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Most of the investors would agree that equity funds have performed miserably over the last one year-isn’t that so? But a more discerning investor would beg to differ. Even in tough times like this he would have spotted the opportunity of making money-but how is this possible?

A look at the returns posted by various mutual funds for the last year(to date) throws up some surprising revelations. Of all the categories of equity funds operating in the market, most of which have posted a negative return, the sectoral basic funds have posted a return of a whopping 39%. Even for the quarter ended February 2001, this trend has continued.

According to Delhi based Value Research, most of the Indian equity diversified and sector-specific mutual funds posted positive returns for January. In all, 67 diversified funds posted an average return of 6.6 per cent last month. The performance of some sector-specific funds was even better.

So, what are these basic sector funds really? Well, any fund which has investments in the basic i.e core sector, fundamentally good, mostly old economy stocks can be called a basic fund. But before you jump and start investing in anything having the suffix-basic, it would be worth your while to check out the portfolio composition of the funds listed as basic funds on the bourses.

Of the three basic funds listed –UTI Petro Fund, Allinace Basic Fund and JM Basic Fund-The top performing mutual fund in January was the UTI Petro fund, which gained a whopping 25.32 per cent. The Rs 48.4 crore ($10.5 mn) fund is heavily invested in state-run refineries and petrochemical stocks. Almost two-thirds of the fund is invested in just six such stocks, four of which surged in value last month on speculation the government will privatise the companies and decontrol petroleum product prices ahead of schedule. The government has said it would abolish price controls on gasoline, kerosene and other petroleum products by April 2002, thereby enabling refiners to charge market prices for their products. The fund is that is actively churned and has leeway to invest 10 per cent of its corpus (funds) into momentum stocks, which gives it an additional upside. The funds top portfolio holdings(where it has invested over 7% of assets) are IPCl, IBP, Reliance, Reliance Petro HPCL, BPCL, ONGC and IOC. In the lat three months the fund has given a return of 51% , and an annual return of 63%. The Alliance Basic Industries fund on the other hand has invested (more than 7% of assets of the fund)mainly in HDFC Bank, Sterlite, BHEL, Grasim, Reliance, Sterlite Opticals, Hero Honda and Cummins. This fund has given a 3 monthly return of 13% and a 6 monthly return of 14.8%. The JM Basic fund has its top holdings in Reliance(87.88% of the total assets) and in Reliance alone. The fund has given a return of 9.25% in three months and an annual return of 2.72%.

So, What does the future hold for these three funds. Well the UTI petro fund at an NAV of Rs 16.61 (14\2\2001) still has a lot of steam left. Looking at its portfolio composition and the still awaited reforms in this sector, there seems to be upward scope of at least 25% in this fund from current levels. The Alliance basic fund has more diversified holding and thus at an NAV of RS 10.04 (14\2\2001), would also offer appreciation the returns though it would be somewhat lower in the range of 15-20%. The JM Basic fund at an NAV of Rs 20.27(14\2\2001) is almost totally concentrated on Reliance. If the portfolio composition of the fund remains what it is then though it represents a cheap way of getting into Reliance as a scrip, it is fairly risky and at best could yield, low to moderate returns.

Top Performers for the Quarter Ended 8th February 2001

Aru Srivastava

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