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Suresh Krishnamurthy

FRESH investments need not be considered in Tata Pure Equity. While its performance in the last 12 months has been impressive, the longer-term record has not been encouraging when compared to its peers.

There is the chance that the last 12 months' performance was purely because of allocation to mid-cap stocks and not due to any superior stock selection. In this context, fresh investments appear avoidable. In fact, further evaluation of the fund performance over the next 12 months should indicate whether investors should continue to hold or pare exposures.

In addition, investors need to consider the large exposure to mid-cap stocks. This enhances the downside potential for the NAV in the short term. Mid-cap stocks have run up sharply in the recent months and price correction may be in the offing.

Performance: The fund has gained nearly 44 per cent in the last three months. In the same period, S&P CNX 500 recorded a gain of nearly 33.3 per cent. This compares favourably with that of its peers, though this may be due more to the large exposure to mid-cap stocks.

In fact, CNX Midcap 200 recorded a gain of nearly 42 per cent during the last three months suggesting that the out-performance was not significant when compared to a mid-cap index. Given that the fund has a large exposure to mid-cap stocks, CNX Midcap 200 is a suitable benchmark for the fund's performance.

In addition, in the last few years, the fund has generated annualised returns of less than 3 per cent. During the same period, some of its peers have generated returns of 10-15 per cent.

Portfolio allocation: At the end of June 2003, the fund was almost fully invested with a cash position of less than 1 per cent. In terms of sectors, the top exposures were healthcare, steel and electrical equipments. These three sectors accounted for nearly 49 per cent of net assets. The excessive concentration in the top three sectors, in particular in healthcare, enhances the risk involved.

In terms of stocks, the fund's top picks were State Bank of India, Ranbaxy Laboratories, Lupin Laboratories, Divi's Laboratories and United Phosphorous.

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