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Fund Pick: Morgan Stanley Growth Fund

Background

Morgan Stanley Growth Fund (MSGF), a 15 year term closed-end equity fund was launched in February 1994. Liquidity is available only through listing at major stock exchanges.

Performance

Launched in 1994 in a rising market and unprecedented hype raising unmanageable expectation the fund raised Rs 980 crore against a target of Rs 300 crore. However, the fund tumbled with the market. So the fund which commanded a significant premium even before listing immediately disappeared. With its huge asset base, the fund was initially wildly spread over 350 mid and small-cap stocks. The fund's NAV touched a low of 6.94 in December 1996.

Eventually, the fund restructured its portfolio by increasing its concentration in its top holdings and by reducing the number of stocks in the portfolio to 100 as on March 31, 1999. After the pruning came the shift to quality stocks. The fund consolidated the position in key companies with its top 25 holdings accounting for 80 per cent of net assets as on March 31, 1999. In March 1996 the corresponding figure was 42.17 percent. The fund was among the first to pick up stakes in the infotech sector. Further, Infosys Technologies appearing, as the top holding since June 1998, otherwise it was part of the portfolio since 1996, which means that the value creation would have been immense. Besides, the fund has also shored up its NAV with market buyback taking advantage of the low market price. Since inception, the fund has bought back over 22 crore units earning about Rs 55 crore in terms of discount while offering liquidity at the same time. In financial year 1999, MSGF bought back 4.21 crore units earning Rs 16.15 crore. As a result of these buybacks, the unit capital of the fund is now at Rs 759.42 crore against Rs 981 crore at inception.

MSGF top holdings today reflects a balancing act between the Growth and cyclical stocks with sizeable allocation to Infotech, Pharma, Auto & Auto Ancillaries, FMCG and Engineering sectors. During the past one year the fund gained 86.89 per cent as on October 29, 1999 adjusted for recent the 7.5 per cent dividend. However, the perception of the fund remains negative and the market price of the fund is at a steep discount of 38 per cent. Based on the market price, the real return from the fund to the initial investor remains disappointing. In its five years of existence, the fund's market price has seldom breached its face value.

Outlook

MSGF looks poised for being an above average performer. And the prevailing steep discount on the fund offers an excellent opportunity for long-term investors. Though the market price has shown an uptrend moving up from Rs 6.50 to Rs 11, it nevertheless still trades at a steep discount of almost 38 per cent to its NAV of Rs 17.54. This translates into a yield of 61 per cent.

FUND BASICS
Objective	Size	Prem/Disc %	Mkt. Price 09/11/99	NAV 12/11/99	Total Returns
Growth	1332 Cr	-37.86	10.90	17.54	13.81% pa
BENCHMARK COMPARISONS (%)					31/10/99
	1M	3M	6M	1Yr	3Yr
Fund	-6.7	12.6	52.1	86.9	31.7
Sensex	-6.6	-2.2	33.6	58.0	11
Nat. Index	-2.8	8.6	48.9	71.2	14.3
Obj. Avg.	-3.1	10.6	35.3	56.5	11
TOP HOLDINGS EQUITY (30/09/99)					Ranking
Infosys Technologies					1
Hero Honda Motors					2
Zee Telefilms					3
TELCO					4
BHEL					5
Tata Tea					6
Container Corporation					7
Cipla					8
HDFC					9
Glaxo India					10
ITC					11
MRF					12
Dabur India					13
Larsen and Toubro					14
TVS Suzuki					15
Cummins India					16
India Hotels					17
Essel Packaging					18
Sundaram Fasteners					19
E Merck					20

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