The Hindu Business Line : UTI Basic Industries: Hold

Investors can retain their holdings in the UTI Basic Industries Fund. It has put up an inspiring performance since its launch in April 2004, though in the last six months to one year it has lagged more focused funds such as Reliance Diversified Power and Tata Infrastructure.

The fund has stocks across more industries than the latter two schemes. It has exposures in sectors such as metals, oil and gas, textiles and chemicals. While similar funds have gained on account of the buoyancy witnessed in the capital goods and construction space, UTI Basic's performance was relatively subdued as impressive returns from the engineering space was offset by underperformance in oil, gas and chemical sectors.

UTI Basic Industries has about 40 stocks in its portfolio. Being a thematic fund, the fund's allocation is more concentrated. This adds to the risk profile. The top ten stocks account for 45 per cent of the total assets. Exposure to individual stocks is, however, restricted to about 5 per cent on most occasions.

Engineering continues as the most favoured sector and accounted for 20 per cent of the assets as of February. Crompton Greaves and Larsen & Toubro have contributed significantly to the overall returns. The recent uptrend in Bharat Heavy Electricals has led the fund to accumulate the same. Holdings in cement stocks have also been augmented on the back of the hike in cement prices in some regions.

The fund's key bets in the construction space — IVRCL Infrastructures, Nagarjuna Construction and Gammon India — continue to hold bright prospects in view of the Government's continued thrust on infrastructure spending. Oil and gas stocks have, however, proved to be laggards. The fund has recently reduced exposures to the sector. Similarly, chemicals stocks such as Indian Petrochemicals and Gujarat Alkalis turned out to be slack performers.

Performance: UTI Basic Industries has returned about 69 per cent over the past year and 50 per cent a year since launch. It has outperformed its peer Birla Sun Life Basic Industries in the past six months.

Although established diversified funds have delivered better returns, the fund's performance appears to be commensurate with the risk involved in a thematic fund. Also, UTI Basic has now adopted a strategy of holding more large-cap stocks to mitigate downside risks. The quantum of stocks with market capitalisation of over Rs 2000 crore has increased from 60 per cent in July 2005, to 72 per cent in January 2006.

Fund facts: UTI Basic Industries had Rs 241 crore as of February 2006. Mr Sanjay Dongre manages the fund.

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