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Sunday, September 09, 2001













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UTI Services Sector Fund: Hold

Recommendation: Hold

S. Vaidya Nathan

INVESTORS in the UTI Services Sector Fund can stay invested for now.

The fund has a fairly well diversified portfolio. It has shed some of the highly speculative exposures but still has some equity holdings of a worrying nature. Scope for appreciation from such exposures may be limited. But, on an overall reckoning, it may be better to stay invested and look at cutting exposures when market conditions improve (this may take six months to a year).

This particular fund cannot be seen as a strictly sectoral fund. It has an omnibus character that makes it more or less diversified within the UTI Growth Sectors Fund umbrella. It has had a fairly decent run. With two dividend payments and the NAV at Rs 15.30 per unit, investors have had fairly good returns. But these came at a high degree of risk, going by the portfolio over a period of time.

Suitability: The UTI Services Sector Fund in its present form does not carry the higher risks associated with a sectoral fund. But the kind of stocks picked over a period of time and the problem of inter-scheme transfers enhance the risk profile. The fund is appropriate only for investors with an appetite for above-market risk. But even investors with a lower risk profile can stay invested and cut exposures when market conditions improve.


Click here for Table

Portfolio overview: A look at the portfolio of the fund since its launch reveals the following pointers:

OThe fund has been generously picking up stocks that were part of the universe of second- and third-rung IT/telecom stocks favoured by the operator Ketan Parekh.

*As with most UTI scheme portfolios in 1999-2001 period, the UTI Services Sector Fund portfolio also has a fair sprinkling of such stocks -- Himachal Futuristic, PentaMedia Graphics, SSI, Satyam Computer, Global Tele-Systems, Apollo Hospitals, Zee Telefilms and Rolta figure prominently.

*By end-June 2001, the fund pared exposures in such stocks to some extent. Himachal Futuristic, the second biggest holding in December 2000, is no longer in this fund's portfolio.

*But the kind of Old Economy stocks that have moved up in the asset allocation -- ICICI, BSES, EIH ad SBI -- may not appreciate much from present levels.

*The fund has consistently had exposures in stocks such as ICICI Bank, Infosys, Reliance Industries. Of late, quite a few PSU stocks, including Indian Oil, VSNL, and the courier twins -- Blue Dart and Elbee Services -- have appeared in the portfolio.

*In shuffling the portfolio, the fund has booked losses as well, which may not be such a bad thing if one looks at the top holdings in October 2000 (see Table). The spectre of inter-scheme transfers has dogged this UTI scheme too, with close to one-third of the losses accounted for by such transactions in 2001-02.

*The fund has generally remained fully invested. But the portfolio composition now suggests that there is no coherent strategy underlying the holdings. For instance, the extremely high level of exposures to ICICI and ICICI Bank (close to 17 per cent of net assets as of June 2001) does not inspire much confidence. The fund is bound to take a knock in both, especially ICICI. Interestingly, these are the only two finance sector exposures of the fund, apart from State Bank of India.

*The only aspect of some comfort is that, more by default than design, the portfolio has a diversified look, which could come in handy given the current state of the market. By paying two dividends, the fund also managed to transfer cash into investor hands from the profits made in the tech boom.

*Going forward, the fund may not be able to generate the kind of returns it did on the back of the tech boom. The UTI's track record in managing growth schemes is nothing much to by. That is why investors could look for exit opportunities as and when the market conditions improve.

Fund facts: The UTI Services Sector Fund was launched in May 1999 as part of the UTI Growth Sectors Fund series. This open-end fund sought to capitalise on the growth in the services sector (though the portfolio has moved away from this brief). The minimum investment is Rs 5,000.

The fund had declared a dividend of 20 per cent each for 1999-2000 and 2000-01. As of June 2001, the fund had a corpus of Rs 35.84 crore (up from Rs 23.15 crore in June 2000) and net assets at the market value of Rs 60.94 crore. The NAV is Rs 15.30 per unit.


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