Alliance Buy India Fund: Hold

Recommendation: Hold

S. Vaidya Nathan

THOUGH the fund's NAV has dipped and shows no signs of recovery, this may not be the right time for investors to contemplate exiting the fund.

Much of the fund's indifferent performance may have to do with its rather diffused focus as far as stock selection goes. A sizeable churning of the portfolio has extracted its toll as the fund has reshuffled its holdings in the short span of 11 months.

An aggressive investment strategy that saw close to 90 per cent of the corpus deployed in equities by March 2000 ensured that the fund entered the fray when the market was at high levels. Today, with an NAV of Rs 5.85 per unit, it has shed close to 41.5 per cent of the initial value of Rs 10 per unit.

Suitability: Though the Alliance Buy India Fund is largely positioned or perceived as a stock that will invest in defensive stocks and provide a good diversification option, that is not the case. Due to its broad-based investment objective, the fund has spread its investments across a few sectors. Media is one of them and this has enhanced the risk profile of the scheme without commensurate returns. Investors ought not to view this scheme as a defensive diversification option.

Investors who seek diversification options could look at schemes with a better portfolio. Those who seek specific exposures to FMCG or pharmaceutical stocks may be better off investing in schemes with specific sectors than a fund with a diffused focus.

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Top ten holdings: The top ten holdings as of end October were in the stocks of Britannia, Nestle (India), Dr. Reddy's Laboratories, ITC, Hindustan Lever, Cipla, Pfizer, Glaxo, Apollo Hospital and Essel Packaging. The top ten exposures account for 70.6 per cent of net assets of Rs 55.9 crore.

Portfolio review: The Alliance Buy India Fund has been around 11 months now and in this period, the portfolio has seen some significant changes:

*The fund started off with a fairly heavy tilt towards the media sector and that too at a time when the valuations in this sector were demanding. As of March 2000, Zee Telefilms was the top exposure with a weightage of around 11.1 per cent. The fund subsequently pared exposures in this stock to some extent and this helped obviate the downtrend in the NAV. The company now has only UTV (an unlisted stock) in its top ten.

*The fund had started off an aggressive vein by taking exposures in stocks such as Morepen Labs, Television Eighteen, Apollo Hospitals and Cadilla Healthcare.

*The fund also had a more pronounced tilt towards pharmaceutical sector stocks in its top ten in the initial period. Now there is a better balance between consumer good stocks and pharmaceutical stocks.

*The fund has also moved towards some top-line consumer goods stocks, such as Hindustan Lever, ITC, Nestle and Britannia. From among the pharmaceutical stocks, it is Dr. Reddy's Laboratories that has consistently been the preferred stock.

*Through a combination of its own action in paring exposures and a decline in the prices of media stocks, the media sector exposures declined to 11 per cent of net assets. The consumer products sector now accounts for around 42 per cent of net assets of Rs 57.1 crores as of end September.

*The fund has consistently maintained investments levels at high levels of around 90 per cent of net assets through the 11-month period.

*Interestingly, the fund has also moved into quite a few unlisted stocks, such as UTV Software and Shoppers Stop, part of the portfolio from the start. It has, however, got out of Beehive Trading. Whether the exposures will pay off with a sharp change in the market perception of media stocks is now subject to doubt.

Fund facts: The Alliance Buy India Fund was launched as part of the Alliance Sector Select Series in December 1999. The fund offers dividend and growth options. It offers entry with a load of 1.75 per cent. There is no exit load. The NAV is Rs 5.85 per unit.