From THE HINDU group of publications
Sunday, November 04, 2001


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Alliance Basic Industries: Invest

Recommendation: Invest

S. Vaidya Nathan

INVESTORS in the Alliance Basic Industries Fund can stay with the fund for now. Those who want to invest in the economically sensitive sectors can consider taking small exposures.

At present, most of these sectors are facing a downturn. This is reflected in the stock prices. For a patient investor, willing to wait for the turnaround in these sectors' fortunes (which may take one-two years), it may be a good idea to have some exposure in this fund.

The fund has weathered the decline in the broad market comfortably because of its portfolio, which is heavily weighted in economically sensitive and commodity stocks. These sectors outperformed the market in the last 18 months.

This is reflected in the performance of the fund, which lost around 12 per cent since it launch in February 2000. The broad market lost around 35 per cent in this period. Any improvement in the NAV levels will hinge on an improvement in industrial growth and commodity prices.

Suitability: The Alliance Basic Industries Fund as a sectoral fund has a higher degree of risk than a typical diversified fund. Though the portfolio may seem diversified, it does not include stocks from the consumer goods, pharmaceutical and tech sectors. The exclusion of these sectors enhances the risk of what seems a diversified portfolio.

Only those comfortable with such risks ought to consider staying on with the fund. If you are already have exposures to a diversified fund such as Zurich India Equity or Bluechip, it may not be appropriate to have exposures in this fund. If you are risk-averse, you may better off taking exposures in diversified funds.

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Portfolio overview: The fund has a highly concentrated portfolio with its top ten holdings accounting for 82 per cent of net assets. This is in keeping with Alliance's style of taking big bets on a few stocks. The fund is heavily into economically sensitive sectors.

Only the likes of Hero Honda, HDFC Bank and Gujarat Gas provide for a stable and/or steadily growing stream of earnings. The exposures in stocks such as Punjab Tractors, Gujarat Gas and Bajaj Auto are likely to have paid off.

An interesting exposure in the portfolio is Jammu and Kashmir Bank. Is the fund holding the stock in the expectation of some restructuring/merger? Otherwise, this exposure may not offer much value. The fund has 3.72 per cent of net assets in this stock.

Fund facts: The Alliance Basic Industries Fund was launched in December 1999 as part of the Alliance Sector Select Series. The fund offers entry with a load of 1.75 per cent over the NAV. The fund offers Growth and Dividend Options. There is no exit load. The fund has net assets of Rs 21.48 crore as of September 30. The fund has close to 95.5 per cent of assets in equities and around 4.5 per cent in cash/cash equivalents.

Section  : Mutual Funds
Next     : Zurich India Prudence: Invest

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