the need to generate capital appreciation.
Fund Manager
Mr. Prashant Jain

Types of Debt Funds:
HDFC Income Fund (Dividend Option)
The primary objective of the Scheme is to optimize returns while
maintaining a balance of safety, yield and liquidity.
Fund Manager
Mr. Shabbir Kapasi

HDFC Liquid Fund (Dividend Option)
The primary objective of the Scheme is to enhance income consistent with a
high level of liquidity, through a judicious portfolio mix comprising of
money market and debt instruments.

HDFC Gilt Fund Short Term Plan (Dividend Option)

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The primary objective of the Scheme is to generate credit risk free returns
through investments in sovereign securities issued by the Central
Government and/or State Government.
Fund Manager
Mr. Mustafa Mahmood
HDFC Short Term Plan (Dividend Option)
The primary objective of the HDFC Short Term Plan is to generate regular
income through investment in debt securities and money market instruments.
HDFC Cash Management Fund - Investment Plan (formerly Zurich
India Liquidity Fund - Investment Plan) (Dividend Option)
The investment objective of the Scheme is to generate optimal returns while
maintaining safety and high liquidity. Accordingly, investments will be
made in Money Market Instruments, Government Securities and Corporate
Debt.
HDFC Cash Management Fund - Savings Plan (formerly Zurich
India Liquidity Fund - Savings Plan)
The investment objective of the Scheme is to generate optimal returns while
maintaining safety and high liquidity. Accordingly, investments will be
made in Money Market Instruments, Government Securities and Corporate
Debt.

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HDFCMF Monthly Income Plan - Short Term Plan
The primary objective of Scheme is to generate regular returns through
investment primarily in Debt and Money Market Instruments. The secondary
objective of the Scheme is to generate long-term capital appreciation by
investing a portion of the Scheme’s assets in equity and equity related
instruments. However, there can be no assurance that the investment
objective of the Scheme will be achieved.
HDFC Multiple Yield Fund (Growth Option)
The objective of the Scheme is to generate positive returns over medium
time frame with low risk of capital loss over medium time frame.

3.5 Assets Under Management:
Assets Under Management of HDFC increased to Rs.15006.43 crore as on
March 31,2004 from Rs.6481.67 crore as on March 31,2003.According to
the latest data it has been increased to Rs.16105 crore.

3.6 Number Of Investor:
The number of investor accounts increased to over 6.71 lakhs as on March
31,2004 from 2.83 lakhs as on March 31,2003.

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3.7 Awards & Accolades:
 The Annual CNBC – TV 18 – BNP Paribas Awards 2004.
 The Outlook Money Awards 2004.
 The CRISIL Best Fund Awards 2003.
 The ICRA Online Mutual Fund Awards 2004.

Basically my Project includes two areas:
1.Marketing
2.Finance (portfolio management)
Marketing
I did marketing for the various types of mutual fund schemes of HDFC Asset
Management Company. I had been assigned to one of the distributor to help
him out in marketing for the various types of mutual fund schemes of HDFC
Asset Management Company. I did all the follow-ups after the distributor
attends his client.
Finance (portfolio management)
Also I helped my Company guide in portfolio management by doing Equity
Research. For doing portfolio management I identified some good
sectors for doing equity research and after that I picked up best few
stocks among them. The portfolio is diversified among sectors. For
picking up stocks I followed bottom up and top Down Approach.
Bottom Up and Top Down Approach --- What they signify?

