Nilanjan Dey

Kolkata, Aug. 15

MORALISTS can stay away from this one, but vice can be virtue this season. There is a strong case for starting what can be the country's first `vice fund', one that specialises in liquor and tobacco stocks.

Witness the prices of the ITCs and the McDowells of the world, and you will know why. These have not only appreciated handsomely in recent times, but also continue to draw fresh allocations from investors.

A portfolio made up of these counters, constructed, say, a year ago, would have delivered substantial returns by now, indicate market watchers, adding that a vice fund may well have enhanced the diversity that is slowly emerging in the MF space. The reference is clearly to the themes that fund houses have tried out recently: Commodities, emerging leaders, generation next and capex opportunities.

"Yes, such a fund would have its own following," noted Mr Sandesh Kirkire, Chief of Kotak Mahindra MF, which has recently launched a scheme based on the principle of contrarian investing. The idea, he felt, is to provide investors with a chance to participate in the growth displayed by companies such as ITC.

For the record, select tobacco and liquor counters have done well in terms of market valuations. ITC, an index heavyweight and among the regular turnover toppers, has moved up from Rs 1,000 to about Rs 1,700 in the past one year. GTC Industries shot up to Rs 114 (on NSE on August 14) from Rs 14, an eight-fold increase. Godfrey Phillips India , which is currently trading at over Rs 800, too has been on an upswing.

And so would the story go for liquor stocks. McDowell Co is currently quoting not far below its 52-week high of Rs 344 (up from Rs 57), while Champagne Indage has been moving up steadily from the Rs 30-35 levels to Rs 270-275 currently. Other big gainers include Radico Khaitan.

But will a vice fund really sell in India? Mr Prabal Nag, who heads marketing at JM MF, believes it will - provided the "communication is right". Investors would need to appreciate its rationale, just as in case of other equity schemes, he feels.

Elsewhere in the world, funds based on the concept also invest in stocks from the organised gambling and defence sectors. These are absent in India. The critically acclaimed Vice Fund in the US has in recent months invested extensively in defence, followed by alcohol and tobacco.

Its last annual report, which makes a strong case for "gaming and casino stocks", directly refers to Las Vegas.

"Virtually everyone in the US has some form of legalised gambling available. State governments have turned into one of gambling's biggest proponents in the form of state lotteries. Numerous publicly traded companies support the multi-billion dollar lottery industry," it adds.

As for defence, the reference is to "homeland security and anti-terrorism". "Through good times and bad times, aerospace and defence firms employ millions... why wouldn't we want to invest in these companies?" the fund asks.

(This article was published in the Business Line print edition dated August 16, 2005)
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