MATS School of Business & IT: ND TH

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
1 Portfolio Management
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.
Portfolio Management
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 todays information based society companies with superior information enjoys a competitive advantage.
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.
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
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
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
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
MATS School of Business & IT 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
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
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
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% 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% 1.45% 11.13%
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 (India) Duetsche Asset Management (India) 2266 Franklin Templeton Asset Management 17342
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(India) HSBC
Asset
Management
(India) 5463
3.51% 0.94% 0.70% 10.31% 3.10% 6.06% 3.55% 100%
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 Co. Tata Asset Management Co Total 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:
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:
PARTICULARS HDFC Standard Life Investments Limited
% OF THE PAID UP 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,
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
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)
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,
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
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
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


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
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
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 Schemes 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
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 cornerAlas 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 markets 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 July05----- 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 companys turnover.
* 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 FY04----Rs.314.55 crores PAT (Profit After Tax)--------Rs.51.04 crore Turnover FY05----Rs.358.1 crores PAT (Profit After Tax)--------Rs.59.2 crores EPS-------Rs.7.37 (FY05) PE--------12.45
Valuations and Target
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With the companys 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 companys 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.
Dabur India Limited

Price as on 3rd July05----- Rs.132
150 100 50 0
30th Nov 2004
31st Dec 2004
(Stock price chart from 30th Nov.-- 31st Dec04 -------Source www.nseindia.com)
Snippets One of the largest FMCG companies in India.Consolidated turnover of Rs.13.3 billion
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 companys 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

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.
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 July05----- 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
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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 its05 earnings. OUTLOOK The company has a healthy order book and the stock had just announced a bonus wherein the companys 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) 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 03-'04 150.8 14.8 26 04'-'05 190 21 36 6.11
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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 July05----- 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 managements faith in the companys future outlook and current stock prices. The company is growing very fast and being a monopoly is adding to the companys 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 stocks 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.
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 July05----- 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 fishermans 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 FY04 earnings by somewhat less than 10 times while discounting its 06 earnings by around 8 times.
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
58
MATS School of Business & IT 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 Outlook Returns 6.03 21.19 23.34 23.81 4.11
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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 Returns Industry Returns % 1-month6.41 3-month 19.25 Average 9.43 22.39 6.61
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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 funds 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
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 ones downside and uncapping the upside.
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 markets 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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MATS School of Business & IT