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Stock picking can essentially be done in two basic ways ------- one is using a
bottom-up approach and the other is using a top-down approach.
A top down approach works its way from the macro picture of an economy
to track down certain sectors, which would outperform other sectors. Then
all companies within the short listed sector are analyzed and the best among
them are picked in the portfolio.
Thus it aims to maximize return by staying invested in the best companies in
the most attractive sectors of economic growth in future.
e.g. In India's annual budget major thrust is being provided to infrastructure
and infrastructure projects. This would benefit Indian companies related to
infrastructure like companies in the Capital Goods space, electricity, cement
etc.
Thus analysts picking stocks in the top down approach would look at good
companies in these sectors to invest in.
On the other hand a bottom up approach looks at companies per se and its
micro-economics for deciding on whether to invest or not. They look at
companies, which on their sheer microeconomics would outperform peers in
their sector and achieve higher growth than industry averages.
Value Investing is a kind of bottom-up stock picking wherein stocks are
picked, which are beaten down so considerably that they offer immense
value. Some basic parameters of value stocks are that their PBV (Price to
Book Value) is less than 1 and that they have a high dividend yield of more
than the average index dividend yield.
Such stocks would be chosen inspite of the fact that the sector they are
operating in could underperform in future. Protagonists of this theory
maintain that value stocks offer limited downside and higher upside due to
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the fact that they would be beaten down so much that any good news would
spike up prices.
e.g. Dabur in its recent earnings report stated a rise in operating margins
even at a time when other companies in the same space like Hindustan Lever
Ltd. were facing intense squeeze of margins.
More often than not, investing requires a mix of bottom-up and top-down
approaches wherein some stocks are chosen on sectoral merit and some on
individual. Neither of the approaches should be undermined and a portfolio
is best to include growth stocks and also value stocks through a fine blend of
bottom-up and top-down approaches.
Identified sectors for portfolio management
1.Capital goods ( Orient Abrasives)
2.FMCG (Dabur)
3.Shipping (GE Shipping)
4.Textiles (Century Textiles)
5.Pharma (JB Chemicals & Pharmaceuticals)
6.Fishing (Garware Wall Ropes)
7. HINDUSTAN ZINC
8.Franklin FMCG Fund
9.HDFC Prudence Fund
10.HDFC Core & Satellite Fund
11.Principal Dividend Yield Fund
12.SBI Magnum Pharma Fund.

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14th January 2004,markets close at 6157 levels; with complete euphoria all
around, every market analyst and pundit believing 7000 would be just round
the corner…Alas
17th May 2004,The BSE Sensex touches a low of 4227-intra day; market
pundits are again predicting levels of 3800 for the market bottom.
31st December 2004,the BSE Sensex closes at 6541 and once again market
analysts with renewed energy revise their earlier targets to more than 8000…
Well, such volatility would even fox the smartest of punters at Monte Carlo
and shame the best of analysts.
Throughout the year many an event occurred which shook the confidence of
many market participants and pundits alike.
17th of May, now better known as the dreaded Black Monday witnessed
stocks falling like nine pins, reminiscent of the old days of the Harshad
Mehta era as well as the tech bubble.
But, again fundamentalists were vindicated in their faith of looking at
the bigger picture rather than on short-term gains.
Some stocks like Tata Steel which touched a high of Rs.450 in January
plummeted to as low as Rs.230 (intra day) on that scary Monday afternoon.

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Skeptics and short-term participants could have burnt their fingers badly, but
for the brave hearted the stock rallied back from those levels to more than
Rs.570 levels (adjusted for bonus) at the close of 2004.
The latter half of the year also witnessed the emergence of the mid cap space
of the market wherein investor lapped up undervalued stories with good
potential.
This Bull Run, unlike many in the past has been more of a fundamentally led
one with a secular move up.
Most of the upside also has been in stocks with good fundamentals and
future stories, though not to mention that a tide takes up with it everything,
and so there would be the odd stock, the operators delight which might be
lurking around to make you lose every single penny of what has been
pocketed in the past one and a half years of the market’s recent rally. The
moral being while sea surfing one should make the most of any high
tides while at the same time staying aware of any tsunami which might
take everything you possess.
The Year 2005 heralds a new era wherein the WTO regime kicks off. This
new phase will gradually bring with it new challenges and opportunities with
it which could prove to be a boon for some while a bane for many others.
The mantra continues to be investing into stocks with good management and
strong financials, but at the same time having a growth story in the making.
I firmly re-iterate our belief that Investments should be made in
companies and not in stocks, so you grow as the company grows.

