Fund Manager Speak

8/3/2019 Fund Manager Speak

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A Reliance Capital

Reliance Mutual Fund

Presents

Reliance Small Cap Fund

A Fund With

A Very Aggressive Investment Style


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A Reliance Capital


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q India Opportunity

q Why Invest in Small Caps

q Investment Case for Small Caps

q Success Essentials and Reliance Mutual Fund Advantage

q Reliance Small Cap Fund

Investment Strategy

Positioning

Product Features

Table Of Contents


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...despite concerns of coalition politics, bureaucracy & poor infrastructure

Estimated for 2009-2011Source: CIEC, RCAM Estimates

India Moving Towards Higher Growth Trajectory


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Estimated for 2010-2014

Source: CMIE, MOSL, RCAM Estimates

India - The Next Trillion Dollar Opportunity

q India took 60 years to get to its first USD 1 Trillion GDP in FY08, but the move to USD 2Trillion GDP will be in next 5-6 years, similar to that of China

q Due to the huge consumption and savings/investment boom, USD 2 Trillion GDP is not adestination, but a milestone in Indias ongoing journey towards USD 4 Trillion GDP in thesubsequent 5-7 years, and so on

INDIAS GDP IN USD TRILLION


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Presently, EM economies hold over 30%share in Global GDP, while their share inGlobal market cap is only 13%

Source: IMF GDP data, MSCI m-cap data, RCAM Estimates, DM : Developed Markets, EM: Emerging Markets

Period 1995-99 2000-04 2005-09 2009

Avg. World GDP $Bn 30,292 35,291 53,583 57,228

Proportion of the World Average GDP level (%)

DM countries 80.4 79.5 72.2 69.3

US 27.6 30.5 25.7 24.9

UK 4.4 4.9 4.6 3.8

Euro area 23.2 21.4 22.1 21.5

Japan 14.8 12.2 8.7 8.8

EM countries 19.6 20.5 27.8 30.7

Brazil 2.6 1.7 2.4 2.6

Russia 1.0 1.1 2.2 2.2

India 2.2 1.5 1.9 2.2

China 3.1 4.3 6.5 8.3

South Africa 0.5 0.4 0.5 0.5

Growing size of EM economy andfading distinction between EMand DM economies should lead toincreased capital allocation to EMeconomies

Period 1995-99 2000-04 2005-09 2009

Avg.World M-Cap 14,047,039 17,734,308 25,689,296 24,630,640

Proportion of the Average World M-Cap (%)

DM markets 94.1 95.3 90.1 86.8

United States 46.6 51.9 44.3 42.5

United Kingdom 9.7 10.4 9.6 9.0

Europe (ex-EM) 30.0 29.1 29.0 27.3

Japan 13.8 9.0 9.5 8.6EM markets 5.9 4.7 9.9 13.2

Brazil 0.7 0.4 1.3 2.2

Russia 0.2 0.2 0.8 0.8

India 0.4 0.3 0.7 1.0

China 0.0 0.3 1.5 2.4

Korea 0.6 0.8 1.4 1.7

MSCI Indices used as proxy for market-cap data (Units: USD million)

Emerging Markets To Attract Higher Inflows


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q In 2014, BRICs combined GDP will be equal to US GDP

q At Market Cap GDP ratio of 1, BRIC countries will have a market cap of USD 16.36 Trillion

q Significant FII money will flow into the BRIC markets India will gets its share of investments

Source - RCAM Estimates, *FII numbers are approximations, BRIC Brazil, Russia, India, China

Investments Will Flow To IndiaUSD (Trillion) CY2008 CY2014

BRIC

GDP 8.29 16.36

Market Cap 5.61 16.36

FII Investments* 1.00 ??

US

GDP 14.20 16.47

Market Cap 12.09 16.47

FII Investments* 10.64 ??


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q Currently market is evenly poised with positive bias

q India has emerged stronger from the global slump and is back on track to grow inexcess of 7-8% per annum

q For a sustained long term growth, the 3 growth drivers are in place:

Savings Domestic savings are among the highest in the world Consumption Set to explode

Investments At 34% of the GDP, again among the highest in the world

q Policy announcements will have significant impact on the direction of the market

q Themes for the coming year

Big valuation disparity among large, mid caps & small caps. Opportunity for alphacreation

Stock selection will be the key

Investment Outlook

Source: Bloomberg, RCAM Estimates


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Why Invest In Small Caps?


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Key Benefits Of Investing In Small Caps

Presence in Emerging Sectors Large Universe

Higher Earnings Growth

Und

er-Resea

rched

High

GrowthP

otential Scop

eof

Re-Rati

ng

Entrepreneuria

lPassion

SmallCap


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Todays

SmallCaps .

