Investing only in the oil and gas sector was not a prudent choice

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Awarding blocks to various oil and gas companies this year would see huge investments in the energy sector in the coming 3-4 years. Abhay Rao of the The Financial Express spoke with Gautami Desai, Fund Manager, UTI Mutual Fund on the performance of the fund and growth prospects in the energy sector. Excerpts:

Why did you change the objectives of your fund?

The primary reason to change our objectives was to broaden our investment base. Earlier we would only buy oil and gas companies. However, now, we cover the entire energy sector as well as peripheral companies that will benefit form this sector. While dealing in only the oil and gas sector, earlier we found the business to have more risks. Also, subsidies and regulations often caused underperformance. These factors reduced our returns to investors and hence we decided to broaden our investments and increase our returns as well as reduce our risks. Electricity and ancillary companies that benefit from the power sector have also been included in our investment plans. Looking at the current economic scenario, being in only the oil and gas sector was not a prudent choice. It's the power sector that will see a lot of growth and is currently showing a lot of potential. This move should also help us bring higher returns to investors.

How much of the fund is currently invested in this sector? Where do you see investment levels reaching in the future?

As of now, our fund is almost fully invested in the power sector and that will remain the primary focus of the fund. The future for the energy and power sector looks very bright and the coming years should yield great dividends. As per the 11th five-year plan, the government hopes to put out 70,000 MWs of power. This would require approximately 10 lakh crore to be invested in the sector. Such figures are very encouraging and getting into this sector seemed like a smart move. While personally I am not sure where investment levels will reach in the future, I would stick with the figures given by the government as of now.

What were the drawbacks you faced in the petro sector earlier that prompted a focus on the energy sector?

Earlier, we used to invest in mainly oil and gas marketing and production companies. However, all retail prices, automobile companies, LPG, and other companies in the sector always faced heavy subsidies and thus under-performed. Also, with changing government regulations there was little clarity one could get on the sector's future and hence we moved out of this sector. Also, all oil marketing companies were constantly under pressure due to these cuts and reductions by the government and hence yielded very poor results. The same does not hold true for companies like ONGC though, and they continue to be a company with tremendous potential and remain a good investment.

Which of the other related sectors are you targeting?

As of now we have not decided only on a few sectors and our objectives on this cannot be clearly described thus. However, some of the other sectors that we are targeting are oil and gas ancillary firms, the coal mining industry, machineries and drilling, electricity. Depending on future market conditions, we will constantly shift focus to what sectors we feel will yield the best returns. We have been conducting constant research and value-based indexation within the fund and keeping these in mind we will make sure our investment portfolio is always current and return-oriented.

Has the global instability and slowdown had an impact on the Indian power sector?

While global markets have been showing a lot of erratic movement recently, their effect on India as of now will be limited. This is because all our future projects; through which we see potential, will start yielding high results in about 3 to 4 years time. Thus the slowdown will not have any major effect on the power sector as we are very future-oriented.

How has the fund been faring?

This is an open-ended fund and while it's still too early to comment, it has done reasonably well. Our only form of comparing is the energy index and our fund has more or less remained in tune with it. Overall I feel we have outperformed the energy index and are looking to do far better in the future.

When do you see this sector giving back good returns and what term perspective should investors keep?

I feel investors should keep a medium-term perspective of about 3 to 4 years and that would be the ideal time to gauge the success of the sector. The power plants projects have just taken off and coal mining plans are beginning too and on the whole in the next few years we see the fund reaching the horizon phase and yielding in bigger returns.

Are you only targeting conventional energy sources or non-conventional ones as well?

The fund's objectives do give us the scope to invest in both conventional sources as well as alternative sources of energy. While keeping in mind the ever-changing market pulse, if non-conventional energy companies do come into the market with good potential we will definitely be investing in them as well. Currently in India conventional sources of energy have been showing great growth potential and hence our primary focus remains on them. There are so few alternative sources of energy-providing companies that out choice is automatically made, Suzlon is one of the few companies in this sector and we have invested here. In comparison, the traditional power sector has so many big companies like ONGC and RIL, which are pegged to do really well and hence these form a big part of our investments.

You started of as the only such fund in the country and now recently we see more funds emerging in the market. What are your views on that?