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We have listed herein few of our best stock and mutual fund picks.
These picks are based on research and in some cases direct communication
with the company management also.
Mutual Funds are chosen in terms of their fund philosophy, fund manager
and to a certain extent past performance. We wish that Year 2005 would be a
happy year for all of you, with lots of blessings of Godess Lakshmi on your
happiness and prosperity.

JB CHEMICALS AND PHARMACEUTICALS
Price as on 3rd July’05----- Rs.94.3

600
500
400
300
200
100
0

01st Jan 2003
31st December 2004
(Stock price movement. Source: www.nse-india.com)
Snippets
* JB Chemicals is one of the leading pharmaceutical companies in India.
* The company enjoys a strong presence in Indian markets as well as
overseas markets as exports Constitute 52% of the company’s turnover.
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* Some of the brands of the company in India include Rantac and Metrogyl.
* Overseas brands include Doktor Mom,Nicardia etc. (Doktor Mom voted
the best brand in the cold an cough segment in the whole of Europe by
Readers Digest for three consecutive years
* The company is more or less debt free.
* Joint Venture with Spectrum (Us Co.) for marketing generic products in
the USA.
* The company has received US FDA approval for its formulations and
APU plant at Panoli
* Renewal of USFDA approval for its Metronidazole plant at Thane.
* More than 2% of revenue dedicated to R&D which is ever increasing.
* State of the Art production facilities.
* Foray into biotechnology
* Company holds both the ANDA and DMF approvals for marketing
Ciproflaxacin tablets in U.S.
Financials
Turnover FY’04----Rs.314.55 crores
PAT (Profit After Tax)--------Rs.51.04 crore
Turnover FY’05----Rs.358.1 crores
PAT (Profit After Tax)--------Rs.59.2 crores
EPS-------Rs.7.37 (FY’05)
PE--------12.45

Valuations and Target

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With the company’s focus on R&D,USFDA approved manufacturing
facilities and USFDA approvals for manufacturing Ciproflaxacin tablets in
the USA it seems the management is adequately geared to make the most of
the new regime.
In lieu of the above, we feel the company would grow at more than 25%
annually over the next 4-5 years and thereby the stock should command a PE
of more than 25, which at current prices would translate to a price of
1000 for the stock.
The recently announced stock split would also add much needed liquidity to
the counter.
Another interesting fact is JB Chemicals is currently a stock which is not
tracked by many analysts or brokerage houses providing that extra fillip of a
substantial rise as and when the company’s impressive performance gets
noticed by these very brokerage houses.

Investment Strategy
The stock has had a good run up post the stock split announcement but since
the highs has also cooled off to settle at 460 levels. Investors with a long run
horizon could invest at current market prices.
But investors not willing to take on high risks, could invest their total
allocation in portions. The first portion could be invested at present levels
and then at lower levels getting themselves fully invested at every fall till the
stock touched 400.
On the upper side a breakout over 500 could take the stock all the way to
550 levels.
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Dabur India Limited
Price as on 3rd July’05----- Rs.132
150
100
50
0

30th Nov 2004

31st Dec 2004

(Stock price chart from 30th Nov.-- 31st Dec’04 -------Source www.nseindia.com)

Snippets
• One of the largest FMCG companies in India.—Consolidated turnover
of Rs.13.3 billion
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• Wide distribution network--------Covering 1.5 mn. Retail outlets
• Outperformed the industry in FY ’02-’03 and FY ’03-‘04
• 51% reduction in debt from Rs.817mn. to Rs.398 mn.

FINANCIALS
The company sales for FY ’03-’04 was Rs. 1151.9 crores and its net profit
was Rs.98.3 crores.
The FY ’03-’04 EPS was Rs.3.54.
The company sales for FY ’04-’05 was Rs.1255.55 crores and its net profit
was Rs.147.9 crores
The FY ’04-’05 EPS was Rs.5.17 and Price earning ratio was 24.91.

