Return
to Story Page
To print: Select File and then Print from your
browser's menu
US-64 has more than met its objectives in mobilizing savings from small savers and, has over the years, come to occupy a central position in the savings and investment markets in the country. Enjoying an annual compounded growth rate of 44 per cent, the scheme has grown from Rs 5 crore since inception to Rs 21,738 crore as of June 1998. In fact, in the three years from FY 1992 to FY 1995, the funds under the scheme increased by 140 per cent to Rs 25,272 crore, representing the investments of 221 lakh investors.
The trust has followed a dividend distribution policy of providing regular returns to investors, while being indifferent to the competitive market rates or the dangers to the financial health of the scheme. The Trust has, time and again (in FY 1966, in the period of 1974-76 and most recently in FY 1996-97) reiterated its commitment to this policy in the face of severe erosion in the asset values and sustainable income streams. This has helped to reinforce in the minds of the retail investors thebelief that US-64 is an `almost assured' return scheme giving high returns with no perceived risk.
This policy has led to forced sales of bluechip shares in the portfolio as well as the readily marketable fixed income securities, exacerbating the imbalance betweeen equities and debt in the schemes' portfolio. In FY 1995, 1996 and 1997 the trust preferred to draw on the reserves to maintain a high rate of dividend.
A look at the portfolio of the scheme shows that as on November 30, 1998 the scheme had an investment of Rs 3,689.44 crore in the equity of PSUs constituting a 24.33 per cent of its aggregate equity portfolio. As on the same date the market value of these holdings had depreciated by Rs 1,562.56 crore, a fall of over 40 per cent from the acquisition price.
The performance of the equity portfolio, particularly after FY 95, has been rather poor. While the book value of the equity portfolio has gone up from Rs 7,942.58 crore In June 1994 to Rs 13,626.53 crore in June 1998, the market value hasactually declined from Rs 18,377.86 crore in 1994 to Rs 10,028.85 crore in 1998.
The bearish conditions in the equity markets notwithstanding, the trust continued to increase its equity exposure even after June 1998- Rs 1,537.54 crore till November 30, 1998. This additional investment in equities has been achieved by further offloading from the debt portfolio resulting in (a) the debt to equity ratio to further deteriorate to 27:73, and (b) a consequential fall in stable income by Rs 200 crore in a full ear and by over Rs 100 crore during the current year.
Out of the total equity investment in a total of 1,426 companies in the private sector, only 81 companies show an appreciation of Rs 428.94 crore as on November 30, 1998. The investments in the remaining 1,345 companies has depreciated approximately by 47 per cent.
Arising out of a compulsion to book profits to meet dividend payout requirements, the scheme had to sell the market favourites. As a consequence, as of November 1998, 94 per cent of thescrips accounting 86 per cent of the value of the equity trade at a discount, leaving little room to book further profits.
The quality of the debt portfolio is also questionable. The gross NPAs at Rs 875 crore constitute over 20 per cent of the aggregate corporate debt portfolio. The scheme has made provisions so far of Rs 462 crore, resulting in a net NPA of Rs 413 crore i.e. 9.84 per cent of the portfolio.
Given the state of affairs the committee is of the strong opinion that there is an imperative need to tackle the situation on a war footing. As per an analysis of the financial health of the scheme, the NAV of the scheme as at June 30, 1998 was approximately Rs 9.50 per unit of capital. Consequently, the shortfall when compared to the re-purchase price of Rs 13.70 for July 1998 was Rs 6,605 crore. Due to continued deterioration in market conditions, the equity portfolio has further depreciated since June 1998.
The aggregate depreciation as on November 30, 1998 was Rs 5,712.71 crore. Out of theabove, the unlisted or unquoted equity portfolio worth Rs 232 crore has depreciated by Rs 79.02 crore as on June 30, 1998. The additional investment in equity since June 30, 1998 has further accentuated the problem as even the new investments appear to have depreciated significantly in the five months to November 30, 1998. Market value as a percentage of book value now stands at 62.33 per cent as against 73.6 per cent on June 30, 1998. The report also points out that the trust and the US-64 are major shareholders in a large number of corporates. The US-64 holds more than 5 per cent of the equity capital of 326 companies and the US-64 equity portfolio accounts for around 3 per cent of BSE market capitalisation. As a major shareholder the performance of US-64 is significantly impacted by the performance of the corporate sector. The management of US-64 can play a major role in moulding corporate governance to maximise shareholder value. The report also points out that the trust, from time to time, at thesuggestion of the government utilised the corpus of US-64 to support the market, and the fund managers could have invested on various occasions due to factor other than prudent investment management and without consideration of the return to unitholders.
The report also states that in the existing competitive and complex environment, the need for a highly capable, dynamic, professional and forward looking decision making process cannot be over emphasized.
Monitoring of the performance and comparison with the benchmarks established by other competing funds has to be carried continually. The report concludes by saying that with over 200 lakh unit holders, public confidence in the US-64 is a virtual proxy of public confidence in the Indian financial system. The committee is of the opinion that the findings and observations in this report when viewed in this perspective justify the envisaged financial support from the government to the scheme.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------