Alliance Buy India Fund: Hold

Recommendation: Hold

Aarati Krishnan

DESPITE its lacklustre performance, investors in the Buy India Fund can retain their holdings in the scheme in the hope of recouping losses.

Its diffused focus apart, the portfolio of the Alliance Buy India Fund continues to be invested in stocks of quality companies with reasonable earnings potential over a two- to three-year time-frame.

Though the recent recovery in the equity market was led largely by technology stocks, it may only be a matter of time before the top-rung pharma and FMCG stocks attract their share of buying. The unlisted media stocks in the portfolio also appear to hold potential for capital appreciation on listing. With several of the stocks at modest valuations, this is scarcely a good time to exit the fund. Fresh investments, though, need not be contemplated, given the fund's diffused sectoral focus.

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Performance trends: The Alliance Buy India Fund has turned in an unimpressive performance since launch. The fund lost around 38 per cent on its NAV since launch in January 2000, while the broad market represented by the BL 250 registered a 19 per cent erosion in value terms over the same period.

The fund combines investments in FMCG, healthcare and media stocks in its portfolio and this is its key drawback. The fund's underperformance of the market can partly be traced to the rough run that FMCG, pharmaceutical and media stocks have had since the launch of this fund.

But this apart, the diffused sectoral focus on three different sectors appears to have prevented the fund from taking advantage of the brief surges in investor interest that one or two of the sectors have seen over the past seven months.

For instance, from inception (January 15 2000) to early May 2000, both the BL Consumer Confidence and the BL Pharmaceutical index lost heavily (by 23 and 17 per cent respectively). Over the same period, the NAV of the Buy India Fund lost 37 per cent.

Between May and mid-July 2000, with a recovery in select FMCG stocks, the BL Consumer Confidence Index posted a recovery, with a 31 per cent value gain. But the NAV of the Buy India Fund put up a disappointing show in this period: posting a 3 per cent gain. This performance can probably be traced to the substantial allocation to Indian pharmaceutical and media stocks, which continued to head southward.

Portfolio allocation: By end July 2000, pharmaceuticals continued to be the largest sectoral allocation in the Buy India Fund's portfolio, taking up 45.7 per cent of net assets. This was followed by foods and personal care (23 per cent) and media (12 per cent). This explains the unimpressive current NAV levels of the fund.

The fund appears to have been relatively passively managed in the March to June 2000 period, with the fund holding on to its positions in the majority of the FMCG and pharma holdings. Between March and June 2000, the fund largely held on to its positions in the top-rung FMCG and pharmaceutical stocks. The media portfolio saw some additions, with Beehive Trading and Sifa Trading added to the portfolio.

Background: The Alliance Buy India Fund was launched in January 2000, as a part of the Alliance Sector Select Series. The fund charges an entry load of 1.75 per cent and offers both Growth and Dividend options.