The bull is dancing again on Dalal Street. The subtle foot tapping which had begun around the middle of the last year has simply turned into wild gyrations and it is drawing applauds from every bystander and onlooker. From sub- 10k levels of early 2009, Sensex has breached the 20k mark now and going by the myriads of analysis available to us, the party will only get more interesting with economic parameters expected to stay in fine fettle in the foreseeable future.
Going by conventional wisdom, a skyrocketing stock market has always triggered the fund raising appetite of companies in general and asset management companies (AMCs) (read mutual funds) in particular. This time also the scene is no different especially on the IPO side. As many as 11 initial public offer (IPO) opening were lined up in september and this has marked one of the most active spells in the primary market's history. But on the NFO side, the action is not as intense as one would have expected during the windfall season. "The NFOs especially of equity schemes are not in great demand as they used to be in the previous bull phases," when a friend from the mutual fund industry recently told this to me during the course of a casual conversation, it certainly took me by surprise. There are statistics to testify that NFOs (primarily equity) had done exceedingly well between 2006 to 2008, getting lapped up by both retail investors as well as institutions. So what is not working for them this time? I enquired from some other friends in the financial markets to unravel this puzzle and the response clearly underlines that in terms of distribution pattern of the MF industry, a transition is well in place and this probably is resulting in NFOs not being as hot as they were in the past.
But before looking at the 'why' aspect of the issue, here is a quick take on how NFO market has behaved in the not so distant past as well as the immediate past. According to an agency report, AMCs had generated nearly Rs. 38,000 crore in 2006 through the NFO route. In 2007, the figure had dipped a bit but Mutual Fund NFOs had still managed to garner around Rs. 30,000 crore, certainly a commendable level. 2008 was the year when the signs of a severe slowdown had begun emerging on the horizon which actually turned into a painful reality by the time the year signed off. But even during that calender year, the total quantum generated via NFO had stood at Rs. 22,000 crore. However, as compared to these, the performance of NFOs in the last one year has been quite dismal. Between August 2009 to July 2010, the total money generated through the NFO route has been just around Rs. 4600 crore. And it's quite surprising given the fact that the virtue of bottom fishing is now understood by most of the market participants and historically the market has been flushed with NFOs - they have also been accepted whole-heartedly - during the building up phase of what ultimately converges into a bullish spell.