Are Tomorrows

PotentialMid Caps,

Which MayEventually Become

Large Caps

StartUp

Growth

Maturity

Small

Caps

Mid Caps Large

Caps

Emergence Of Small Caps To Large Caps


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Research Available

Small Cap

Limited Moderate Widely

Very

Limited

Moderate Large

Low Moderate Fair

Re Rating Potential For Small Caps

Mid Cap Large Cap

InstitutionalOwnership

Valuation Multiple


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q Indian entrepreneurial skills / mindset / spirit has been globally acknowledged over a

period of time

q End of License Raj has opened many business opportunities for entrepreneur

q Multiple sources of fund raising at various stage of business has been of tremendous

help

q Competitive talent is being attracted & retained by rewarding performance linked

incentives, ESOPs, etc

q In todays economic environment, individuals with entrepreneurial mindset are exploringnew business opportunities that will not only survive in a recession but will also thrive

q Thus, Emerging India is offering various growth opportunities to entrepreneurs, be it first

generation entrepreneur or otherwise

Entrepreneurial Passion


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q In a developing economy like India, multiple sectors provide opportunities for growth

Example: Retailing, Food Processing, Pharmaceuticals, Media & Entertainment,

Real Estate, Education, Hospitality etc

q Once established and successful, ramp up can be rapid

q Thus, emerging sectors are true reflection of entrepreneurial spirit, new opportunities

and creation of global behemoths

Emerging Sectors Offer Opportunities For Growth


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Dynamics Of Multi - Baggers

Market Capitalization = Net Profits X PerceptionMarket Price = EPS X PE

High Growth Potential / Scalability

Differentiated Business Model

Emergence of Educated &

Passionate Management

Niche focus & ability to attract

talent in form of Quasi

Entrepreneurs & Stock Options

Under Ownership, Under

Researched & Under Covered

Understanding Value of Market Cap

Various Modes of Fund Raising

Emerging Sectors start small

Technology, Retail, Real Estate,

Insurance etc

This simultaneous impact on both EPS & PE creates a MULTI BAGGER


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q There is no scientific methodology to classify Large Caps, Mid Caps and Small Caps

but there are pre-defined indices on BSE & NSE

q Mentioned below is the categorization of the same on the basis of market capitalization

as on August 2010

Indices CategorizationNo. Of

Companies

Index Market CapRange

(Rs. Crs)

Total MarketCap approx

(Rs Crs)

BSE SENSEX Large Cap 30 15,300 329,400 2,761,687

BSE Mid Cap Mid Cap 273 1000 12,350 1,078,821

BSE Small Cap Small Cap 534 170 2300 351,840

Source: www.bseindia.com, 5th August 2010 , Index Market Cap Range given implies companies with the smallest market cap and largest market cap in that particularindices respectively as on August 5, 2010. Small Cap stocks for the purpose of the Reliance Small Cap Fund are stocks whose market capitalization is in between thehighest and lowest market capitalization of companies on BSE Small Cap Index

How Small Caps Are Classified ?
http://www.bseindia.com/http://www.bseindia.com/


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Source : www.bseindia.com, Capitaline Neo as on 6th August 2010

q 4300+ Cos. listed on Bombay Stock Exchange

q1383 Cos. with Market Capitalization of over Rs 100 Cr

q 1065 Cos. with Market Capitalization of over Rs 200 Cr

q 664 Cos. with a Sales Turnover of over Rs. 200 Cr

q 613 Cos. with an Operating Profits over Rs 25 Cr

q 548 Cos. with net profits of over Rs 10 Cr

The Indian Small Cap Opportunity


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Small Caps are still available at better valuations compared to Large Caps

Investment Case For Small Caps

Performance Over The Last 2 Years (31st July 08 - 30th July 10)

Index CAGR (%)Outperformance of

BSE SMALL CAPRelative To Indices

S&P CNX Nifty 11.32 5.00

BSE SENSEX 11.58 4.74

BSE MIDCAP 15.37 0.95

BSE SMALL CAP 16.32

Valuation As On 31st July 2010

Index P/E Price To Book Value

S&P CNX Nifty 22.31 3.78

BSE SENSEX 21.20 3.40

BSE MIDCAP 19.24 2.90

BSE SMALL CAP 15.66 2.34

Source : www.bseindia.com, Capitaline Neo as on 6th August 2010


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Examples of how Small Cap companies have emergedas Large Cap companies over a period of time

creating wealth for the shareholders

The companies chosen herein are purely for illustrative purpose only Reliance Mutual Fund or Reliance Small Cap Fund may or may not invest in the shares of these companies The investment decision of Reliance Mutual Fund to invest in any company is based on several factors including

research, market potential, future outlook etc


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Company Name

Market Capitalization(July 30th 2001)


