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S. Vaidya Nathan

INVESTMENTS can be contemplated in Zurich India Equity Fund as it continues to perform impressively. But given the recent run-up in stock prices, and the possible war in Iraq that could carry some downside risk, investments can be made in a phased manner over a period. For investors willing to set aside a regular sum of money for equity investments, Zurich India Equity is a good option.

The fund has handled the largely flat markets of 2001 and 2002 pretty well. The returns, cutting across various time horizons, show sizeable out-performance of the broad market. Returns over the five years that the fund has been under the auspices of Zurich Mutual Fund have been around 26 per cent per annum. During this period, the broad market has posted modest gains of 2.4 per cent.

Zurich India Equity is a fairly actively managed fund. Its performance in the last year has been fairly good with returns of around 17 per cent. In a year when sector-specific preferences kept changing, the fund has got a sizeable proportion of its calls right.

Suitability: The risk profile would be more or less in line with the average risks associated with a diversified fund. But the frequent shuffling in and out of various sectors lends an added dimension of risk, though the returns compensate more than adequately for the risk involved.

For investors without equity exposures and seeking some, this fund has to be among the first two or three options to be considered. Unitholders can think of adding to their exposures — albeit in a phased manner over a period of time to avoid any sharp downturn in the markets.

Portfolio overview: A scrutiny of the portfolio over last 18 months shows the following broad trends:

The fund continues to maintain its focus on a small number of stocks and sectors. But it has still managed to keep individual stock exposures at the top end to 8 to 9 pet cent of net assets.

For much of 2002, the portfolio has focussed largely on oil and pharmaceutical sector stocks. IT was another dominant theme.

The fund's handling of the IT sector reveals much about the manner in which it tries to ride the emerging market themes and cut exposures to book profits.

After having moved to a `zero' IT sector exposure position in September 2001, November 2001 saw the fund moving in aggressively to wrap up close to 20 per cent of net assets in IT sectors stocks such as Mastek, Polaris, I-Flex and Digital GlobalSoft.

Riding the uptrend in these stocks in early 2002, the fund started to pull back exposures and, by mid-2002, had just 10 per cent in this sector. By the last quarter, exposures were stepped up to around 14 per cent, with Infosys and I-Flex holding centrestage. These exposures paid off as both stocks saw a substantial rise since November 2002.

Zurich India Equity placed much store by the disinvestment theme surrounding HPCL and BPCL with close to 15 per cent of assets in these two stocks. By mid-2000, when uncertainty started to cloud the disinvestment exercise, it started to cut exposures. These two stocks by end November accounted for just 6.5 per cent of assets. It has also trimmed ONGC exposures with gains, given its early entry.

Its pharmaceutical sector strategy has also seen a cycle similar to that of IT. For much of the year, it was the top sector holding with 22-24 per cent of assets. But July saw the fund trim its sector weight by half as it pulled out totally from Dr Reddy's Labs and partially moved out of other pharma exposures.

Towards the end of 2002, pharma has again become the peg of the portfolio with a 16 per cent weight. The fund has stayed faithful to Ranbaxy, Dr Reddy's. Wockhardt and Cipla with Pfizer, making an entry at Cipla's expense towards the end of the year.

Banking stocks (SBI and ICICI Bank) and a host of PSU stocks, such as Nalco, Bharat Electronics, Container Corporation, MTNL and Bharat Electronics, were added to the portfolio. The fund appears to have cut its losses in MTNL by quickly selling out.

The fund has capitalised on the dominant theme of 2002 — the auto sector — without going overboard, with sector weights at around 9 per cent. But it has picked stocks that would have delivered value — Tata Engineering, TVS Motor and Swaraj Mazda, for instance.

Fund facts: Zurich India Equity Fund was initially part of the 20th Century Fund stable, and was taken over by Zurich. The scheme was launched in January 1995. The fund offers entry at a load of 2 per cent over the NAV. The minimum investment is Rs 1,000. The fund has an asset base of Rs 255.5 crore.

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