IIM Lucknow students’ fund bests Nifty

MUMBAI: Mutual funds and brokerages are well-advised to take lessons from a clump of students at the Indian Institute of Management, Lucknow on how to beat the Nifty in returns.

‘Credence Capital’, a fund set up with voluntary contribution from IIM students, has come up trumps, even as the stock markets ended last year in agony.

The class of 2007-09 contributed a minimum Rs 5,000, and there was no upper limit. In all, sixty students invested.

The fund saw intermittent lumpy contributions. But on March 31, 2008, their efforts paid rich dividends.

The equity fund contributed an impressive 29% returns, while a derivatives fund gave a stupendous return of 81%.

The Nifty, the broad barometer benchmarked, returned just 19% in the period.
“Our fund was less risky than the Nifty, but gave more returns,” says Hrishabh Sanghvi, age 23, a third-generation investor.

Credence was no run-of-the-mill kitty corpus.

Sanghvi said the fund was a stickler to rules, and posted newsletters giving a summary of what happened in the past week and expectations for the coming one.

The newsletter also analysed F&O data and gleanings were emailed to all investors, every week.

Sridhar Reddy, Sanghvi’s senior, said managing other people’s money responsibly and be accountable to their class mates was a learning experience. “It is similar to any industrial exposure,” says Reddy.

For Sanghvi, though, equity runs in his veins, and his selection as the fund manager of Credence was no walkover.

His mother Malini is a member of the Bombay Stock Exchange, dad Ajit fund manager with a private wealth management firm.

Sanghvi had to go through  the grind managing a notional fund, and outperforming
the rest of the students  before being selected as one of the five fund managers for Credence.

“Our seniors selected us. They gave us a virtual portfolio of Rs 1 lakh,” Sanghvi told DNA Money from Indore.

“We had to explain the theories behind every investment decision. The results from the team tasks were also crucial to the selection.”

Sanghvi’s seniors are just getting into the big, ruthless world of investment banking.
Reddy is joining Kotak Mahindra Bank and will be handling the derivatives/treasury book, while another senior, Alok Noronha is joining Edelweiss Capital, again on the derivatives side.

Another student, Siddharth Kanoria, is also joining Edelweiss in the structured products group and will be creating exotic financial products for the market.

Apparently, being a good team player was a major criterion as every investment decision had to be approved by four out of the five members in the investment committee.

Egos had no place at all.
IIM professors Vipul and Manoj Anand guided them, after the institute faculty realised that making them manage public money and doses of theory could mould students into excellent fund managers.

More than profit maximisation it was risk management and preservation of capital that was key.

It is not that they always made money. Strict stop-losses were crucial to success.
By putting 5% to 10% stop-losses and laying emphasis on supports and resistances based on technical analysis were critical.

Their success is sparking interest across university campuses.
The Management Development Institute, Gurgaon, has a similar fund called Unnati.
In January, Credence began buying puts, and harvested rich gains when the markets tanked.

“It was a team decision, we realised that the trend in the markets was not supported by momentum,” Sanghvi recounts. “The yen was appreciating against the dollar and the markets were moving in a channel,” he said.

At a time when fund houses are finding it difficult to get quality managers, it is likely that Sanghvi, Reddy and their fund-manager batchmates would find good jobs.
But both would give only five years to their employer. They aim to set up their own
hedge funds after that.