Funds of the month

April 2010

Banking Funds
Although Indian equity markets may look fairly valued, they still offer an
investment opportunity if we analyse their various segments. The banking
sector is one of the sectors on which we are optimistic, going forward,
particularly for 9-12 months. We believe the banking space is going to do
well over the period. This is due to its linkages to the growth of the
economy, which is picking up, better credit growth outlook, rise in yields
that are not as sharp as expected and already discounted in prices and
many of the stock providing good value investment opportunity.

We are optimistic on the banking sector and funds in that category

because of the following investment rationale:

ƒ Positive sector outlook

With dovish stance adopted by the RBI by
increasing Repo, Reverse Repo and CRR by 25bps
each on April 20 monetary policy, yields may not
rise as sharply as market was expecting…
With the credit growth cycle recovering from a cyclical trough we
expect the banking sector to put up robust growth in its core
business in FY11 and FY12. Unlike the past year’s trend, as retail
loans grew at a robust pace, this time around we expect corporates
(particularly led by infrastructure and power that will lead to
increase in volumes) to dominate the loan growth in the system

ƒ PSUs to provide growth potential

We expect the PSU banking basket to perform relatively well over
its private peers as they will be better placed to capture the volume
growth in the corporate segment. Also, with inflation seen peaking
in H1FY10 and the better-than-expected borrowing schedule of the
government will cap the rise of bond yields till 8.25%, leading to
lesser MTM losses in PSU bond portfolios. Apart from this, with
economic recovery gaining momentum we believe the worst of the
Indian banking sector in terms of asset quality is behind us further
reiterating our positive stance on the sector as a whole

ƒ Valuation looks favourable : PSUs better placed in terms of

valuations
Apart from the abovementioned positive factors, valuations
considering long-term growth prospects look reasonable. We prefer
PSU banks as they are trading at the lower band of their valuations.
We believe this places the risk-reward ratio in their favour

Analyst’s name
Sachin Jain
Sachin.ja@icicidirect.com

ICICIdirect.com | Mutual Fund Research

 Funds of the Month

Exhibit 1: Underperformer; catching up to happen

200

162.7
The banking sector has underperformed in the recent 180
pullback rally in the last one year. With the growth 160
momentum picking up, banking should catch with
140

120.9
119.0
other sectors...
120

100 90.3
77.1 75.4
80
60

40

23.9
18.5

13.0

13.1
20

-20 6 Months -0.4 -2.6 1Year

Metals Auto IT Banking CG Health Care

Source: Bloomberg, ICICIdirect.com Research.

Absolute returns as on April 19, 2010

What will mutual funds bet on?

There are around six mutual funds in the banking sector with only three
funds having more than two years of performance track record viz.
Reliance Banking Fund, UTI Banking Sector Fund and JM
Financial Services Sector Fund. The track record and performance history
of JM Financial Service Fund clearly makes it an avoid while Reliance
Banking Fund and UTI Banking Sector Fund have a proven track
record of weathering the market cycles. Thus, this makes them our
preferred picks in the banking space.

Exhibit 2: Banking funds basket

Fund Name 6M 1 Yr 2 Yr 3 Yr 5 Yr
ICICI Pru Banking and Financial Services Fund 1.78 81.37 N.A N.A N.A
JM Financial Services Sector Fund -6.81 38.01 -19.61 -3.37 N.A
Reliance Banking Fund -0.14 83.12 20.52 28.69 26.68
Religare Banking Fund - Regular Plan 4.52 86.08 N.A N.A N.A
Sahara Banking and Financial Services Fund 2.3 94.82 N.A N.A N.A
UTI Banking Sector Fund 2.1 80.92 17.6 20.36 N.A
BSE Bankex -0.38 89.67 12.57 15.36 23.48

