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basant
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   Topic: Reliance MF - Stock is better than the fu
Posted: 13/Jun/2007 at 6:32pm |
Reliance MF - Stock is better then the fund!
Reliance MF currently manages around US $ 15 billion. This is about of India’s MF industry. If someone gave us an option to invest in either one of the fund schemes or buy the fund which one would we choose? I did some random search about listed fund management AMC’s in the US and found some interesting details on the same. There are several instances of big multibaggers having been formed out of listed AMC’s. The problem is in India we do not have a pure listed AMC. We need to buy Reliance Capital and with that the set of other businesses that come along the listed AMC that is because Reliance AMC is not available separately. Had it been so I would have been the first to pounce on it. But the deal isn’t that bad it comes with a set of businesses which are all in the super high growth phase insurance, brokerage, consumer financing, private equity, investments etc.
There are other options as well. Sundaram Finance being one of them unfortunately it is a leader in nothing and we all know that the bigger gains are made in leader companies. Kotak bank is an interesting AMC play but their MF business isn’t doing as great as one would think. ICICI Pru can be bought through ICICI Bank but the stock has other businesses which kind of dilute the holdings of the AMC business.
Generally AMC’s are valued at 6% of their corpus. Now Reliance MF controls about 15%- 20% of the local MF market. If Indians are to bring in fresh investments into equity the biggest gainers would be the AMC companies. This is what Peter Lynch wrote on page 102 in his book “One up on Wall Street”
“Fidelity isn’t a public company so you couldn’t invest in the rush here. But what about Dreyfus? Want to see a chart that doesn’t stop? The stock sold for 40 cents a share in 1977 then nearly US $ 40 a share in 1986, a 100 bagger in 9 years and much of that during a lousy stock market. Franklin was a 138 bagger and Federated was up fifty fold before it was bought away by Aetna. I was right on top of all of them. I knew the Dreyfus story, the Franklin story, the Federated story from beginning to end Everything was right, earnings were up, the momentum was obvious .
How much did I make from all this? Zippo. I did not buy a single share of any financial services companies nor Dreyfus nor Federated nor Franklin. I missed the whole idea and did not realize it until it was too late. I guess I was too busy thinking of the Union oil of California – like the doctors.
Reliance Capital has already been a 20 bagger in this market. Can it go up 5 fold from here? The international comparisons do not seem discouraging at all.
Edited by basant - 13/Jun/2007 at 6:34pm
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smartcat
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Posted: 13/Jun/2007 at 6:51pm |
What about JM Financial? Does JM's AMC business come under this?
If Reliance Capital was just a plain vanilla listed AMC, I would NOT have invested in it. My logic -
- More Indians are investing in MFs. That's wonderful. But more Indians are buying cars, trading in shares etc. That alone wouldn't make automobile/brokerage company shares a good buy - there are other factors involved in making an investment decision.
- AMCs typically charge 2% of equity AUM and 0.25 - 0.5% of debt AUM as as management fees. So revenues of a AMC is directly proportional to returns of all the different equity/debt funds.
- For example, let's take Reliance MF - one of the best MF houses. It has good performers like Vision/Growth fund but along with that, it has laggards like Reliance Equity Fund (the Rs. 5,000 crore fund). The average returns of all the funds in Reliance MF will probably be equal to benchmark Sensex/Nifty returns.
- So basically, the earnings of a pure AMC company won't deviate much from that of Sensex/Nifty. So rather than buying the stock of AMC, I would rather put in an index fund.
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basant
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Posted: 13/Jun/2007 at 6:54pm |
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But the corpus is increasing. That means additional money at no cost. Let's check JM!!!
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johnnybravo
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Posted: 13/Jun/2007 at 8:06pm |
Originally posted by smartcat
- More Indians are investing in MFs. That's wonderful. But more Indians are buying cars, trading in shares etc. That alone wouldn't make automobile/brokerage company shares a good buy - there are other factors involved in making an investment decision.
- For example, let's take Reliance MF - one of the best MF houses. It has good performers like Vision/Growth fund but along with that, it has laggards like Reliance Equity Fund (the Rs. 5,000 crore fund).
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I would slightly disagree on these two points - buying car/house is a one time process, but investing is a continuous process - you keep on investing as you earn more and with income levels in India rising there is fair chance that the quantum of investments that people do shall also increase. Say I do a SIP on Rs 100/- every month this year, with my salary rising I shall do a SIP of Rs. 125/- the next year -- You see the quantum of investments is also increasing... Secondly, agreed that there are some good and more bad funds in given AMC, but people still go by fund house rather than going by the fund theme and fund manager....the craze and demands for NFO's shall be there for some more time. Once they learn the art of investing in the better funds, fund houses shall also evolve and become wiser. So eventually the performing funds shall attract investments. So a wiser investor (TED'ies) shall choose Reliance Growth over Reliance Equity. Finally who benefits? Reliance AMC.
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smartcat
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Posted: 13/Jun/2007 at 9:37pm |
There are basically two arguments against 'Investing in AMC' idea -
- Investor indifference to performance (NFO mania)
- Oversaturation of the market (competition)
Tushar - you have tried to take out the first argument by saying that, eventually, Indian investors will get smarter, reward performance and punish non-performers. Allright maybe. I will look forward to the day when UTI, Principal, ICICI etc drop out of the top 10 list.
But if more money flows into MFs, you will see more fund houses launching their wares in India. In the past 5 months alone, we've had 3 new fund houses (Lotus, AIG and other one - I forgot). By the time Indian investors get smart, we might have 100 fund houses in India, each having 10 equity funds - a grand total of 1000 funds to choose from. Most of these will be good funds because the new fund houses are professionally managed.
AMC corpus of your favorite fund house will definitely increase yes - but it won't be as much as you'd like it to be.
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deveshkayal
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Posted: 13/Jun/2007 at 9:40pm |
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Good to see that Rel Cap is being discussed deeply.Thanks Basantji for your contribution.I think it would be very difficult to replace Rel MF from the top spot.The difference between Rel MF and ICICI Pru is 10,000crs which is huge.And with Natural Resources Fund they are expecting 3000-4000crs from it.SIP of 100 should also progressively contribute to the AUM.Whats more Reliance name is attached to it.
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"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett
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deveshkayal
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Posted: 13/Jun/2007 at 9:45pm |
Smartcat,the market is big..once again posting what Madhu said in ET:
Considering the fact that the domestic equity holdings as a part of total savings is currently about 2%, we strongly believe that over the next five years, it could easily move to 5%. In other words, it would mean an additional investment of more than Rs 3 lakh crore. This however assumes that the current economic environment will continue.
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"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett
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basant
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Posted: 13/Jun/2007 at 9:54pm |
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Reliance Growth fund and Reliance Vision fund have become brands in their own ways. As a MF distributor I have absolutely no problem in convincing people to invest in these two funds but the moment I put up something new there is a prolonged discussion and many a times it remains inconclusive!!!
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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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