OUTLOOK
The company, which was a family owned business, is now truly evolving
into a professionally managed unit. The company has re launched its decades
old banyan tree logo to a newer and more modern image.
The company’s foray into food processing and increasing share of the
consumer care division emphasizes the fact that Dabur is on a long-term
growth path.
The company has outperformed most of the FMCG companies in basic
financial parameters since the past two financial years.

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TARGET BASIS
Our target for the stock is Rs.150.This should be achieved within December
2006 as the company continues to grow at more than 20% annually and the
forward earnings for 2006 coupled with price earnings multiple of 20 should
result in a price of Rs.150.

Great Eastern Shipping
Price as on 3rd July’05----- Rs.138.6
200
150
100
50
0

1st Jan. 2003

5th Jan. 2005

(Stock price movement. Source:www.nse-india.com)
Background
GE Shipping is one of the largest shipping companies in India with an
excellent record of corporate governance.
The company has been a consistent dividend payer since the past several
years.
Snippets (Company)

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• The company is on a major expansion drive with new fleet deliveries
planned for the next three years.
• The company is sitting on good cash reserves.
• Pro active management
• Huge surge in profits since the past couple of years due to up move of
the shipping cycle.
• Adequately prepared for post 2010 regime in shipping industry
wherein single hull carriers would be prohibited from plying anywhere
in the world.
•

The company is one of the best dividend plays in the markets at
current prices and in the past five years, it has been statistically proven
that high dividend yielding stocks outperform all other market indices.
This is known as the “dividend dogs” theory in the United States. The
current dividend yield of the stock would be close to around 4%.

Snippets (Industry)
• The shipping industry has after a long time woken up to a turnaround
in fortunes
• Supply would always be in limitations for the next few years, as
regulatory authorities demand mandatory scrapping of single hull
carriers by 2010, which would keep the supply side imbalances in
check.
• Shipping sector is directly benefited by an increase in oil demand. Due
to the Iraq factor and other Middle East chaos, oil in our opinion

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would be in short supply for the next few years making for good times
for the shipping industry.

Financials

2002'03 2003'04 2004-05
Sales (Cr.) 955.5 1351.9 2049.2
Profits (Cr.)227
471
808.8
EPS

11.4

24.3

42.49

The FY 04-05 Price earning ratio was 3.31.
Contrarian View
The past few days have witnessed a sharp fall in tanker rates worldwide on
falling crude prices and expectations of mild winter. We personally feel this
is a short-term blip and rates would strengthen once again in the forthcoming
months.
Sticking to the larger picture we are confident that world demand for oil
would continue to rise in the future years thereby providing a long term
sustainability for the shipping cycle.
Target
Our target for the stock is Rs. 250, which should be achieved within
December 2005.
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Shipping stocks are currently trading at massive discounts to other sectors
due to apprehensions about earnings sustainability. We believe that freight
rates would continue to remain attractive for the next few years leading to
good times for the shipping industry. Investors should sail the stock through
the good times and bad.

Century Textiles
Price as on 3rd July’05----- Rs.286.65
BACKGROUND
Century textiles are a B.K.Birla group company that has interests in textiles,
cement, paper etc.
The company in the past few years has revamped its operations and has also
gained due to the commodity swing in the cement sector.
SNIPPETS
• The company has increased its cement capacity from 5.5.mn.
tones to 6.3 mn. tonnes
• Century Textiles produces 100% cotton fabrics.
• The company has a dominant export presence in the cotton fabric
segment.
• The company also produced denim fabric.

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FINANCIALS
02-'03
Sales (Cr.)
2207.3
Profits (Cr.) 70.1
EPS
7.54
PE (Forward)

03-'04
2253.3
76.5
8.23

04'-'05
2514.3
112.5
11.78
21.47

Outlook

The company in the past two years is truly evolving into a professionally
managed organization and interests in textiles and cement should see the
company post immense gains in the future.
A good export presence currently would also help the company in
generating larger orders in the present post-quota regime.
Target
Our long-term target for the stock is Rs.270 as that would discount its 20052006 earnings by around 15-17 times which should be a reasonable target
Investors can invest at the current market prices but once again, conservative
investors should invest their sums in lots and not in a single shot.

