Reliance Mutual Fund, India's fifth-largest money manager, said it raised more than 57 billion rupees ($1.3 billion) for a new fund investing in local stocks,
breaking a 13-year-old record set by rival Unit Trust of India.
More than 925,000 applications were filed for units in the Reliance Equity Fund, founder Reliance Capital Ltd. said in a statement to the Mumbai stock exchange today. The fund will invest in India's top 100 companies by market value.
India's key Sensitive Index has more than doubled in the past three years to a record, climbing 16 percent this year. The index, Asia's best performer, has beaten a 5.6 percent gain on the Morgan Stanley Capital International's World Index.
``Any Indian you meet would have put some money in the markets,'' said Viswanathan Vasudevan, who helps manage about $175 million at Aquarius Investment Advisors Pte in Singapore.
``It's this kind of retail participation from small investors that'll be the next driver for the Indian stock markets.''
Overseas funds invested a net $3.3 billion in Indian equities this year after buying a record $10.7 billion in stocks in 2005, and Reliance marketed its fund to individual investors attracted by the booming market. The rise has been fuelled by an economy forecast to expand 8.1 percent in the year to March 31 and which the government wants to grow annually at 10 percent.
Record Collections
The amount raised by the Anil Ambani group-controlled Reliance Capital surpassed the 47.8 billion rupees raised in 1992 by UTI Mutual Fund, India's largest money manager, for what was then known as the UTI-Mastergain Unit Scheme and which also invested in Indian stocks.
``It's the right product at the right time,'' Vikrant Gugnani, president at unit Reliance Capital Asset Management Ltd., said in an interview in Mumbai today. ``We have a cautious view on the markets over the next few months, but longer term, we think India is the place to be.''
The record subscriptions for this fund may have been fueled by a feature that allows its managers to trade in securities in the derivatives market, Gugnani said. Investors were probably attracted to the fund because it's the only one in the Indian market where the manager can sell in the derivatives segment a stock without owning it, he said.
Overpriced Shares
Still, Reliance Mutual Fund may find it difficult to invest the money because the shares are overpriced compared with their global peers. Indian shares are overvalued and may slide this year as profit growth slows, Citigroup Inc. said in December.
Franklin Templeton Investments India, the nation's fourth-largest mutual fund, in December suspended unit sales in one of its plans on concern returns from investments in small and mid-size companies may dip in the coming months. Its decision followed a similar move by Reliance Mutual Fund, which halted sales in its Reliance Growth Fund on Aug. 15.
The Sensex trades at 19.9 times next year's earnings, while the Morgan Stanley Capital International Emerging Markets Asia Index has a lower price-to-earnings ratio of 12.9 times.
``Its becoming increasing tough to invest money at these valuations,'' said Soumendra Nath Lahiri, who helps manage about $2 billion in assets at DSP Merrill Lynch Fund Managers Ltd. in Mumbai.
Funds for All
Many of India's more than 1 billion people invest in the stock market through equity mutual funds. Domestic funds have raised about $2 billion in new offerings in the past month, said Paras Adenwala, who manages $250 million of shares as chief investment officer at ING Investment Management in Mumbai.
Applications for the Reliance Equity Fund closed on March 7.
Along with the top 100 companies, the fund will also invest in India's equity derivatives market.
``The India story has been gaining momentum,'' said Vasudevan from Aquarius Investment.
The Sensex climbed 15 percent this year, breaking the 10,000 level for the first time. It rose to an intra-day record of 10,889.25 today and reached 10,867.13, up 0.6 percent, at 11:20 a.m. local time.
State Bank of India, the nation's largest lender, raised 28.5 billion rupees earlier this month through a new mutual fund, the SBI Blue Chip fund. The fund will invest in about 150 companies.
