MFs Dating Their Old Flame

MFs Dating Their Old Flame
The Economic Times, ET Investor’s Guide, November 16, 2009, Page 19

Has the real estate sector found a way back into the MF industry? With the market bouncing back, it seems so

SU P R IYA VER MA M I SH R A ET INTELLIGENCE GROU P

THE equity markets recovering from their lows of Jan ’08, so has the perception of the notorious real estate sector, which is finding its way back to the portfolios of a number of mutual funds, wealthy individuals and portfolio management schemes. Almost all funds have started to invest some portion of their equity portfolios in the stocks of listed real estate companies. At the end of September, mutual funds had invested Rs 1,564 crore in real estate stocks, about 1% of their total assets under management (AUM).

THE PAST:

When the stock market tanked in 2008 and there was a major liquidity crunch in the economy, realty developers were the worst hit as all of them had launched a number of new projects with borrowed funds. As economic growth slowed and job losses mounted, demand for the residential as well commercial real estate space declined. Between April and July ’08, there were virtually no new sales coming.

This resulted in mutual funds offloading whole chunks of realty stocks from their portfolios. In fact some, such as Principal Mutual Fund, Mirae Assets and Canara Robeco are still shying away from the real estate sector. However with economic growth picking up pace and equity markets rising, fund houses are again moving towards this high-growth, highrisk business.

Starting early this year, funds like Birla Sun Life, Kotak, Fidelity and others have been scouting around for good bets in realty sector. However, Reliance Mutual Fund probably has a contrarian view as it is the only fund that has been continuously selling real estate stocks since May this year. Its investments in the sector stood at Rs 10 crore in April ’09. It jumped 23 times in just about a month to Rs 230 crore, and it was at Rs 129 crore at the end of Sept ’09.

THE DATA CARD:

Of all the funds, Sundaram BNP has invested the maximum amount in realty stocks, at Rs 259 crore, or 4% of its total AUM. Morgan Stanley’s exposure to the sector, which is at Rs 163 crore, makes up 7% of its AUM. Unitech accounts for almost half of the value of its real estate holding.

It is not only the bigger players like DLF, Unitech, and HDIL that are preferred for investments. Middle rung companies like Phoenix Mills, Mahindra Lifespaces and Anant Raj Industries have also found favour with a lot of fund managers in the last 5-6 months. For some of them it was subscription to their qualified institutional offers, while for others it was their fundamentals that were convincing enough. For instance, Unitech has seen about Rs 255 crore being pumped from May ’09 to now. Funds like Fidelity, Morgan Stanley, Sundaram BNP Paribas, IDFC, DSP BlackRock and Birla Sunlife were the top investors. Similarly DLF received a total of Rs 264 crore in fund money in the last five months. Again it was the likes of Fidelity, DSP BlackRock, Franklin Templeton, and HSBC among others that invested.

OUTLOOK:

As the sector valuations have corrected to a large extent, a lot of companies have become attractive investment avenues. The fact that demand returned and developers were able to sell a lot of residential units shows that normalcy is coming back. If developers do not embark on price increases, it is likely that the sector could sustain this momentum and mutual funds could become more confident of increasing their exposure to the sector.