ORIENT ABRASIVES
Price as on 3rd July’05----- Rs.261.15

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Orient Abrasives operates in the capital goods industry wherein it makes
abrasives which are used in capital intensive industries like steel, cement
construction, automobiles etc.
The alumuna-based abrasives are used to remove metal and smoothen
surfaces.
The stock has had a massive run up in the past few years but the future
seems good as the company is expected to grow at more than 25%
annually over the next 2-3 years.
The stock is currently trading at around 6 times its’05 earnings.
OUTLOOK
The company has a healthy order book and the stock had just announced a
bonus wherein the company’s capital increased from Rs.2.99 crores to
Rs.5.98 crores.
The company is expected to continue its impressive growth of more than
25% for the forthcoming two years.
FINANCIALS
02-'03
Sales (Cr.)
122
Profits (Cr.)
9.6
EPS(adj. For bonus)16
PE (forward)

03-'04
150.8
14.8
26

04'-'05
190
21
36
6.11

TARGET
Orient Abrasives is trading at a substantial discount to its stock market
peers like Grindwell Norton and Carborandum Universal, both of
which enjoy double digit price multiples. The stock going by the present

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trends and the future earnings should attain a price target of Rs.350 within
2005 as at a price of Rs.350 the stock would still be at a single digit price
multiple.

HINDUSTAN ZINC
Price as on 3rd July’05----- Rs.146.15
Hindustan Zinc is the largest producer of Zinc in India and enjoys a
monopoly situation in respect to Zinc production
Hindustan Zinc earlier a government concern was taken over by the Vedanta
group.
The group has even post the acquisition continued to buyback shares from
the open market, a clear vindication of the management’s faith in the
company’s future outlook and current stock prices.
The company is growing very fast and being a monopoly is adding to the
company’s growth prospects.
Outlook
Hindustan Zinc is a stock only for investors having a two year horizon and
willing to take into stride the volatile movements of the stock.
The stock’s price in the short run being extremely sensitive to commodity
news,is very volatile.
The next few years could also see Hindustan Zinc coming out with another
open offer to control the remaining 30% of government stake in the
company which would further boost the stock price.
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Target
Our two-year target for the stock is Rs.300. Firstly the monopoly situation
would lead to growing gains for the company. Secondly the management
buying back shares from the open market is a clear indication of the stock
price being undervalued.

Garware Wall Ropes
Price as on 3rd July’05----- Rs.45.45
Background
Garware Ropes operates in the field of fishing nets and is the largest
producer of fishing nets in India.
The company would immensely benefit in the near future due to increased
demand for fishing nets after the tsunami has washed away thousand of
fisherman’s fishing nets in the coastal areas in India as well as abroad.
The fishing net market in India is more of an unorganized one with Garware
one of the few large and organized manufacturers available.
The current market price of the stock is around Rs.49.

Financials
The company is currently discounts its FY’04 earnings by somewhat less
than 10 times while discounting its ’06 earnings by around 8 times.
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This could be substantially less as the company could make immense profits
on the wake of rising demand for fishing nets after the tsunami effect.
The company is a consistent dividend payer.
In the past financial year the company paid a dividend of Rs.2.20/- per share
which itself approximates to a dividend yield of 4.6 percent at current levels.

Target
Our two year target for the stock is between 90-100, which could be even
earlier if the company is able to capitalize on the huge opportunity in front of
it.
Investment Strategy
Investors can enter the stock at current levels .The stock faces immense
resistance at 51-55 levels and a breakout above those levels would imply a
clear bullish trend which might immediately take the stock up to 70 levels.

