Reliance Small Cap Fund Presentation
Transcript of Reliance Small Cap Fund Presentation
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A Reliance Capital company
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India Opportunity
Why Invest in Small Caps
Investment Case for Small Caps
Success Essentials and Reliance Mutual Fund Advantage
Reliance Small Cap Fund
Investment Strategy
Positioning
Product Features
Table Of ContentsTable Of Contents
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...despite concerns of coalition politics, bureaucracy & poor infrastructure
Estimated for 2009-2011
Source: CIEC, RCAM Estimates
India Moving Towards Higher Growth TrajectoryIndia Moving Towards Higher Growth Trajectory
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Estimated for 2010-2014Source: CMIE, MOSL, RCAM Estimates
IndiaIndia -- The Next Trillion Dollar OpportunityThe Next Trillion Dollar Opportunity
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
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 30.7Brazil 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 8.6
EM markets 5.9 4.7 9.9 13.2Brazil 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 InflowsEmerging Markets To Attract Higher Inflows
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In 2014, BRICs combined GDP will be equal to US GDP At Market Cap GDP ratio of 1, BRIC countries will have a market cap of USD 16.36
Trillion
Significant FII money will flow into the BRIC markets India will gets its share ofinvestments
Source - RCAM Estimates, *FII numbers are approximations, BRIC Brazil, Russia, India, China
Investments Will Flow To IndiaInvestments Will Flow To India
USD (Trillion) CY2008 CY2014BRIC
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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Currently market is evenly poised with positive bias
India has emerged stronger from the global slump and is back on track to grow in excessof 7-8% per annum
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
Policy announcements will have significant impact on the direction of the market
Themes for the coming year
Big valuation disparity among large, mid caps & small caps. Opportunity for alphacreation
Stock selection will be the key
Investment OutlookInvestment Outlook
Source: Bloomberg, RCAM Estimates
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Why Invest In Small Caps?Why Invest In Small Caps?
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Key Benefits Of Investing In Small CapsKey Benefits Of Investing In Small Caps
Presence in Emerging SectorsPresence in Emerging Sectors Large UniverseLarge Universe
Higher Earnings GrowthHigher Earnings Growth
Und
er
Und
er--Re
search
ed
Res
earche
d
HighG
rowthP
otential
HighG
rowthP
otential Scop
eof
Re
Scop
eof
Re--R
atin
g
R
atin
g
Entrepre
neuria
lPassion
Entrepre
neuria
lPassion
SmallSmall
CapCap
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TodayTodays Smalls Small
CapsCaps ..Are TomorrowAre Tomorrows Potentials Potential
Mid Caps,Mid Caps,Which May EventuallyWhich May Eventually
Become Large CapsBecome Large Caps
StartUp
StartUp
Growth
Growth
MaturityMaturity
Small CapsSmall Caps Mid CapsMid Caps Large CapsLarge Caps
Emergence Of Small Caps To Large CapsEmergence Of Small Caps To Large Caps
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Limited Moderate Widely
Very
LimitedModerate Large
Low Moderate Fair
ReRe Rating Potential For Small CapsRating Potential For Small Caps
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Indian entrepreneurial skills / mindset / spirit has been globally acknowledged over aperiod of time
End of License Raj has opened many business opportunities for entrepreneur
Multiple sources of fund raising at various stage of business has been of tremendous
help
Competitive talent is being attracted & retained by rewarding performance linked
incentives, ESOPs, etc
In todays economic environment, individuals with entrepreneurial mindset are exploring
new business opportunities that will not only survive in a recession but will also thrive
Thus, Emerging India is offering various growth opportunities to entrepreneurs, be it first
generation entrepreneur or otherwise
Entrepreneurial PassionEntrepreneurial Passion
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In a developing economy like India, multiple sectors provide opportunities for growth
Example: Retailing, Food Processing, Pharmaceuticals, Media & Entertainment,
Real Estate, Education, Hospitality etc
Once established and successful, ramp up can be rapid
Thus, emerging sectors are true reflection of entrepreneurial spirit, new opportunities
and creation of global behemoths
Emerging Sectors Offer Opportunities For GrowthEmerging Sectors Offer Opportunities For Growth
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Dynamics Of MultiDynamics Of Multi -- BaggersBaggers
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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There is no scientific methodology to classify Large Caps, Mid Caps and Small Capsbut there are pre-defined indices on BSE & NSE
Mentioned below is the categorization of the same on the basis of market capitalization
as on August 2010
Indices CategorizationNo. Of
Companies
Index Market Cap
Range
(Rs. Crs)
Total Market
Cap 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, 5thAugust 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 the
highest and lowest market capitalization of companies on BSE Small Cap Index
How Small Caps Are Classified ?How Small Caps Are Classified ?
