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Sunday, Apr 14, 2002

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UTI Services Fund: Cut exposures and book profits

S. Vaidya Nathan

INVESTORS in the UTI Services Sector Fund can contemplate booking profits in the fund. The broad markets have, no doubt, declined in the last month or so. But the portfolio may have limited room for an upside from the present level. Especially investors who took exposures at the time of the initial offer in May 1999 should look at booking profits with the NAV now around Rs 18.4 per unit.

Fresh investments need not be considered in the fund whose portfolio wears a diversified look. There are better schemes in the diversified funds category and, if you are looking for sector-specific funds, schemes with a greater focus can be looked at for possible investment.

The UTI Services Sector Fund has a healthy NAV now, largely on the back of gains in stocks that do not stack up well from a fundamental perspective. Much of the gains accrued in the first year of the fund, when there was a bull phase in the market, especially the telecom/media/IT sectors.

With exposures in highly speculative stocks, such as Global Tele, Himachal Futuristic, SSI and Zee Telefilms, as well as in Satyam Computer and Infosys, the UTI SSF built up quite a good NAV. In addition, by chopping the tech/telecom exposures in a phased manner by end 2000, the fund cut its losses. It now has a more diversified portfolio.

Suitability: As it is sector-specific, the fund does carry a higher degree of risk than the average diversified mutual fund. Nevertheless, given the reasonable degree of diversification in the portfolio in the last year or so, the risk level is somewhat lower than a highly sector-focussed fund. The omnibus character of the fund gives it leeway to invest in virtually all the sectors that matter.

The possibility of risk from inter-scheme transfers is also there, though the UTI has indicated a more transparent process in the future. In this backdrop, only investors with an above average appetite for risk should enter the fund. Even such investors may be better off taking profits, especially on an uptrend from present levels.

Portfolio overview: The following are the notable trends in the portfolio in the three years of the fund's existence:

  • In general, the fund has remained fully invested with equity exposures in excess of 90 per cent of assets.

  • The fund started off with exposures in second and third rung IT/telecom stocks, including ones that were ramped by Ketan Parekh and associates in a pronounced manner. The likes of Himachal, Global, SSI and Zee are the more prominent examples.

  • In the course of 2001, the fund weeded out most such exposures, with the exception of Zee Telefilms, and moved over to a more diversified profile.

  • Stocks such as Infosys, Reliance Industries, BSES, ICICI Bank have been an integral part of the portfolio, with Infosys the top holding for most of the last two years.

  • PSU holdings are limited to VSNL, Indian Oil and a small exposure in Engineers India. Any significant leg-up for the NAV from these exposures appears unlikely.

  • Now the fund appears to heavily loaded on finance sector stocks — ICICI, ICICI Bank, HDFC Bank and SBI figure prominently in the top ten holdings and account for around 22 per cent of net assets. Unless there is a significant re-rating of the finance sector stocks, the scope for upside here may be limited. In addition, the sizeable exposures of around 12 per cent to the ICICI group are a cause for concern.

  • In 2000-01, the fund had its share of inter-scheme transfers, with around 30 per cent of the losses accounted for by such transactions.

  • The fund may be hard-pressed to post the kind of gains it has so far with much of it sandwiched in the first 18 months on the back of the tech boom. In this backdrop, investors should look at opportunities for profit-booking.

    Fund Facts: The UTI Services Fund was launched as part of the UTI Growth Sectors Fund Series in May 1999. The fund offers entry at NAV and repurchase at a load of 2 per cent over the NAV.

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