Picking the winners

Last Updated: Fri, Dec 07, 2012 21:01 hrs

pThe last one year ending September 30 2012 hasn&rsquot been easy for fund managers as well as investors It was in this period that the Indian equity markets bottomed out breaking the falling trend it had witnessed from the peak of 633850 on the Nifty on November 5 2010ppThe October 2011-September 2012 period has seen a good amount of volatility and swings The Nifty fell to 4531 on December 20 last year its lowest level seen since August 2009 before scaling to its 17-months high of 5815 on October 5 this yearppIndia Inc too was undergoing tough times in the form of pressure on profitability rising interest costs and slowing growth Not surprisingly many well-known companies were seen defaulting on their debt obligations And predicting stock price trends were far from simpleppWhile the global environment was also weak with concerns over Euro zone rising amid rising political uncertainties the government&rsquos finances have also worsened What&rsquos more inflation has almost refused to budge and continues to rule high making it difficult for the Reserve Bank of India RBI to cut rates Thus even as the markets hoped of a rate cut on slowing growth the RBI belied these expectations &ndash as a result volatility in the debt market was also high The rupee&rsquos depreciation and volatility &ndash it moved from low levels of 49 to a US dollar to over 57 &ndash only added to the uncertaintiesppWhile the Indian equity markets are still closer to their recent highs the fundamental situation hasn&rsquot changed much as domestic growth concerns and political and policy logjam haven&rsquot faded Likewise the concerns over Euro zone and looming US fiscal cliff remainppIn this context fund managers both on the equity and debt side had a tough job on their handsppIt was in this backdrop that a four-member jury headed by G N Bajpai Ashvin Parekh Rajeev Gupta and Vibhav Kapoor met to pick the winners of the Business Standard Fund Managers of the YearppThe meeting kicked off with the jury members analysing the parameters used to rank the fund managers following which they sought finer details including those on absolute fund returns standard deviation and the adjusted Sharpe ratioppThe concept of &lsquoAdjusted Sharpe ratio&rsquo or the weighted average Sharpe was introduced in the year 2010 While the Sharpe ratio measures the return for every unit of risk taken and is a better way to measure a fund manager&rsquos performance rather than looking at absolute returns the adjusted Sharpe ratio is a step forward It takes into account the total assets managed by a fund manager in relation to the total assets of the category besides all the schemes handled by the fund manager A ranking based on the weighted average Sharpe reflects the difficulty of yielding superior returns and takes into account the asset size and the performance of all the schemes managed by a fund managerppIn a bid to refine the process further last year the jury members had suggested inclusion of a threshold limit in terms of fund size They said although the weighting by assets managed is a sound method a threshold limit will only make it stronger Accordingly the bottom 10 per cent of the funds in the equity category and the bottom quartile in the debt category were excludedppThe data was provided by ICRAOnline A composite score was ascertained for each fund manager comprising of the weighted average of the Sharpe ratio achieved by each scheme managed by himher The average one year corpus based on month-end figures of each scheme managed was used as weights to arrive at hisher scoreppThe deliberations went on for almost an hour The jury also recommended considering the 91 days Treasury bills one year average return as risk-free return for the debt funds This was to ensure that fund managers taking risk were appropriately rewardedppAfter carefully analysing the data and checking for its accuracy the jury members arrived at the winnersppThe two fund managers who walked away with the awards are Prashant Jain of HDFC Mutual Fund in the equity category and Sachin Padwal-Desai of Franklin Templeton Mutual Fund in the debt categoryppThe superior performance of the HDFC Equity and HDFC Top 200 schemes two of India&rsquos largest equity schemes by assets helped Jain bag the award For Padwal-Desai all of the five schemes namely Templeton India STIP Templeton India Income Opportunities Fund Templeton Floating Rate Income Fund Templeton India Income Fund and Templeton India IBA &ndash Plan A delivered good returns While the combined average corpus of Jain&rsquos two funds stood at Rs 20850 crore the same was Rs 9740 crore for Padwal-DesaippNotably the adjusted Sharpe ratio achieved by Jain was way ahead of the second best fund manager While Padwal-Desai scored over one of his colleagues by a few points but here too if the Sharpe ratio of the third ranker is seen Padwal-Desai was way ahead All of this reflects the superior risk-adjusted returns the equity and debt fund managers have delivered during this period In fact this is the second consecutive win for Jain who also did exceedingly well last year which helped him bag the Business Standard Equity Fund Manger of the Yearp

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