As if inspired by the war on the borders, there appears to be one in the Capital Markets as well. It was only on the 27 th May that UTI opened its month long first sale of its Millennium Fund. Now on 4 th June,SBI MF has opened its version of a multiple sector fund package called the Magnum Sector Funds Umbrella. This is conceptually very similar to the UTI package. While the UTI package consisted of 5 sector funds namely, FMCG, IT,Pharmaceuticals,Petrochemicals and Services, the Magnum fund consists of FMCG, IT, Pharmaceuticals and Cyclical industries (referred to as Contra fund).

The main advantage of floating such a fund package is that the investors can chose their own weightages for different industry exposures and alter it easily by shifting funds from one fund to the other. To the fund manager also it provides an advantage that the funds get continuously restructured to adjust the industry weightages to the market sentiments. For this strategy to succeed however each of the sector funds should have a minimum core corpus throughout the life of the fund. The total corpus generated by the fund should therefore be substantial. While UTI has a demonstrated strength in this regard,it is not clear why SBI MF has taken this challenge instead of waiting for the UTI scheme to be over.

The scenario is now ripe for marketing intermediaries to unsell one scheme in favour of the other. It is likely that this could damage the reputaions of both the two major public sector institutions UTI and SBI (as the promoter of magnum)resulting in sub-optimal mobilization for both funds.

It is in such situations that long term observers of the Indian Capital markets keep feeling that CCI days were better for the market than the days of SEBI. CCI always considered whether the instruments floating in the market were in tune with what the market can absorb. This was a healthy practice and is also being practiced now by ICICI and IDBI who are scheduling their bond issues without overlapping.

If SBI has not adopted this sensible strategy it could only be because some where in the background a corporate war is being fought. It is impossible to envisage that this situation could have arisen but for a tacit support of SEBI to SBI. The simultaneous forced withdrawal of UTI s MIS Scheme and Corporate Unit schemes also indicate that perhaps we are seeing a continued proxy war between SEBI and UTI where SBI is only a pawn much like the role of Mujahuddins in the Pakistani game plan in Kargil. Let us take this opportunity to remind SEBI that if they continue their efforts at destroying UTI, they will be breaking the backbone of the Indian Investor community.

In this very disturbing scenario I would like investors to only look at the one interesting aspect of the magnum offer namely the Contra Fund. This is a novelty and is the one scheme which is unique. Under this scheme, investments would be made in industries who have known cycles of ups and downs often over a cycle of three years. Commodity stocks such as Sugar, Tea, etc fall under this category. The fund may also invest in stocks, which are intrinsically good and are undervalued for the time being. This would mean that the benefits of this scheme would be available only in the long term. Investors should also watch the constituent stocks in the portfolio to understand whether the fund’s growth will be balanced or will itself exhibit a cyclical tendency. If so, exit timing may be critical to reaping rewards out of the scheme.

Na.Vijayashankar
(naavi@vsnl.com)

12 th June 1999