Birla Advantage Fund: Hold

Recommendation: Hold

Aarati Krishnan

DESPITE lagging the narrow market indices in 2000 and in the first half of 2001, Birla Advantage Fund has turned in a good performance over the previous quarter.

A substantial cash position and an early entry into some of the Indian pharma stocks appears to have bolstered the NAV.

Investors in the Birla Advantage Fund can stick with the fund for now. With the benefits from a research and generics-oriented strategy just beginning to flow in, there appears to be further upside potential in Indian pharma stocks. However, given the recent uptrend in these stocks, this does not appear to be a good time to contemplate fresh exposures in the pharma-weighted Birla Advantage Fund.

Suitability: The fund has consistently followed a high concentration strategy of taking overweight positions in specific stocks and sectors. This makes for a high-risk profile even in relation to other equity-oriented funds. Investors not comfortable with a high degree of risk may trim exposures in this fund.

The Birla Advantage Fund has undergone a sea change in its portfolio between December 2000 and now. The following factors emerge from a study of the portfolio over this period:

* The sectoral allocations have swung from one end of the pendulum to another over the past nine months. Starting with a 49 per cent exposure to IT stocks, the fund sharply pruned its IT exposure to just 3 per cent by September. The fund swung from being overweight in IT stocks (in relation to the Nifty) to being underweight.

* Pharmaceutical stocks, on the other hand, have climbed from a 9 per cent weight to a 32 per cent weight in net assets. The fund is now overweight in pharma stocks compared to the narrow market indices.

* Just as it made a relatively early entry into IT stocks, so has the fund timed its entry into pharma stocks well. Stocks such as Dr Reddy's and Cipla were added to the portfolio as early as the March-July 2001 quarter and have since appreciated considerably in value.

* However, the success of this strategy also hinges on the fund's ability to book profits on the sector when fully valued. The fund's inability to do this with IT stocks was the key reason for the sharp underperformance of the indices in 2000.

* Initially exposed only to growth stocks, Birla Advantage has acquired quite a few cyclical exposures over the past six months. It added stocks from automobiles, oil and gas, metals and tractors to the portfolio in the January-March 2001 quarter. The exposure to growth stocks fell from 64 per cent of the net assets in December 2000 to 49 per cent by September 2001.

* But in October 2001, the fund appears to have once again stepped up its exposure to growth stocks (57 per cent of the net assets). This could also partly be on account of the appreciation in stock prices.

* The fund has consistently maintained a high cash position over the past six months, with the cash position remaining at 20 per cent or more for much of that time. This might have shielded the fund to some extent from the sharp fall in equity values.

* Probably as a legacy of the past, the fund has retained several small cap, mid-cap exposures in its portfolio, a few of which are thinly traded. Visualsoft, Subex Systems and Moser Baer are among the smaller tech sector exposures that continue to figure in the portfolio. Outisde of the tech sector, too, the fund appears to have dabbled with such stocks as Champagne Indage, Electrosteel Castings and Sulzer India. The fund also had a couple of unlisted holdings such as Karrox Technologies and Dharti Dredging by end October 2001.

Fund facts: Birla Advantage Fund was launched in February 1995 as an open-end growth-oriented fund. The fund charges an entry load of 2 per cent on fresh purchases. The minimum investment stipulated in the fund is Rs 5,000. The fund is a relatively large equity fund, managing around Rs 302 crore in net assets. The fund offers no dividend payout option.