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`Extreme caution is warranted'

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Nilanjan Dey

Kolkata, March 13

AN indecent exposure to mid-cap stocks may prove dangerous for an investor, especially when it upsets the asset allocation that is best suited for his purposes, warns Mr A.K. Sridhar, CIO of UTI MF.

"Many mid-caps have gone ballistic in a way that can well scare investors. It will pay to be cautious", he told Business Line. He also dwells on a few other issues - the direction of the market, the fate of offers mooted by the UTI-State Street combine and how UTI Grandmaster is being re-tooled.

Excerpts:

Would you agree mid-caps are over bought?There is need to be cautious when it comes to some of these stocks, particularly the ones that have run up pretty fast without any real cause to support the rise.

In fact, extreme caution is warranted. That said, I need to underline the fact that the market's penchant for mid-cap names has been a revelation in many ways too.

Remember, more companies in this space are being researched and monitored today - and that has actually provided greater choice to investors. Also, in a number of cases, the stocks have done brilliantly because of the right reasons and investors have justifiably rewarded the companies in question.

What can keep the market going, even from these levels?I firmly believe that corporate performance will remain strong, at least for the next six quarters or so.

A number of companies, irrespective of market capitalisation, are putting up superlative performance in their respective fields and I see no reason why that the situation will change for the worse in the immediate term.

In the mean time, the Budget has come and gone; it is an event that does not alter the general belief within this country that the corporate sector will continue to deliver good results.

The fact that overseas investors are finding India a good destination supports my contention as well.

What's the latest on the schemes proposed by UTI & State Street?We are still waiting for the green signal. I agree that considerable time has passed since we came up with the proposals but we are hopeful. State Street, which caters to pension funds and insurance companies as well as government-run outfits, happens to be a powerful institutional asset management company.

Simply put, it is the dominant player in the business. The schemes that have been worked out with it will break new ground in terms of providing an altogether fresh option to investors.

Let's see if they are approved by the authorities without any change in their original features.

As far as UTI MF is concerned, SEBI is the single-point agency for sanctioning the proposals and its approval is awaited.

How should investors expect the new-look Grandmaster to shape up?Five small schemes are being rolled into one, an exercise that is a result of a lot of thinking in our circles. After the merger proposal is implemented, each of the equity funds managed by UTI MF will be positioned sharply and differently.

The merged entity will bear the `Opportunities' tag. It will follow a dynamic investment strategy and the portfolio will not cover too many sectors at any one point of time.

Incidentally, the product rationalisation programme that was started some time back is nearing completion and will be wrapped up soon.

(This article was published in the Business Line print edition dated March 14, 2005)
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