Slumber for equity launches over, MFs bet big on elections

It’s a season of new equity fund offers (NFOs). The category, which had gone in a long slumber after the Lehman crisis, has suddenly started showing a gust of launches.  

This took place as India was gearing up for a general election. As many as 24 NFOs in the equity segment have hit the market over the past six months, garnering nearly Rs 3,000 crore ( Rs 30 billion).

Such a bombarding and in such a short time was missing since Lehman Brothers went bankrupt in late 2008, triggering a global economic recession.  

“I think the lull period is over. Many in the sector are betting big-time on the positive result of this year’s elections,” said the chief marketing officer of one of the largest fund houses.

If, he said, a Modi-led government comes to power it will prove a turning point for India’s stock markets.  

Sundaram MF, Reliance MF, ICICI Prudential, Religare Invesco, L&T MF, IDBI and IDFC, among others, have launched new equity schemes in recent months.

Though fund managers chose not to link the launches with elections, the underlying thought process is being decided by the expected outcome.  

Ashu Suyash, chief executive officer of L&T MF, said: “We are not taking a trade call on elections. Our equity launch is for investors from a long-term perspective.

This NFO provides investors with an opportunity to benefit from investing in the undervalued segment of the market, while adding style diversification to their portfolios.” The fund house launched its Emerging Business Fund last month.  

An earlier trend of close-ended equity schemes has also resurfaced. Rather, a majority of equity NFOs were close-ended products, with a lock-in period of two to five years. ICICI Pru, Reliance and IDFC were among the prime fund houses which launched such schemes.  

Till late last year, MF officials felt equity NFOs were out of fashion. However, within months, the sector is back to fund raising through equity launches. Thanks to the past year’s rally in Indian shares, sentiments have started improving.  

During the boom period which started around 2004 and lasted till early 2008, the MF sector had a massive 200 new equity launches.

The number of NFOs only increased when indices were at their peaks. And, they were successful in gathering funds to the tune of Rs 120,000 crore (Rs 1200 billion), mostly retail.

A majority of the money came when the indices were ruling at higher levels. So strong was the sentiment that none could see the coming disaster, which enveloped the world’s economy in a short span.

This did not let investors exit, as the value of their investments sharply declined, leaving them sitting on huge piles of losses.  

Though the stock market recovered the losses within two years, no inflows were seen. Only outflows, on the back of severe redemptions.

No fund houses could muster the courage to launch equity funds during the period and the sector lost a lot of its equity assets.  

Equity NFOs were least talked about and the situation was worst in 2012, the worst in a decade for garnering funds. That year, the number of equity NFOs dipped to as low as eight and collected  only Rs 503 crore ( Rs 5