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Birla Equity Plan: Pare exposures

Aarati Krishnan

INITIAL investors in Birla Equity Plan will have completed the mandatory three-year lock-in period for their investments in the fund in March 2002. These investors can now consider paring exposures to the fund and switching to a diversified equity or tax-planning fund with a better track record.

After an impressive run-up in the initial year of operations, the performance has lagged quite a few of its peers (such as Alliance Capital Tax Relief, Zurich India Tax Saver and Pioneer ITI Taxshield) in the past two-and-a-half years. The fund appears to have missed out on quite a few of the good opportunities available in the market over this period.

Suitability: The fund's track record suggests that it believes in taking focussed exposures to a few sectors, which could make it vulnerable to a sector-specific meltdown. This apart, the portfolio has featured a smattering of small- and mid-cap stocks. While these could deliver high returns, this comes with a greater degree of volatility in returns.

With a consistently high exposure to pharma stocks, the fund is among the early entrants to the pharma sector. Yet, it appears to have been unfortunate in stock selection, as it did not benefit substantially from the sharp run-up in select stocks towards the latter part of 2001. A study of the portfolio reveals the following features:

  • Pharma has consistently been the fund's largest sectoral exposure, which has swung between 23 and 32 per cent over the past year. Though the sector has seen a sharp run-up in select stocks, the fund has not benefited from this. The fund's key holdings in the pharma sector are Cipla and Pfizer. While stocks such as Dr. Reddy's Labs, Ranbaxy have multiplied in value between March 2001 and now, the two stocks in the Birla Equity Fund portfolio have remained more or less unchanged over the entire period.

  • Technology has been the fund's other significant sectoral exposure. However, its weight has swung considerably from quarter to quarter. The technology exposure fell from 17 per cent to 9 per cent between March 2001 and September 2001, before moving up to 24 per cent by March 2002. The fund's technology exposures are focussed more on second/third-line stocks, such as Polaris and Moser Baer, rather than in frontline stocks.

  • Unlike other diversified funds, which have stuck largely to large-cap and index stocks, the portfolio has consistently featured a significant proportion of mid-cap and small-cap stocks. Several mid-caps registered a strong appreciation in value in the recent times.

    However, the fund has had a mixed track record with its mid-cap exposures. While stocks such as Polaris, Essel Propack and Hero Honda have paid off through strong value appreciation, those such as Moser Baer, Hindustan Inks and SmithKline Beecham Consumer appear to have pulled down the overall performance.

  • There has been a significant change in the portfolio holdings in the December 2001-March 2002 quarter. The fund sharply enhanced its exposure to technology stocks and cut back on its pharma exposures.

    As a result, some of the long-standing top holdings, such as Cipla, SmithKline Consumer and Moser Baer, were replaced by Hero Honda, Infotech Enterprises and Mastek. The fund also added significantly to its repertoire of cyclical stocks during this quarter. Refining companies, such as BPCL and HPCL, and auto stocks now make up a significant part of the net assets.

    Fund facts: The Birla Equity Plan was launched as Birla Tax Plan in February 1999. It was one of the first open-end tax planning schemes to hit the market.

    Investments in the fund are eligible for a tax rebate under Section 88 of the Income-Tax Act and carry a three-year lock-in period. The fund has declared two dividends of Rs 2.50 per unit (March 2000) and Re 1 per unit (February 2002). The entry load is 1.75 per cent.

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