Sucheta Dalal :Sustained market rally fails to usher in NFOs
Sucheta Dalal

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Sustained market rally fails to usher in NFOs  

April 13, 2010

A sustained market rally is usually a harbinger of a slew of new fund offers (NFOs) from fund houses eager to tap into the prevailing optimism. Indeed, past data indicates that, with a slight lag, any prolonged rally in the stock markets brings in its wake a bucketful of NFOs, while a sustained decline results in a scaling down of the same.

This time around though, fund houses are seemingly not enthused by the phenomenal market rally over the past one year. Between 1 January 2009 and 31 December 2009, the Sensex shot up by over 76%. Despite this, the well of NFOs has virtually gone dry. Since the beginning of calendar year 2010, only three NFOs have come out into the markets. Over February this year, not a single NFO has been launched by any of the fund houses.

This is in sharp contrast to 2003 when the Sensex rallied 72%. Fund houses responded in style—they rubbed their hands with glee and presented 19 NFOs before investors in the subsequent year. This was followed by a record 37 NFOs in 2005 after the markets had carried on their momentum into the subsequent year. Similarly, when the index shot up 46% in 2007, fund houses dumped another bagful of NFOs (21 in all) in the subsequent year.

It is therefore surprising to see how the huge rally of last year has failed to bring about a glut of NFOs this time around. The only probable explanation could be the current travails facing the mutual fund industry as a consequence of the changes introduced by the Securities and Exchange Board of India (SEBI) last year. Is this phenomenon a direct fallout of the agenda unleashed by SEBI to impose a new regime for the industry? If fund houses continue to remain silent while the markets chart new highs, this situation would be unique.  Moneylife Digital Team

-- Sucheta Dalal