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Small Caps are still available at better valuations compared to Large Caps
Investment Case For Small CapsInvestment 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 6thAugust 2010
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Examples of how Small Cap companies have emergedExamples of how Small Cap companies have emerged
as Large Cap companies over a period of timeas Large Cap companies over a period of time
creating wealth for the shareholderscreating 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)
Market Capitalization
(July 30th 2010) Outperformance relative toBSESENSEX
(July 30th 2001- July 30th 2010)(Rs. Cr) (Rs. Cr)
Pantaloon Retail (India) 19.98 9457.13 19,316%
PAT
Rs.140.58 Crs(30th June 2009)
PAT
Rs.6.40 Crs
(30th June 2001)
Increase
dBy22T
imes
RetailingRetailing
Source as on 31st July 2010, Capitaline Neo
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Source as on 31st July 2010, Capitaline Neo
PAT
Rs.1,195.53 Crs(31st March 2009)
PAT
Rs.13.57 Crs
(31st March 2003)
Increased
By88Tim
es
RealtyRealty -- ConstructionConstruction
Company Name
Market Capitalization
(July 31st 2003)
Market Capitalization
(July 30th 2010) Outperformance relative toBSESENSEX
(July 31st 2003- July 30th 2010)(Rs. Cr) (Rs. Cr)
Unitech 72.44 20,457.53 17,550%
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Source as on 31st July 2010, Capitaline Neo
PAT
Rs.140.33 Crs
(31st March 2009)
PAT
Rs.14.00 Crs
(31st March 2006)
Increased
By10Times
ComputersComputers -- EducationEducation
Company Name
Market Capitalization
(Jan 31st 2006)
Market Capitalization
(July 30th 2010) Outperformance relative toBSESENSEX
(Jan 31st 2006- July 30th 2010)(Rs. Cr) (Rs. Cr)
Educomp Solutions 447.20 5,797.46 904%
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Source as on 31st July 2010, Capitaline Neo
PAT
Rs.130.03 Crs
(31st March 2010)
PAT
Rs.30.92 Crs
(31st March 2002)
IncreasedBy4Times
HealthcareHealthcare
Company Name
Market Capitalization
(Jan 31st 2001)
Market Capitalization
(July 30th 2010) Outperformance relative toBSESENSEX
(Jan 31st 2001- July 30th 2010)(Rs. Cr) (Rs. Cr)
Apollo Hospitals 715.31 4,841.08 20%
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Source as on 31st July 2010, Capitaline Neo
PATRs.46.71 Crs
(31st March 2010)
PAT
Rs.0.94 Crs
(31st March 2003)
Increased
By49Tim
es
FMCGFMCG Food & Dairy ProductsFood & Dairy Products
Company Name
Market Capitalization
(July 1st 2003)
Market Capitalization
(July 30th 2010) Outperformance relative to
BSESENSEX
(July 01st 2003- July 30th 2010)(Rs. Cr) (Rs. Cr)
Zydus Wellness 2.31 2,015.23 9,924%
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Stock Selection
Small Cap investing is all about stock selection rather than asset allocation
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
Stock price movement tend to be more volatile
Limited research
Lesser/negligible institutional ownership
However the sharp volatility subsides over a longer period and makes way for
higher profitability
Dynamics Of Successful Small Cap InvestingDynamics Of Successful Small Cap Investing
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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 small
cap companies where stock selection would play a key rolePast Performance may or may not be sustained in future
Reliance Mutual Fund AdvantageReliance Mutual Fund Advantage
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Reliance Mutual FundReliance Mutual Fund
PresentsPresents
Reliance Small Cap FundReliance Small Cap Fund
A Fund WithA Fund With
A Very Aggressive Investment StyleA Very Aggressive Investment Style
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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%*
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
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 PhilosophyInvestment Philosophy
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A very aggressive small cap oriented fund
A relatively high risk/high return oriented fund characterized by volatility which will get
smoothened out over long term investment horizon 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 FundPositioning 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 FeaturesScheme Features
Investment Objective
The primary investment objective of the scheme is to generate long term capital
appreciation by investing predominantly in equity and equity related instruments ofsmall 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 24
months 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 / additionalpurchase / 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 various
factors including the services rendered by the AMFI Registered Distributor.
Choice of Plans/OptionsGrowth Plan:
Growth & Bonus OptionDividend Plan :
Dividend Payout OptionDividend Reinvestment Option
Minimum Application Amount
Rs.5000 & in multiples of Re. 1 thereafter
Additional Purchase Amount
Rs.1000 (plus in the multiple of Re.1)
SIP
Mode of Payment : Auto Debit/ECS
Scheme FeaturesScheme Features
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A Reliance Capital company
Thank YouThank You