Source: CRISIL, ICICIdirect.com Research

Returns as on April 19, 2010

ICICIdirect.com | Mutual Fund Research

 Funds of the Month

Reliance Banking Fund

The banking sector is expected to perform better than
the broader market on account of recent
underperformance and negative impact of rising yields
already being built in…
ƒ Consistent performer
Reliance Banking Fund is one of the best performing banking funds
available in the pure banking space. It has been a consistent
performer and weathered both the downturn and upturn of equity
market cycles well over a longer period of time.
Reliance Banking Fund is a consistent outperformer in its category.
The fund manager Sunil Singhania is among the top rated fund
managers and has an excellent track record of long-term
performance

ƒ Good mix of large and midcap stocks

The portfolio of Reliance Banking Fund has a good mix of large cap
and midcap banks offering a diverse portfolio. Many of the midcap
banking stocks are trading below their book value and may
outperform in the long-term

ƒ Proven track record of the fund house

Fund manager believes the asset book and market
capitalisation of many banks will double in the next three
to four years...
Reliance Mutual Fund is the largest mutual fund in terms of asset
under management (Rs 1,18,000 crore as on February 2010). The
fund house has the largest equity corpus both in absolute terms as
well as a percentage of total corpuses. Many of the equity schemes
are consistently outperforming their peer group’s schemes

ƒ Consistent track record of fund manager

Consistent track record of the fund as well as of other
funds managed by Sunil Singhania makes it an optimal
choice in the space…
Sunil Singhania, CFA, the fund manager of Reliance Banking Fund,
has a long track record of consistent outperformance relative to his
peers. He is managing four funds totalling more than Rs 15,000
crore in Reliance Mutual Fund. He likes the PSU space as compared
to private large cap banks on valuation comfort. He expects the
assets and market capitalisation of many banks to double in the next
three to four years, thus providing a good investment opportunity
even from a long-term perspective

Funds managed by Sunil Singhania

Scheme Name 6M 1 Yr 3 Yrs 5 Yrs
Reliance Banking Fund - Growth -0.14 83.12 28.69 26.68
Reliance Diversified Power Sector Fund - Growth 0.54 71.85 29.82 40.60
Reliance Growth Fund - Growth 9.94 88.46 17.98 29.76
Reliance Infrastructure Fund - Retail - Growth -1.11 N.A N.A N.A
BSE 100 1.10 63.32 10.30 22.75
BSE BANKEX -0.38 89.67 15.36 23.48
BSE Sensex 0.43 57.46 8.50 23.17
Source: CRISIL
Returns as on April 19, 2010

ICICIdirect.com | Mutual Fund Research

 Reliance Banking Fund

Fund Objective
The scheme aims to generate continuous returns by actively investing in equity, equity related or fixed income securities of banks. The proportion of
investment between equity and debt will be decided based on the view of the fund manager on anticipated movement in both debt as well as equity markets.

Key Information Performance vs. Benchmark

NAV as on April 15,2010 79.9

86.43

85.06
Inception Date 28/05/2003 100
Fund Manager Sunil Singhania 80
Minimum Investment Lumpsum 5000

Return%
60
SIP 500

30.01

26.49
20.28
Expense Ratio(%) 2.1 40

22.2
Exit Load(%) 1 20

3.07

0.51
AUM as on (31-Mar-2010) 1037.5
0
Benchmark CNX Bank
6 Month 1 Year 3 Year 5 Year
Fund Benchmark

The fund has consistently outperformed its benchmark over all periods of time

Calendar Year-wise Performance SIP Performance (Value if invested Rs 5000 per month (in'000))
2009 2008 2007 2006 2005

2610.56
NAV as Dec 31(Rs.) 75.3 41.2 66.3 37.4 31.6 3000
Return(%) 82.9 -37.8 77.0 18.6 29.2 2500
Benchmark(%) 80.5 -49.3 64.2 32.5 29.7 2000

