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S. Vaidya Nathan

INVESTORS in the open-ended sectoral fund of Alliance Capital, Alliance Basic Industries can contemplate cutting down exposures to take advantage of the run-up in stock prices in the last three months or so. Any uptrend immediately after the Budget can also be used to trim exposures.

But the fund needs to be closely tracked, and re-investment can be contemplated at lower stock price levels. Even investors who entered the fund at the time of the initial public offering can contemplate exiting now, though it would mean taking marginal gains.

The NAV has risen around 37 per cent in the last four months, after hovering around the Rs 7.50 per unit, and has moved past the face value of Rs 10 per unit. The fund has recovered from the initial shock of the end-of-the-boom-phase launch.

Investors with a penchant for higher risk can, however, stay invested in the expectation of a revival in economic performance that may lead to some more upside. But this comes with a downside risk as well, at least in the near term.

Suitability: As a sectoral fund, Alliance Basic Industries does carry a higher level of risk, though it is not as focussed on one sector as are some tech or FMCG funds. The fund has a fairly diversified portfolio, with some major exclusion due to the scheme's nature.

So, investors seeking exposures to a diversified portfolio ought not to look at this option as three key sectors — consumer goods, FMCG and pharmaceuticals, which account for around 60 per cent of the benchmark indices, are not covered.

If you are already heavy with exposures in these sectors, Alliance Basis Industries offers a decent diversification option in the economically sensitive/ finance sectors.

Those who enter at lower levels can opt for the dividend option as it would provide an avenue to take cash out, once the NAV improves to healthier levels.

Portfolio status: The fund has generally adopted a strategy of focussing on a small number of sectors and stocks. This approach is advantageous given the lack of depth in the markets. For instance, as of January 31, the fund had just 14 stocks. This has been the trend all along, though the fund is actively managed.

The sectoral allocations have changed quite sharply for most of the period since launch. At present, the Alliance Basic places considerable stress on the auto sector, with heavy exposure in Hero Honda and Bajaj Auto.

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