Date:23/03/2005 URL: http://www.thehindubusinessline.com/2005/03/23/stories/2005032301121300.htm

Back `India is a stock picker's market'

Veena Venugopal

Mumbai , March 22

AFTER over a year of frenzied preparations and awaiting regulatory clearances, Fidelity Mutual Fund is ready to go live. It's not surprising then, that Mr Arun Mehra, Fund Manager of Fidelity Equity Fund, the asset management company's maiden fund for India, is an excited man.

Before hitting the road for a month of road shows, Mr Mehra shared his views on the Indian markets and prospects for his fund with Business Line.

The Fidelity Equity Fund is a completely diversified fund, with no caps on size of the companies that the fund would invest in. Will this help you cash in on the spate of flexible cap IPOs that have recently hit the market?

The offer document of the fund is similar to most Fidelity equity products, world over. Even if the launch of the fund had been two years ago, when the Indian market did not have any such products, we would have launched the same product. However, it is a good thing that the market is exposed to such a fund, it would help us explain to investors better.

The addition of some exciting small-cap scrips will help augment returns. Since the percentage of these in the overall holding will be small, liquidity risks associated with such stocks will not have a detrimental effect on the fund.

The fund proposes to have a portfolio of about 70 stocks? Is this not a bit too much? Most diversified funds invest in about 30-40 scrips.

We do not think so. India is a stock picker's market and in the Fidelity way of portfolio management, this is the size we see for the portfolio. If at all, the number would only be higher than 70, it will rarely be lower.

Our fund management philosophy also does not allow us to stay on cash. Our job, as fund managers, is to invest the investors' money in good scrips and stay as fully invested as possible. In the initial couple of months, we may have a larger portion of cash holdings, as we assess inflows and outflows, and subsequently will stay invested with very little cash.

What are the differentiating factors about the Fidelity Equity Fund that would entice investors to put their money in a relatively unknown fund house in India?

We bring Fidelity's worldwide expertise in asset management. World over, managing money is our main and only business. In many markets, including the UK, we have built strong businesses that are now industry leaders in these markets. Our aim is to do the same in India. Build a strong and sustainable business. Fidelity has a lot of patience and is not in a hurry to garner assets under management. We like to build it step by step and we have the expertise for it.

Indian mutual fund industry is still fairly small. Most people prefer to hold their savings as bank deposits. Now, slowly, there is a realisation that investment in equities is the way to get higher returns. We bring Fidelity's research capabilities and stock picking expertise to the Indian market.

Who is the ideal investor for Fidelity Equity Fund?

The ideal investor for the fund is a middle class person, who invests for the long term. The fund is structured to appeal to these investors. For instance, the systematic investment plan is open from the initial public offer stage itself. The load structure is also built to keep these investors true to the nature of the fund.