1150.5
Return%

Net Assets(Rs.Cr) 1020.1 701.5 575.6 115.1 84.8

1500

581.68
503.13
1000
276.19
256.06

415
300
71.32
70.23

180

500
60

Best Return (%) 0

Period Fund Benchmark 1Yrs 3Yrs 5Yrs 10Yrs
Month 28/04/09 to 28/05/09 44.41 48.8 Total Investment Fund Value Bechmark Value
Quarter 02/09/08 to 02/12/08 101.56 119.8
Year 09/03/09 to 09/03/10 158.54 173.6

Worst Return(%) Dividend History

Period Fund Benchmark Date Dividend(%)
Month 14/05/06 to 14/06/06 -30.0 -26.3 Aug-31-2009 2
Quarter 02/09/08 to 02/12/08 -32.2 -37.0 Nov-05-2007 2
Year 29/02/08 to 02/03/09 -47.4 -57.2 Feb-22-2007 2
Mar-31-2006 5
Dec-30-2005 4
Mar-29-2005 3
Market Cycle Returns
Market Phase Period Returns (%)
Bull Phase 14/01/2006-08/01/2008 117.0
Bear Phase 08/01/2008-09/03/2009 -56.8
Bull Phase 09/03/2009-06/01/2010 158.7

Data as on April 15, 2010

Page:1 Source: ACEMF

 Risk Parameters Top Top 10 Holdings %
Standard Deviation (%) 46.4 ICICI Bank Ltd. 14.1
Beta 1.0 State Bank Of India Ltd 14.0
Sharpe ratio 1.2 Bank Of Baroda Ltd 9.3
R Squared 1.0 Canara Bank Ltd 9.2
Alpha(%) 20.8 Oriental Bank Of Commerce Ltd 7.4
Corporation Bank Ltd 6.4
Portfolio Attributes Cash & Cash Equivalent 6.2
Total Stocks 19.0 Andhra Bank Ltd 4.8
Top 10 Holdings(%) 80.5 HDFC Bank Ltd. 4.7
FundP/E Ratio 12.8 Bajaj Auto Finance Ltd. 4.4
Benchmark P/E Ratio 16.7
FundP/BV Ratio 1.5

Top 10 Sectors %
Market Capitalisation % Bank - Public 53.1
Large 59.9 Bank - Private 28.8
Mid 27.6 Finance NBFC 10.0
Small 4.4

Asset Allocation as on March 10 %

Equity 93.8
Debt 0
Cash 6.2

Data as on April 15, 2010

 Funds of the Month

UTI Banking Sector Fund

UTI Banking Sector is the second oldest fund in the
category with almost five years of existence. There has been a fund
management change since August 2008 and Anoop Bhaskar and
Arun Khurana have been fund managers since than. There has been
a market improvement since than and the fund has been an
outperformer among its peers since then.

ƒ Improved performance after fund management change

Fund manager Arun Khurana has turned around the
fund’s performance. Going forward, also the bet would
be on the fund manager only…
Anoop Bhaskar and Arun Khurana, the managers since August 2008,
have been instrumental in stock picking and led to the fund’s
outperformance among its peers since then. The rotation among
public and private banks has also been timely indicating a pro-active
investment decision

Stock selection and proactive allocation among public
and private banks in accordance with market
development in the past is expected to provide
outperformance, going forward, also…
ƒ Consistent performer
The performance of the fund has been consistent as the fund
manager has been able to take proactive investment calls in
accordance with market development
ƒ Long-term track record
UTI Banking Fund is the only fund apart from Reliance Banking
Fund, which has completed more than four years. The performance
of the fund in both the upturn and downturn has been consistent.
This gives the comfort of consitency

Exhibit 3: Other funds Managed by Anoop Bhaskar and Arun Khurana

Scheme Name 6M 1 Yr 3 Yrs 5 Yrs
UTI Equity Fund - Growth 4.15 67.12 14.86 N.A
UTI Master Value Fund - Growth 16.13 105.90 17.99 N.A
UTI Banking Sector Fund - Growth 2.10 80.92 20.36 N.A
UTI Mid Cap Fund - Growth 11.76 106.82 12.22 N.A
BSE 100 1.10 63.32 10.30 22.75
BSE BANKEX -0.38 89.67 15.36 23.48
BSE Sensex 0.43 57.46 8.50 23.17
CNX Midcap Fund 9.03 113.34 15.22 22.20
Source: CRISIL
Returns as April 19, 2010

ICICIdirect.com | Mutual Fund Research

 UTI Banking Sector Fund

Fund Objective

To achieve capital appreciation through investments in stocks of companies/institutions engaged in the banking and financial services activities.

