US-64 NAV in comeback mode
Dec 27, 1999

Author: PersonalFN Content & Research Team

Unit Trust of India's (UTI) US-64 has made a commendable comeback as its net asset value (NAV) has climbed to equal the repurchase price.

UTI, with assets in excess of Rs 630 bn as on 30th September 1999, is India's largest mutual fund (MF). It accounts for 73% of India's MF segment. The US-64, its bread and butter scheme, accounts for more than 30% of UTI's total net assets. Given US-64's large asset base, buying and selling by the fund has considerable impact on the stock markets.

As reported by a leading financial daily, UTI chairman, P S Subramanyam revealed the reason behind US-64's exceptional performance. He remarked, 'A good pick of pharma stocks, enhancement of value in our core holding in Reliance Petroleum and an 18% exposure to the infotech sector has resulted in US-64 achieving this landmark.'

With this positive development, we could see US-64 moving closer to pricing system governed by the NAV, and not its repurchase price, which is always at a premium to the NAV. Last year, investors got the jitters when they learnt of US-64's financial problems, which included a dramatic erosion of reserves, which only served to erode investor confidence in the scheme. The scheme witnessed large-scale outflows, as investors exited the scheme in favour of more rewarding (and transparent) private funds.

To stem the tide, UTI changed tacks fast and invested heavily in non-traditional sectors like infotech. In all, UTI's equity schemes have hiked exposure to infotech to Rs 40 bn (approx. US$ 1 bn). US-64, alone has IT holdings worth Rs 25.7 bn. Infotech accounts for 18% of US-64's equity portfolio, and 12% of all schemes in UTI's portfolio. As a business daily had reported earlier, UTI chairman, P S Subramanyam, remarked, 'We might have entered (in infotech) a bit late, but we have entered big.'

Another reason why US-64 investors will be smiling is due to significant holdings in several blue-chip companies. Given the takeover frenzy that has currently gripped corporate India, some of these companies will assume even more significance, resulting in a sharp appreciation in share prices, and with it the US-64 NAV.