Franklin FMCG Fund

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History

The fund was launched in March 1999 to take advantage of the increasing
purchasing power in the rural sector, which would directly benefit the
FMCG sector.
But as it turned out, due to natural reasons wherein monsoons had a major
dent on the rural markets, which impacted FMCG stocks negatively.
Top Holdings
Stock
ITC
Nestle
Marico
Godrej
Tata Tea

% of portfolio
23.51
8.91
8.66
8.39
8.36

Returns
Time
1 month
3 month
1 year
3 year
5 year

Returns
6.03
21.19
23.34
23.81
4.11

Outlook

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We feel that 2005 would the year of FMCG stocks coming back into their
own.With the rural thrust on agriculture imparted by the present
government,this should rub off on the sector as a whole.
The fund is well managed and a look at the portfolio emphasizes its
conservative stance.
Investors willing to place sectoral bets could look at the Franklin FMCG
Fund with a two year horizon.

HDFC PRUDENCE FUND
History
HDFC Prudence Fund is a Prashant Jain managed fund and was part of
erstwhile Zurich Mutual Fund which was taken over by HDFC Mutual
Fund . The fund has outperformed all other funds in its category over a
long period of time.Consistency is the hallmark and lower portfolio
turnover are what makes this fund very attractive for all class of investor

Top Holdings

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Name
Description %
SBI
Equity
6.76
11.4 GOI 2008NCD
5.43
RIL Ind
Equity
4.12
SBI
NCD
3.83
Amtek Auto Equity
3.62
Returns
Time
1 month
3 month
1 year
3 year
5 year

Returns
4.02
11.45
21.92
42.28
20.64

Outlook
The fund, inspite of being a balanced fund was outperforming a lot of
diversified equity funds till a year back providing a testimony to the fact
that this fund is a better fund in times of volatility.
This fund is a perfect fund for the conservative investor seeking good returns
with an adequate cushion of safety

HDFC Core and Satellite Fund
History

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The fund was launched in October 2004 with a philosophy,different from
plain vanilla diversified equity funds.
The fund aims to invest around 80% of its corpus into equities having a
strong management and good growth.
The remaining 20% is aimed to be invested in stocks being turnaround
cases,be it in terms of management or in numbers. This 20% would be the
primary kicker in the returns.The high risk involved in investing in this sort
of stocks is taken care of by investing in more than 10 such stocks to spread
the risk.
Top Holdings
Name

%

SBI
9.88
ITC
8.23
Satyam Computers 6.93
L&T
6.92
Reliance
Industries

6.61

Returns
Industry
Returns %

Average

1-month6.41
3-month 19.25

9.43
22.39

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FUND PHILOSOPHY
The fund maintains two portions of the portfolio, namely the core and the
satellite portions. The core portion would consist of stocks, which are more
of large cap in nature with strong fundamentals and good managements.
The remaining 20% would be invested in small and mid cap stocks which
are presently not fundamentally sound or of mediocre management but
which are expected to turn around in the immediate future.
OUTLOOK
Investor seeking higher returns with an iota of additional risk should
invest in this fund with a three-year horizon in which they be able to
maximize returns.

Principal Dividend Yield Fund
Background
The fund was launched in October last year with a clearly defined objective
of investing 65% of the corpus in stocks which have a dividend yield which
is more than 2 times the Sensex dividend yield.
The fund since then has been performing well .

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Fund Philosophy
The fund has described would only invest 65% of the assets into high
dividend yielding stocks which have a dividend yield of more than 2 times of
the Sensex dividend yield.
Outlook
The fund is well managed and has been able to deliver superior returns
inspite of the fact that a lot of the fund’s assets are in cash .
The past five years has seen that investing in high dividend yielding
stocks outperform all other indices (known as the dividend dog theory in
the United States). The same has been statistically proven in the Indian
markets too.
Being a high dividend yielding fund, the fund would also be less volatile Vis
a vis other diversified equity funds.
We strongly recommend a buy on the fund wherein investors can be
sure of generating healthy returns with a nominal amount of risk.

SBI Magnum Pharma Fund
Background
SBI Mutual Fund since the past couple of years has been performing well
and has in the year 2004 outperformed most other fund houses.

