ICICI Power: Hold

Recommendation: Hold

Suresh Krishnamurthy

INVESTORS in ICICI Power can stay with the scheme considering the discount at which the fund is traded at the stock market -- now more than 10 per cent.

Fresh investments can also be contemplated in small doses, with the perspective of holding on till redemption in October 2002.

Investments in the fund can also be offloaded earlier if the market price's discount to the NAV narrows down to 5 per cent or thereabouts during periods of surging prices. On November 2, the fund's traded price closed at Rs.11.85 at the BSE.

Suitability: The risk involved in the investment is higher than market average due to two reasons. The exposure to the technology stocks in the portfolio has consistently remained higher. Also, the liquidity in the stock market with respect to the trading of the fund has generally remained quite low. Only investors comfortable with such high risks can invest in the funds. Retail investors would be better off restricting their exposures to less than 1,000 units.

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Portfolio allocation: As at end-September 2000, the fund had parked close to 55 per cent in the technology sector. It also had 21 per cent in cash. The top exposures are Infosys Technologies, HDFC Bank, HFCL, SSI and Satyam Computer.

The fund's portfolio represents a marked change from what it was at the end of March. The top exposures then were Zee Telefilms, DSQ Software, Global Tele-Systems, Bharat Forge and Satyam Computer. The stock selection then was considerably more aggressive.

The fund's initial mandate was to invest in the core sector companies. Normally, this would have entailed investments in the economy-linked cyclical sectors. However, the fund has included the technology sector also in the core sector. Such an approach has, however, worked to the investors' advantage.

Performance: The aggressive stock selection does appear to have taken a toll of the fund performance since March. Though the fund had cash to the extent of around 15 per cent, its performance relative to BSE 200 in the six months ended September was quite poor because of its stock selection.

However, the toned-down approach to investing has worked to the advantage of investors in the three months ended September. During that period, the fund declined by 8.6 per cent which would compare quite favourably with both the indices and its peer group. Still, the performance of the fund over a longer period of three or more years, while being better than most indices, has been much below comparable funds.

The discount at which the units are traded relative to the NAV has generally remained low compared to other close-ended funds. It has generally been between 6 and 15 per cent. This may be due to the large-scale secondary market buying by the fund managers. The unit capital of the fund declined by close to half in the year ended March 2000. The discount has narrowed during surging prices and has widened during bearish phases.