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UTI goes long on Reliance

Nov 9, 2000

The Unit Trust of India, the country’s largest Asset Management Company (AMC), has announced the portfolio of its flagship US 64 scheme. The scheme’s market value of the net assets presently exceeds Rs 195.5 bn (approximately US$ 4.3 bn). Needless to say, the UTI has once again surprised investors.

Company/Issuer Instrument Weightage (%)
RBI G-Secs 17.3
Reliance Equity 12.3
Reliance Petroleum Equity 4.7
ITC Equity 4.6
HFCL Equity 4.5
Infosys Equity 3.7
Reliance Petroleum Warrants 2.2
Satyam Computers Equity 2.1
ICICI Equity 1.9
Hindustan Lever Equity 1.7
Total market value of net assets (Rs bn) 195.5

UTI has, to put it modestly, gone long on Reliance. The US 64’s exposure to the Reliance Group (both Reliance Industries and Reliance Petroleum) exceeds 19.2% of its net assets (at market value). As a direct consequence of this, US 64 has the highest exposure to the refining/petrochemicals sector (20.4%).

Next, in terms of weightage, is the Reserve Bank of India. The fund, which has a stated objective of investing in equity as well as debt, has a large exposure to government debt (17.3%), a relatively low risk investment. However, despite the management's stated intention of bringing about a balance in the exposure to debt and equity, the scheme continues to have a large bias towards equity.

The TMT (Technology – Media – Telecom) stocks come in third with an exposure of 17.3%. Here again, the exposure is mostly to companies that do not command a sound reputation in the markets. These include HFCL, Satyam Computers, Zee Tele, Global Tele and Pentamedia. To be fair, UTI does have a highly respected company in Infosys Technologies, in its portfolio. Another key investment of the scheme is in ITC (4.6% of net assets). The schemes total investment in the FMCG sector is a moderate 6.7%.

The US 64 has successfully managed to come out of the tumultuous days when it was swamped by redemption requests. The AMC should be credited with the turnaround that has been affected in recent years. However, is not the US 64 exposing itself to high concentration risk by investing over 19% of its funds in just one business group? Also, does not the fund’s policy of investing in companies lacking a sound track record increase the risk of its equity portfolio?

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