The unit holders do not appear to be as optimistic as the growth in their numbers would like one to believe. The moot question: Is the turnaround of the scheme sustainable ?

The investors of the scheme have been generally risk-averse. Therefore, many feel that it is not correct to take the public faith in the scheme for granted. US-64 still continues to have an overwhelming exposure to the equities. It may be recalled that a similar mistake had cost the scheme dear way back in 1998.

Of the 75 per cent of the portfolio declared by UTI, about 78 per cent is in equity. Considering the fact that the markets have dipped by around 20 per cent since June 30, 2000, reserves too would have taken a beating.

Such a heavily equity loaded portfolio may have enabled UTI to return a comparatively better performance by riding piggyback on buoyant markets earlier during the year.

However, the strategy may back fire badly in a falling market scenario. Moreover, the inter-scheme transfers account for a substantial part of the earnings of UTI. Neither of these factors will provide solace to the scheme everytime.

The mutual fund (MF) sector, as a whole, has been witnessing a downtrend due to the performance of growth fund. Total assets under management (AUM) have witnessed a fall of 13.7 per cent from Rs 1,13,000 crore in April 2000 to Rs 97,400 crore in September 2000. Except for the debt funds, all the major categories have seen severe erosion in the NAVs. Moreover, returns from MFs, as given by the Crisil general equity fund index, fell by 30 per cent against 18 per cent fall in the BSE index in the above mentioned period.

PC sales
Several profit warnings from US semiconductor and PC giants have failed to dampen the upward march of the Indian hardware sector. Growing Indian middle class has been taking to the Internet and hence, to computers. In the first half of 2000-01, PC sales have moved up by 63 per cent over the corresponding period of the previous year.

However, it seems that all the growth has come in the unorganised market or rather, the non-branded segment. These players have an edge over the branded PCs in terms of lower cost, mainly because their marketing cost is low. Their `after sales service' is also generally up to the mark. Quality of products from both the segments do not differ much as both the segments are assemblers and not the manufacturers.

A look at the results of Zenith Computers for the first half ended September 2000 proves the point. As against the industry growth rate of 63 per cent, the company's topline has crawled up by 5 per cent to Rs 110.81 crore.

The import duty on components such as mother boards, memory storage devices, monitors and cd-roms etc was slashed in the last budget. This should have helped the company to bring down its raw material costs. But the reverse has happened as cost has actually gone up by 7.7 per cent to Rs 82.6 crore. If one argues that the sales in terms of quantity may have increased to justify higher raw material consumption, then it becomes evident that the price realisations have been dipping fast.

Further, higher staff cost and excise duty did not help the company's cause. Operating profit came down by 20 per cent to Rs 5.5 crore. Operating profit margin has got thinner to 5 per cent (6.5 per cent). More than 50 per cent of the already low operating profitability is eaten away by high interest cost of Rs 2.55 crore. Bottomline of Rs 2 crore gives the net profit margin of less than 2 per cent. With an annualised EPS of Rs 2.6, no wonder that the stock has been hovering around Rs 40.

Sachchidanand Shukla & Manish Joshi