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S. Vaidya Nathan

Risk-averse: Book profits partially Others: Hold

INVESTORS in Alliance Basic Industries can retain their exposures; while risk-averse investors can contemplate selling a part of their holdings.

This was also our view in early October. We had then suggested that risk-averse investors could retain about 60 per cent of their holdings.

Such investors can now contemplate selling about 25 per cent of their exposures to cash in on gains in NAV. Other investors can hold, as there may be scope for further upside as the portfolio appears to be well-positioned in stocks and sectors.

As the fund focusses on large-cap stocks, the room for appreciation from the present levels may be limited. This is why incremental exposures may be avoided now.

It may be better to wait for any weakness in the broad market to contemplate additional investments in the fund. Given its impressive performance, the fund needs to be tracked closely for investment when stock prices decline by 10 per cent to 15 per cent.

Alliance Basic is the top performer among sector funds in 2003. The fund has turned in returns of about 150 per cent over the past year. It has outperformed the broad market as well as most diversified equity funds. The NAV of the Growth Option is Rs 27.96 and that of the Dividend Option Rs 24.26.

The fund's long-term track record has been fairly good. This is the only one from the trio of sector funds that were launched by Alliance in early 2000 to do well. This was the case even before the ongoing bullish phase started.

The fund is positioned to invest in stocks that are sensitive to economic and commodity cycles. The fund has capitalised on the firm trends in commodity prices as well higher levels of economic growth through its exposures to stocks in the auto (accounting for 30 per cent of assets) and metals (11 per cent) sectors.

Its holdings in the banking sector (29 per cent) may hold room for further upside if issues such as buyback of equity are cleared. The fund has narrowed in on a small number of stocks, which is a positive as it reduces the number of correct calls to be made to add sheen to the NAV.

Suitability: The risks associated with Alliance Basic are lower than that of other sector funds that focus on just one or two sectors. The portfolio is akin to a diversified fund except that it stays clear of the IT, FMCG and pharmaceutical sectors.

The risk is slightly higher than diversified funds. The returns have more than compensated for the risks involved.

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