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ENS ECONOMIC BUREAU
MUMBAI, Dec 1: The market value of investments made by the Unit Trust of India (UTI) under various schemes had fallen by a whopping Rs 10,148 crore crore during the year ended June 1998. The massive erosion in the UTI's investments follows the fall in the share prices, especially after the nuclear explosion in May this year.
While the market value of the investments under various schemes of the UTI was Rs 58,634 crore in the previous year ended June 1997, it fell to Rs 48,486 crore by June 1998. The major depreciation was in flagship US-64 scheme which suffered a loss of Rs 3048 crore in the market value of its investments.
According to an UTI official, a major part of the Trust's portfolio depreciation was caused by investments in PSU stocks like ONGC, Indian Oil Corporation, State Bank of India, Bharat Earth Movers, Shipping Corporation, IDBI and Sail. ``The nuclear explosions on May 11 and the subsequent US sanctions brought the market crashing down. This lead to a sudden depreciation in the portfolioof various schemes. Thus, when the markets revive the scheme will see an appreciation,'' he said.
However, the markets have not recovered after the setback in May. The BSE Sensex is still hovering in the range of 2800-2900. Shares of even leading institutions like IDBI, SBI, ICICI and several other PSU and blue chip stocks are quoting at their all-time low levels. ``UTI may not see any appreciation in the market value of its holdings in the current year,'' said a market source.
As a result of the erosion in the value of its investments, UTI even considered a reduction in its equity portfolio. However, UTI is believed to have abandoned its plans to prune the equity portfolio. The other critical factor which could have led to UTI shelving its plan for a cut in its equity exposure is the fear that if this happens the markets could sink further.
"The UTI has been the sole buyer in the market for the past couple of weeks. If it stops buying or is even perceived to be not buying, the market would just crash.Even for its own interest this does not augur well. In any case, we expect the market to recover shortly and hence there is no reason to believe why the Trust should cut down its exposure to equity," said a market source.
Even though UTI has managed to mobilise a staggering Rs 1,400 crore in its two assured return schemes the Monthly Income Plan (IV) and the Institutional Investors Special Fund Unit Scheme (IISFUS) (II) '98, it faced massive redemptions in the US-64 scheme. ``The massive redemptions seems to have forced the trust to curtail its purchase operations in the market,'' said a broker.
Meanwhile, it is not only US-64 which reported negative reserves, 32 other schemes had also suffered negative reserves. While US-64 showed negative reserves of Rs 1,098.49 crore, the negative reserves of other 32 schemes work out to Rs 873 crore. A close look at the schemes which have reported negative reserves shows that even those which had a significant debt component have met with a fate similar to that ofUS-64. These schemes include the monthly income plans of 1994 (III), 1997 (II), (III), (IV) and (V) and 1998 (I) and (II).
The government has already set up a committee, headed by Deepak Parekh of HDFC, to suggest a restructuring plan for the US-64 scheme. The committee will submit its report by December 15 to the finance ministry. The committee is toying with the idea to transfer the equity portfolio of US-64 to a new scheme floated by the Trust. The US-64 will be left with only debt portfolio, say sources. The committee is also looking at the option of giving an one-time financial bail-out to the US-64 scheme.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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