Stocks at a Bargain Prompt India Funds to Open Investment Plans

(Bloomberg) --

India fund managers are opening the door wider for investors as local equities are seen at a bargain following a record decline in March.

DSP Mutual Fund and SBI Mutual Fund have reopened lump-sum investments into funds that focus on companies with small market value after stopping bulk investments a few years ago. L&T Investment Management Ltd., meanwhile, launched two index funds for investors.

“Small caps have very high volatility,” Kalpen Parekh, president at DSP Investment Managers Pvt., said in a statement. “We would like to take money when we find the interest in the category to be very low, reflecting in cheaper valuations, yet keeping focus on quality of businesses.”

In October 2014, DSP restricted flows into its small-cap fund to 200,000 rupees ($2,646) per investor for one-off purchases as it decided that large inflows may prove detrimental to the interest of existing unit holders due to the category’s volatility. It reduced the single payment cap further in 2016 and stopped taking new one-off investments in February 2017. The fund currently has assets of 50.5 billion rupees.

A gauge of small-cap companies, representing 15% of India’s total stock market value, has plunged by more than 50% from a peak in 2018, after rallying for four consecutive years. Most of the decline came this month as the Covid-19 pandemic forced the nation to order the world’s biggest lockdown in an effort to stop the transmission of the deadly disease into the community.

“My fear is that there is enough appetite for these funds but by those who don’t understand how brutal markets can be,” said Vidya Bala, head of research and co-founder at Chennai-based Primeinvestor.in. “When people fear they may lose their job, they view such investments to make quick money. But this market is only for seasoned investors, those with deep pockets and those genuinely looking at the long term.”

SBI Funds Management Pvt.’s small-cap plan, with assets of 34.8 billion rupees, is reopening for total new inflows of as much as 10 billion rupees after limiting purchases since October 2015. The fund has generated returns of more than 8% over five years, beating 95% of peers.

The slide in share prices has also nudged L&T Investment Management to introduce funds tracking the NSE Nifty 50 Index and NSE Nifty Next 50 Index this week. They provide “an opportune platform” to invest in highly liquid and well-known companies, it said.

The benchmark S&P BSE Sensex Index is set for a quarterly drop of almost 30%, surpassing the previous record of a 28% decline in the three months through June 1992.

“Where investors are confused, exchange-traded funds provide an option to enter without much thought and rely on markets to do their job,” Bala said.

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