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Aarati Krishnan

ITS substantial allocation to PSU stocks has lifted the performance of the UTI Mastergrowth , with the fund delivering a 80 per cent return over the past one year. However, the contribution from the PSU holdings has been diluted to some extent by the presence of other large cap stocks from the FMCG and IT sectors, in the portfolio.

Investors in this fund can retain their units for the present. The recent setbacks to the divestment process have pegged down the PSU stocks to some extent. But, going forward, there appears to be scope for appreciation, especially in oil/gas and engineering PSUs, on the back of improving fundamentals, even if the divestment process continues to stall.

Fresh investments in this fund need not be considered at this juncture. The fund has been bettered by several other diversified equity funds over a three-year period. What is more, the non-PSU portion of the portfolio may weigh on its performance, going forward. For investors wishing to take focussed exposures in oil PSUs, the UTI Petro Fund may be a better vehicle.

Performance: The fund has delivered a substantial outperformance of the S&P CNX Nifty, on a cumulative basis over a five-year period. But the absolute returns generated by the fund over the same five years lags substantially behind funds such as Franklin India Bluechip and HDFC Equity Fund.

This is largely because the fund's portfolio is heavily weighted in cyclical and commodity stocks, which did not participate significantly in the 1999-2000 rally. These exposures have stood the fund in good stead over the past year.

Though the fund's objectives allow it to allocate up to 50 per cent of its portfolio to PSUs, the fund's actual PSU allocation has remained below this level for the past year. The allocation to PSU stocks stood at 37 per cent in September 2002, climbed to 45 per cent by August 2003 and fell back to 42 per cent by September 2003. The fund has indulged in substantial profit booking on its PSU stocks.

Given the sharp upward re-rating of PSU stocks over the past year, even a buy-and-hold approach for these stocks may have delivered substantial gains to investors. However, the PSU portfolio of Mastergrowth has actually been quite actively managed, especially with respect to profit booking.

For instance, the fund appears to have booked profits on a range of PSU holdings between March and June 2003, and re-acquired some stocks during the fall in values in September 2003.

Even after significant profit booking in this set of stocks over the past one year, oil/gas stocks remain the top sectoral exposure under the fund. But the allocation to the sector, which rose from 21 per cent in September 2002 to 26 per cent by June 2003, has receded to 23 per cent by September 2003. Over the past quarter, the fund has significantly pegged up exposure to IT and capital good stocks.

Since June 2003, the fund has also been managing the non-PSU portion of the portfolio more actively. It has pared long-standing holdings such as ITC, Hindustan Lever and Reliance Industries and added exposures to technology stocks.

The fund continues to spread its holdings across rather a large number of stocks. The number of stocks in the portfolio totalled 62 at the end of September 2003, which was not much changed from September 2002.

This apart, there were a number of marginal holdings, each accounting for less than 1 per cent of the assets. While this may contribute to lower NAV volatility for the fund, it may also suppress the payoffs from a sharp run-up in any of the PSU holdings.

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