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Aarati Krishnan

A RECENT surge in performance has taken the Alliance Buy India fund's NAV to about Rs 12 per unit, resulting in positive returns for its initial investors after a long spell. The fund owes its recent performance to focussed exposures in Indian pharma and retailing stocks.

At this point, investors with an appetite for risk can stay with the fund, as it has displayed good stock selection skills within its investment universe. However, the fund's aggressive "growth" style of investing is not suited to investors seeking a defensive portfolio. Conservative investors should thus take this opportunity to book profits in the fund.

Suitability: The risk profile of the Buy India Fund would be several notches above that of a diversified equity fund. Only investors who are comfortable with this should hold the fund. Others can exit and switch to a diversified equity fund with a good five-year record.

The fund's concentrated exposures in just one or two sectors, its aggressive stock positions and its pursuit of "growth" stocks appear to significantly mark up the risk profile of this fund in comparison to others which restrict their stock-specific and sectoral exposures.

Performance: Evaluated on its five-year record, the performance of the Alliance Buy India Fund pales in comparison to other diversified equity funds. The fund's annual returns over this period, at about 4 per cent, are much lower than the 27 per cent turned in funds such as Alliance Capital Tax Relief.

However, the fund's performance over the past year has been impressive. A 52 per cent appreciation in its NAV over the year has made the fund one of the top performers among the equity funds.

The fund's impressive returns over the year are due mainly to its focussed portfolio which tilts heavily towards pharma, retail and consumer goods stocks. Within these sectors, the fund has displayed good stock selection skills. For instance, in the pharma sector, the fund has relied mainly on Indian makers of generic products, such as Ranbaxy, Cipla, Cadila and Wockhardt Pharma, which have seen a sharp upward re-rating in recent months.

The fund's stock-specific as well as sectoral positions are fairly aggressive. The clutch of Indian pharma companies accounts for 36.5 per cent of the assets, while the retail exposure accounts for another 21 per cent.

Exposures to individual stocks in the Buy India Fund are also high, at 16 per cent for Godrej Consumer, 12.4 per cent for Pantaloon Retail and 9 per cent for Trent. The fund's investment style thus makes it quite vulnerable to the individual stock calls that it makes.

Fund facts: Launched in December 1999 as a part of the Alliance Sector Select Series, Alliance Buy India Fund is managed by Mr Dhawal Mehta. The fund carries an entry load of 2.25 per cent. Alliance Mutual Fund has recently inked a deal for the sale of its mutual funds business to Birla Sun Life. Investors in the fund should thus watch for any significant changes in its investment style, consequent to the takeover.

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