Birla Sun Life Special Situations Fund Looks Attractive

Did you ever think that you should have invested in Reliance Industries before it demerged? Ditto for Television Eighteen and Zee Telefilms? Did you feel awful when you misread the Tata Steel-Corus deal and not invested your money after the deal? Did the price rise in Bata India surprise you only to later realize that this was due to restructuring in the company? For those who do not want to miss out on such opportunities, Birla Sun Life Special Situations Mutual Fund (BSLSSMF) may just be the answer.

At first this fund seems like an old wine in a new bottle amidst all the ‘me too’ funds that have been hitting the NFO market. Initially, it does look like an equity diversified fund. However, there is a twist. BSLSSMF only invests in companies that have undergone or going to undergo special situations. The special situations include merger, acquisition, demerger, restructuring, divesting, open offer, buy backs, new funding etc. The fund will focus on 40-50 stocks that fall under the special situations category. It may also invest in contrarian plays like Auto & IT that exist now.

While all mutual funds seem to aim at alpha, this may just be aiming for ‘alpha plus’ above the benchmark BSE 200 index. The reason I say this is because of the kind of opportunities that are there in the market. Everybody understands that our economy is estimated to grow above 9% and there are immense opportunities for our companies to expand and diversify. There have been multi-billion M&A deals like Tata-Corus, Hindalco-Novelis, Suzlon-REPower among others. While India attracted Private Equity investment of $2bn in 2005 and $7bn in 2006, it lured $10bn this year with a few more days to go. This underscores the potential of Indian corporates and the value embedded in what they do. This fund aims to take advantage of that.

The BSLSSMF should be aiming to raise more than Rs 1300 cr, the amount raised in their previous fund, Birla Sun Life International Equity fund. Usually, it takes 3-4 months to deploy the funds. Hence, it would be better to start evaluating the fund only after a year.

The idea is interesting but the onus of making this successful is on the research team. It should be ahead of the curve to identify opportunities for the fund. The proxy for the capabilities of the team is the performance of the team in the past. The fund will be managed by Mr A Balasubramanian, CIO of Birla Sun Life. The past performance of equity diversified funds from the Birla Sun Life stable have been impressive. In three years, the BSL Equity Fund has given an annualized return of 59%, BSL Frontline Equity has given 53% and BSL Basic Industries has given 51%. Contrast this with 53%, the three year average annualized return of all equity diversified funds from various asset management companies. The benchmark BSE 200 has given an annualized return of 47%.

Finally, I like the Open Endedness of the fund. This shows the confidence of the fund on their idea and execution. This helps the investors to enter & exit on their will.