Outperformance relative toBSESENSEX

(July 30th 2001- July 30th 2010)(Rs. Cr) (Rs. Cr)

Pantaloon Retail (India) 19.98 9457.13 19,316%

PATRs.140.58 Crs(30th June 2009)

PATRs.6.40 Crs

(30th June 2001)

Increase

dBy22T

imes

Retailing

Source as on 31st July 2010, Capitaline Neo


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PATRs.1,195.53 Crs(31st March 2009)

PATRs.13.57 Crs

(31st March 2003)

Increased

By88Tim

es

Realty - Construction

Company Name

Market Capitalization(July 31st 2003)



(July 31st 2003- July 30th 2010)(Rs. Cr) (Rs. Cr)

Unitech 72.44 20,457.53 17,550%


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PATRs.140.33 Crs(31st March 2009)

PATRs.14.00 Crs

(31st March 2006)

Increased

By10Tim

es

Computers - Education

Company Name

Market Capitalization(Jan 31st 2006)



(Jan 31st 2006- July 30th 2010)(Rs. Cr) (Rs. Cr)

Educomp Solutions 447.20 5,797.46 904%


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PATRs.130.03 Crs(31st March 2010)

PATRs.30.92 Crs

(31st March 2002)

IncreasedBy4

Times

Healthcare

Company Name

Market Capitalization(Jan 31st 2001)



(Jan 31st 2001- July 30th 2010)(Rs. Cr) (Rs. Cr)

Apollo Hospitals 715.31 4,841.08 20%


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PATRs.46.71 Crs

(31st March 2010)

PATRs.0.94 Crs

(31st March 2003)

Increased

By49Tim

es

FMCG Food & Dairy Products

Company Name

Market Capitalization(July 1st 2003)



(July 01st 2003- July 30th 2010)(Rs. Cr) (Rs. Cr)

Zydus Wellness 2.31 2,015.23 9,924%


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q Stock Selection

Small Cap investing is all about stock selection rather than asset allocation

q Stock selection based on

Size of opportunity

Possible higher growth and its sustainability

Emerging theme / sector (Example: real estate, retail, food processing etc)

Zeal of management to scale and grow

qStock price movement tend to be more volatile

Limited research

Lesser/negligible institutional ownership

q However the sharp volatility subsides over a longer period and makes way for

higher profitability

Dynamics Of Successful Small Cap Investing


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q Our Expertise

Bottom up approach has been strongly advocated as the key investment strategy

of

Reliance Mutual Fund. Well-experienced team of investment professionals having

Collective experience of over 150 years in Indian equities

Most members individually tracking Indian equity markets for well over 15

years

In depth research capabilities to identify small caps with huge growth potential

Our research capability empowers the Fund Manager to be BOLD in identifying high

growth potential stocks & manage the RISK associated with it

Only fund in RMFs product basket with a pre-dominant investment focus on

smallPast Performance may or may not be sustained in future

Reliance Mutual Fund Advantage


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q With an endeavor to maximize returns & minimize risks by reasonable diversification ,

primary focus would be on small cap stocks

Investment in Equities of Small Cap Companies : 65%-100%*

Investment in Equities of any other Companies : 0%-35%*

Investment in Debt & Money Market Securities : 0% - 35%*

q Small cap stocks, for the purpose of the fund are defined as stocks whose market

capitalization is in between the highest & lowest market capitalization of companies on

BSE Small Cap Index

q Investment with a longer term horizon

* Please refer detailed asset allocation on slide no 29. Market Capitalization: Market value of the listed company, which is

calculated by multiplying its current market price by number of its shares outstanding

Investment Philosophy


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q A very aggressive small cap oriented fund

q A relatively high risk/high return oriented fund characterized by volatility which will get

smoothened out over long term investment horizon

q Reliance Small Cap Fund will be a vital part of an investors core portfolio that aims

to create an alpha for their investments

Positioning Of Reliance Small Cap Fund

Risk

Returns

High Medium Low

HighReliance Small

Cap Fund

Medium

Low


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Equity & equity related securities of small cap companies including derivatives#- 65%-100%

Equity & equity related securities of any other companies including derivatives# -0%-35%

Debt & Money Market Securities **(including investments in securitised debt)- 0% - 35%

** including securitised debt up to 30%# The Scheme proposes to invest at least 65% of the corpus in Equity & equity related instruments of smallcap companies which may go upto 100% of the corpus. The investment in Equity & equity related instrumentsof any other companies other than small cap companies will be in the range of 0-35% of the corpus