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The sudden change in the fund performance can be well attributed to the fact
that the fund house now operates as an autonomous body and not within the
purview of SBI.
Performance
The fund has outperformed the only other two funds under its category,
namely the Reliance Pharma Fund and the JM Healthcare Fund
Outlook
The year 2005 would be a good year for many pharma companies which can
take on the challenges of the new product patent regime while at the same
time prove to be a disaster for many as they buckle under huge pressure.
The SBI Magnum Pharma Fund has been a top performer and could prove to
be an outperformer this year also, if some of its pharma calls stand
vindicated.

Investment Strategy
The fund being a sectoral fund would be prone to high risks and high
rewards. But unlike technology funds in the year 2000 which were trading at
price multiples of more than 75 and in some cases 100, the pharma sector is
trading at multiples of 25-30.

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A S.I.P would be a better strategy on this fund as lot of the volatility can be
captured.
Investors willing to take a call on the pharma sector, should look to invest in
this fund as it would provide better diversification rather than investing
directly in pharma stocks

The Indian mutual fund industry, which manages assets close to 1.50 lakh
crore, is passing through its biggest transitional phase. While domestic
players continue to look at consolidating their market share, new big foreign
players have entered Indian markets. More banks sponsored and foreign
players will be entering the market in the coming years. But (existing) top
asset management companies will able to garner a bigger share of the
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customer base, as they will have the capability to pour in more funds, put up
better infrastructure and are able to educate investors. The players who are
committed to the investors and who stay tuned to the times will prosper. The
weaker players could, over time, be marginalized and be taken over.
The biggest challenge before the industry continues to attract new investors.
Here Foreign-bank sponsored asset management companies have led the
way.
From providing plain vanilla products like equity, income and liquid funds,
these funds have launched products that have responded to market and
investors requirements, like asset allocations funds, dynamic asset allocation
funds (based on market price-earning or index levels), floating funds, short
term income plans, exchange traded funds and fund-of-funds and thematic
funds. Going forward, both the bond and equity markets are likely to remain
choppy and hence it is important that a proactive fund management style is
adopted towards asset allocation.
An asset management company can hope to make money only if it reaches
critical mass in terms of assets. Without size, it is impossible to generate a
reasonable return on investment.
The mentioned stocks and funds are just a few of the universe of stocks
which exist, and there would be many of them which might offer better
potential and returns. But, I have listed the few which I feel offer good scope
of appreciation and more importantly stocks which I know about, businesses
which I fully understand.
On a final note, I would like to sum up by saying that investing is all about
capping one’s downside and uncapping the upside.
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Investments should only be made in stocks which are fundamentally
sound thereby cushioning any downside.
The Bull Run, unlike many in the past has been more of a fundamentally led
one with a secular move up.
Most of the upside also has been in stocks with good fundamentals and
future stories, though not to mention that a tide takes up with it everything,
and so there would be the odd stock, the operators delight which might be
lurking around to make you lose every single penny of what has been
pocketed in the past one and a half years of the market’s recent rally. The
moral being while sea surfing one should make the most of any high
tides while at the same time staying aware of any tsunami which might
take everything you possess.
The Year 2005 heralds a new era wherein the WTO regime kicks off. This
new phase will gradually bring with it new challenges and opportunities with
it which could prove to be a boon for some while a bane for many others.
The mantra continues to be investing into stocks with good management and
strong financials, but at the same time having a growth story in the making.

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I firmly belief that Investments should be made in companies and not in
stocks, so you grow as the company grows.

BIBLIOGRAPHY
 Internal Records.
 Annual Reports.
 Company manuals and documents.


Companies Websites

 Published Data --- Magazines, journals.

 Website of the BSE (www.bseindia.com)
 HDFC Mutual Fund Website (www.hdfcfund.com)
 Financial Services Website (e.g. www.moneycontrol.com)
 BullseyeInvestmentsWebsite (www.bullseyeinvestments.com)
 Financial Services Website (www.indiabulls.com)

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