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Our Market Bureau
MUMBAI, SEPT 30: The Unit Trust of India (UTI) has raised the sale and repurchase prices of the units of its flagship scheme US-64 by 15 paise each for October in a bid to boost the confidence of its investors. From October 1, the sale price will be Rs 14.55, up from Rs 14.40 last month, and the repurchase price Rs 14.25 (Rs 14.10).
The hike in the prices came along with a massive fire-fighting effort which the Trust launched to allay investors' fears. Sources in the Trust as well as in SEBI indicated that the entire matter had been blown out of proportion and this, according to them, could be the handiwork of a bear cartel which could have gained by creating panic in the market.
Interestingly, the net short positions on the BSE which were pegged at Rs 313 crore on September 28, jumped to a high of Rs 375 crore on September 29, up 19 per cent. According to market participants, the spurt was influenced by two factors, one the negative news on US-64 and, second, sales pressed by foreign institutionalinvestors (FIIs).
Reflecting institutional sales on account of the negative perception in the market, the long positions also shot up from Rs 913 crore to a high of Rs 1,024 crore on the BSE. On the NSE, too, the net short positions shot up from Rs 5.68 crore on Monday to Rs 14.3 crore on Tuesday. Reports of a crisis at UTI had surfaced on Tuesday.
Banks and corporates have reaffirmed their faith in UTI and said that there was no cause for undue concern. The top ones said that they had no plans to dump their holdings. Incidentally, not a single trade was recorded at the US-64 counter on Wednesday on the wholesale debt market (WDM) of the NSE, where the UTI flagship scheme is listed.
There could possibly be another reason which may have restrained corporates from getting out of US-64. In case they push for repurchase, UTI might be forced to sell its existing holdings in these corporates which could, in turn, upset their plans.
UTI chairman PS Subramanyam on Wednesday briefed top officials from thefinance ministry and Reserve Bank of India even as senior UTI officials fanned out to brief top bankers. Calls were also made to top corporate houses in order to clarify the position to them.
Earlier in the day, Subramanyam revealed the sale and repurchase figures for October and, by hiking them, sought to send a clear signal that the Trust was not in any form of trouble in meeting repurchase obligations if they did arise.
The US-64 scheme had garnered a massive Rs 3,100 crore in the month of July at a special sale price of Rs 14. Subsequently, in August the scheme garnered Rs 200 crore at a sale price of Rs 14.25 and about Rs 200 crore in the month of September (not including the last three days) at a sale price of Rs 14.40.
According to Subramanyam, UTI has mobilised Rs 4,900 crore in the first three months of the current fiscal. Of this, Rs 3,500 crore has been mobilised through US-64. He said that on Wednesday, sales exceeded repurchases and this was proof of investors' faith in the Trust.
Headsof other mutual funds too came out in support of UTI. "The negative balance in the US-64 is actually only a notional loss which is a paper entry and varies with the market movements," said Tata Asset Management Company managing director KN Atmaramani.
Atmaramani, who was chief investment officer at UTI before shifting to Tata Mutual Fund, said that US-64 is more like a balanced income fund but needs to be restructured. The equity portion of 65 per cent is very high and risky. Earlier, when equity was at 30 per cent and 70 per cent was in debt, the scheme did not face any problems, he added.
A senior Bombay House official was of the view that "to the extent current laws stipulate statutory investment in US-64 for companies accepting public deposits, there is no question of group companies offloading their US-64 investments. The US-64 will continue to be attractive for investment as long as the dividend rate is maintained".
Bajaj Auto and its group companies which have investments of around Rs 200 crorein US-64 do not want to surrender their holdings in the scheme. "We have been making investments in US-64 since the past 15 years and are not planning to withdraw our holdings in the scheme. The fact is that the depreciation was due to falling markets which will come up once the market moves up again," said Bajaj Auto chairman and managing director Rahul Bajaj.
"The increased repurchase and sale price would give the investors ample confidence that there is nothing to worry and UTI has actually bolstered the confidence of its investors by increasing the repurchase price," said Bajaj.
SEBI now requires all mutual funds to mark-to-market their portfolios and this was the main reason behind the negative balance in US-64's reserves. Market observers also said that this was a healthy trend as UTI has become more transparent.
"So long as the difference between the sale and repurchase price is not more than 25-30 per cent of the intrinsic value of the scheme, there is no cause to worry. The scheme has a numberof hidden assets which have not been valued which if done should cause no worry to investors," said VR Deshpande at Twentieth Century Asset Management Company.
"The risk lies with the informed and large corporate investor who has huge holdings in US-64 and not with the small investor, as they know that the government is always there to back the Trust," said Deshpande.
"The secondary market operations of UTI would not get affected in any way as these operations are based on cash flows and the cash flow to UTI would not dry up just like that. In the very short term the scheme could be hit to some extent but in the medium and long term US-64 does not face any threat," said a top UTI official.
Speaking to The Financial Express, Subramanyam said that even though there appeared a depreciation in US-64, he was inclined towards actually increasing the investible funds of UTI which have been stagnant for the past three years.
He said that the strategy was of collecting more funds and enlarging the totalcorpus of UTI. "Enlarged funds of UTI would increase its holding capacity and spread its risk," he said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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