BSE Small Cap Index

Proposed AssetAllocation

Fund Manager Sunil Singhania

Scheme Features

Investment Objective

The primary investment objective of the scheme is to generate long term capitalappreciation by investing predominantly in equity and equity related instrumentsof small cap companies and the secondary objective is to generate consistentreturns by investing in debt and money market securities

Benchmark

New Fund Offer Price: Rs.10/- per unit


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Load Structure : During New Fund Offer &Continuous Offer including SIP Installments

Entry Load: Nil

Exit Load: 2% If redeemed or switched out on or before completion of

12 months from the date of allotment of units

1% If redeemed or switched out after 12 months but on or

before completion of 24 months from the date of allotment

of units

Nil If redeemed or switched out after the completion of 24months from the date of allotment of units

In accordance with the requirements specified by the SEBI circular no. SEBI/IMD/CIRNo.4/168230/09 dated June 30, 2009 no entry load will be charged for purchase / additional

purchase / switch-in accepted by the Fund. Upfront commission shall be paid directly by theinvestor to the AMFI Registered Distributor based on the investors assessment of variousfactors including the services rendered by the AMFI Registered Distributor.

Choice of Plans/Options

Growth Plan:Growth & Bonus Option

Dividend Plan :

Dividend Payout OptionDividend Reinvestment Option

Minimum Application Amount

Rs.5000 & in multiples of Re. 1 thereafter

Additional Purchase AmountRs.1000 (plus in the multiple of Re.1)

SIP

Mode of Payment : Auto Debit/ECS

Scheme Features


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A Reliance Capital

Thank You


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The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the readers. This information is

meant for general reading purpose only and is not meant to serve as a professional guide for the readers. This document has been prepared on the basis of publicly

available information, internally developed data and other sources believed to be reliable. The Sponsor, The Investment Manager, The Trustee or any of their respective

directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information.

Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and opinions given fair and

reasonable. This information is not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument. Recipients of this information should

rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice and arrive at an informed investment decision

before making any investments. None of The Sponsor, The Investment Manager, The Trustee, their respective directors, employees, affiliates or representatives shall beliable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this

material.

The Sponsor, The Investment Manager, The Trustee, any of their respective directors, employees including the fund managers, affiliates, representatives including persons

involved in the preparation or issuance of this material may from time to time, have long or short positions in, and buy or sell the securities thereof, of company(ies) / specific

sectors mentioned herein.

Terms of issue and mode of sale and redemption of units: The Scheme will offer for Subscription/ Switch-in and Redemption / Switch-out of Units on every Business Day

on an ongoing basis, within five business days of allotment. The redemption or repurchase proceeds shall be dispatched to the unitholders within 10 Business Days from the

date of redemption or repurchase.

Investor benefits and general services offered: The Scheme offers Systematic Investment Plan, Auto Switch facility, Online Transactions and Reliance Any Time Money

Card during the NFO period. The NAV of Scheme shall be published on a daily basis by the Mutual Fund at least in two daily newspapers and will also uploaded on the AMFI

site www.amfiindia.com and Reliance Mutual Fund site i.e. www.reliancemutual.com.Statutory Details: Reliance Mutual Fund has been constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882. Sponsor: Reliance Capital

Limited. Trustee: Reliance Capital Trustee Company Limited. Investment Manager: Reliance Capital Asset Management Limited (Registered Office of Trustee &

Investment Manager: Reliance House Nr. Mardia Plaza, Off. C.G. Road, Ahmedabad 380 006). The Sponsor, the Trustee and the Investment Manager are incorporated

under the Companies Act 1956. The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond their initial contribution of Rs.1 lakh

towards the setting up of the Mutual Fund and such other accretions and additions to the corpus.

Risk Factors: Mutual Funds and securities investments are subject to market risks, and there is no assurance or guarantee that the objectives of the Scheme will

be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on the factors and forces

affecting the securities market.Reliance Small Cap Fund is only the name of the Scheme and does not in any manner indicates either the quality of the Scheme;

its future prospects or returns. Past performance of the Sponsor/AMC/Mutual Fund is not indicative of the future performance of the Scheme. The NAV of the Scheme

may be affected, interalia, by changes in the market conditions, interest rates, trading volumes, settlement periods and transfer procedures. There are various risks

associated with investing in Equities, Bonds, Foreign Securities, investing and use of Derivatives, Securitised Debt and Short Selling & Securities Lending. For Scheme

Disclaimers
http://www.amfiindia.com/http://www.reliancemutual.com/http://www.reliancemutual.com/http://www.amfiindia.com/

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