The Hindu Business Line : MFs with unlisted securities draw investor interest

UNLISTED securities held by mutual funds are suddenly in focus with a section of investors, enthused by the likes of Biocon and NDTV, discreetly trying to identify possible listing candidates among them. Biocon is currently listed on the stock exchanges, while NDTV has just wrapped up an IPO exercise.

Fund managers indicate that they have had feelers from investors who wished to know whether they had unlisted companies in their portfolios and whether these too are likely to enter the primary market in future. The idea is simple: Enter the funds with a view to cash in on a potential upside, post listing.

DSP Merrill Lynch and Alliance Capital are two fund houses that have had small allocations to unlisted companies. DSP ML Equity Fund, for instance, has investments in SIP Technologies, an IT consulting & services company. Alliance Cap holds Magnasound (classified under the `leisure products' category) through such schemes as Alliance '95, Alliance Equity, Alliance New Millennium and Alliance Buy India. The last two also hold UTV Software Communications (in the `movies & entertainment' category).

MF circles suggest that investors have appreciated the funds' decision to invest in Biocon and NDTV. Trading in the former has been brisk ever since it was listed. The counter, which has touched a high of Rs 739 till date, is already among the top 50 counters on the BSE in terms of market capitalisation. And NDTV, which saw its IPO close on April 28, recorded significant oversubscription.

"Unlisted companies can sometimes emerge as winners on the stock exchanges. Investing in them makes sense if it is done selectively. Spotting the right candidates at the early stages is the real issue," said Mr Anup Maheshwari, Head - Equities, DSP ML.

It is not that most equity funds have some unlisted security or other among their assets. In a few instances, however, these have been quite noticeable. In the case of Morgan Stanley Growth Fund, for example, there was a small but critical holding in NDTV. This 15-year close-ended scheme also held quite a few other unlisted names, arguably the highest concentration in the realm of MFs in India. These represented segments such as biotechnology, pharmaceuticals, IT consulting and media. Some of the companies in question were Shanta Biotech, Chandamama, Eastern Medikit, IBIL Technologies and Shaily Engineering.

Examples of thinly traded/ non-traded counters are not too far to seek either. DSP ML's Technology.com Fund has invested in City Online Services, which operates as an Internet service provider. Mr Maheshwari observed that the scheme's exposure to this illiquid security has been marginal. "But its presence in our portfolio reflects our belief," he added.