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Zurich fund guarded on software stocks

Nilanjan Dey

CALCUTTA, Jan. 18

THE close-ended Zurich India Quantum Growth Fund, proposed to be re-named Zurich India Capital Builder Fund and made open-ended, is found to be a rare instance of a MF downplaying software. In its portfolio, exposure to software is just about five per ce nt.

The fund is heavily exposed to consumer products, pharma/agro-chemicals and auto/auto ancillaries, the three top sectors accounting for 19.5 per cent, 10.7 per cent and 10.4 per cent respectively of its portfolio.

`Computer software services', represented by NIIT, Infosys and Satyam, in that order, comes way below financial services, publishing and printing, engineering, and even hotels and tourism.

According to Mr. Rajan Krishnan, who has recently taken charge of marketing at Zurich India Mutual Fund, the fund management team has taken a conservative view of software in Quantum.

The sector has often shown signs of volatility in recent times. ``It has been a conscious decision to scale down software holdings, at least for the moment. On the other hand, investors are being given the best of defensive sectors as well as other growt h sectors,'' Mr. Krishnan said.

The fund has been lately reducing its software holdings gradually. Between November 30 and December 30, 1999, it shed Infosys from 1.39 per cent to 0.69 per cent. Quantum's NAV, it may be mentioned here, had moved up recently when the markets were volati le and software stocks took a beating.

Interestingly, the fund seems to be among the few that have identified publishing and printing as an investible sector. This industry accounts for nearly seven per cent of the portfolio, courtesy two stocks _ Tata Donnelley and Macmillan India.

Zurich India Capital Builder Fund (which would inherit assets of over Rs. 100 crores and one lakh investors from Quantum) has proposed to maintain its asset allocation up to 100 per cent in equities and equity-related instruments. An option exercise lett er circulated to investors (to get their consent before the scheme turns open-ended) mentions that it would ``invest in strong companies at reasonable prices''.

And what would be these ``reasonable prices''? A four-point definition has been given:

W A market price quote that is about 30 per cent lower than its value, as determined by the discounted value of its estimated future cash flows;

W A P/E multiple that is lower than the company's sustainable returns on funds employed;

W A P/E to growth ratio that is lower than those of the company's competitors; and

W In case of companies in cyclical businesses, a market price quote that is around 50 per cent lower than its estimated replacement cost.

The open-ending exercise has been preceded by de-listing from stock exchanges. Quantum Growth Fund was listed on six exchanges including those in Mumbai and Calcutta. The fund, launched in December, 1993, currently has a NAV of around Rs. 15. It has cloc ked a return of 46.7 per cent over the past six years.

Investors have been given four choices in the option exercise letter. They may either continue with the scheme in its new form; switch to any other open-ended scheme of Zurich India MF; partly redeem their units and continue the balance or switch the bal ance into another existing open-ended scheme; or, exit from the scheme entirely and get their units repurchased based on the NAV of January 31, 2000.