Key Information Performance vs. Benchmark

NAV as on April 15,2010 35.5

82.66

85.06
Inception Date 1/8/2005 90
80
Fund Manager Anoop Bhaskar 70
Minimum Investment Lumpsum 5000 60
SIP 500

Return%
50
Expense Ratio(%) 2.48 40

21.41

20.28

22.2
30
Exit Load(%) 1 20

5.28
AUM as on (31-Mar-2010) 131.5

0.51
10

0
Benchmark CNX Bank 0
6 Month 1 Year 3 Year 5 Year
Fund Benchmark

The fund has consistently outperformed its benchmark over all periods of
time
Calendar Year-wise Performance SIP Performance (Value if invested Rs 5000 per month (in'000))
2009 2008 2007 2006 2005

2610.56
NAV as Dec 31(Rs.) 33.3 18.7 34.6 20.8 15.8 3000

Return(%) 77.8 -45.8 66.5 31.5 2.6 2500

Benchmark(%) 80.5 -49.3 64.2 32.5 29.7
2000
Net Assets(Rs.Cr)
Return%

1500

503.13
1000

475.8

475.8
263.15

256.06

280

280
500
71.48

70.23

180

Best Return (%)

60

0
Period Fund Benchmark
1Yrs 3Yrs 5Yrs 10Yrs
Month 28/04/09 to 28/05/09 37.2 48.8
Total Investment Fund Value Bechmark Value
Quarter 04/01/08 to 04/04/08 94.9 119.8
Year 09/03/09 to 11/03/10 151.9 175.1

Worst Return(%) Dividend History

Period Fund Benchmark Date Dividend(%)
Month 18/02/08 to 18/03/08 -30.5 -31.2 Sep-07-2009 2.2
Quarter 04/01/08 to 04/04/08 -34.6 -36.0 May-24-2007 3.5
Year 15/01/08 to 15/01/09 -52.7 -57.2 Sep-23-2005 2.5

Market Cycle Returns

Market Phase Period Returns (%)
Bull Phase 14/01/2006-08/01/2008 122.2
Bear Phase 08/01/2008-09/03/2009 -62.4
Bull Phase 09/03/2009-06/01/2010 147.4

Data as on April 15, 2010

Page:1 Source: ACEMF

 Risk Parameters Top 10 Holdings (%)
Standard Deviation (%) 45.1 ICICI Bank Ltd. 17.8
Beta 1.0 HDFC Bank Ltd. 14.3
Sharpe ratio 1.2 State Bank Of India Ltd 13.5
R Squared 1.0 Axis Bank Ltd. 7.6
Alpha(%) 18.3 Bank Of Baroda Ltd 7.1
Net Current Asset 6.7
Portfolio Attributes IndusInd Bank Ltd. 5.6
Total Stocks 21.0 Central Bank Of India Ltd 5.1
Top 10 Holdings(%) 86.1 Oriental Bank Of Commerce Ltd 4.5
FundP/E Ratio 16.6 Punjab National Bank Ltd 3.9
Benchmark P/E Ratio 16.7
FundP/BV Ratio 2.0

Top 10 Sectors (%)

Market Capitalisation % Bank - Private 49.0
Large 74.1 Bank - Public 39.9
Mid 17.8 Finance Term Lending 3.0
Small

Asset Allocation as on March 10 %

Equity 91.9
Debt 0.0
Cash 8.1

Data as on April 15, 2010

 Funds of the Month

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka
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Mumbai – 400 093
research@icicidirect.com

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