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What trust?

LIBERALISATION, WHICH BROUGHT a great deal of competition in its wake, has shown no mercy to public entities long used to thriving in a protected regime. For the Unit Trust of India, the country's largest mutual fund, it is a lesson being learnt t he hard way. The UTI had had a bull run in earlier times, playing the market and making money in the company of big brokers.

The situation was tailor-made: Few competitors and fewer regulations, and transparency unheard of. Many corporates had patronised its schemes, particularly the flagship Unit Scheme-64, made attractive by government bounties and concessions. Obviously the UTI owed its popularity and market success not so much to managerial skills as to having everything going for it. Seldom were its clients disappointed. In short, it was an arrangement -- a nexus even -- that suited everybody and wor ked as long as it lasted. The euphoric investors were lulled into believing that it would be a khazana for all time to come. And it is this false perception -- of safety and assured returns -- that is coming home to roost now for the UTI.

The mask had to fall. It happened with the US-64 crisis in 1998. The Rs 3,300-crore special bail-out scheme put together by the Government had little effect except that its own value stood reduced to Rs 1,000 crore. The flagship scheme is again badly adrift, with its underlying portfolio asset value reportedly much lower than the Rs 14.25 repurchase price declared for May. The UTI brought the axe down on its foot last year when it abruptly terminated the Rajlakshmi Unit Scheme for gi rls. Assured-return commitments are fine. But administered prices will, when the market is down, surely put the UTI on the ropes. Add to this the fears of scaled-down dividends. Damned if you do, damned if you don't. Here is a measure of how much trust the UTI lost: Net inflows dropped 93 per cent to just Rs 323 crore last fiscal from Rs 4,543 crore in 1999-2000. This fiscal the flow has turned negative, with redemptions mounting and sales hitting the rock.

Market health has never been known to have weighed much in UTI's scheme of things. It is stuck with a negative image for all the dubious deals laid at its doors. Its bosses would wax eloquent of a capital market revolution and ``commitment to adopt ion of best practices with emphasis on disclosure and transparency''. But did little to clear the air and nagging doubts. The extent of value erosion of its investments is mind-boggling. According to the Investor Grievances Forum, the UTI has invested in 1,426 private companies, of which only 81 show appreciation and as many as 654 are either non-traceable or non-tradable. The investment in 1,345 companies has depreciated some 47 per cent.

The Forum chief and JPC member, Mr Kirit Somaiya, does not mince words: ``This is the result of the promoter-financier-operator nexus.'' So much for all the talk of transforming the UTI into a professional investment management organisation down the line. As its board of trustees meets today, analysts have commented enough for the investors to know what is in store for them. The UTI seems to have lost all capacity to spring any surprises.