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S. Vaidya Nathan

INVESTORS in the UTI Services Sector Fund can contemplate booking profits, by selling at least a part of their holdings. This will enable them to cash in on the strong gains of about 38 per cent over the past three months.

This is probably the first time that the two core sector holdings — banking and information technology — have enjoyed market fancy at the same time.

Banking and IT sector exposures now account for 57 per cent of net assets.

In January 2003, we had recommended that investors could stay with the fund as the market was in a flat state and banking and IT sector stocks had run out of steam.

Subsequently, since April, there has been a sharp rally in stock prices. And banking sector stocks have been at the forefront. The key banking sector holdings — State Bank of India, ICICI Bank and HDFC Bank — are prominent participants in this rally.

In contrast, in January, the fund's frontline banking exposures barely managed gains, which were confined to second-rung stocks and new listings. The sharp uptrend in SBI and HDFC Bank makes a good case for profit-booking now.

There may be some upside left in the market, especially if FII flows continue in positive territory. But it may be better not to wait to call the top of the market.

The fund focuses on stocks of companies that are likely to benefit from improved industrial and regulatory scenario. In this backdrop, it may be better to retain a part of your holdings to benefit from the upside potential over a longer time frame.

Suitability: The UTI Services Sector Fund carries a higher degree of risk compared to typical, diversified funds. But the risk levels are lower than sector funds that focus on one sector, such as IT, banking or pharmaceuticals.

This fund has an investment ambit that covers a wide range of service-sector companies. This universe of companies is also expanding in the market place, offering opportunities for better portfolio diversification.

Still, as with all sector-specific funds, it may be prudent to look at profit-booking options at regular intervals. The fund's performance has been good over the past one year. But its returns of about 24 per cent since launch still draw heavily on the benefits reaped in the bullish phase of 1999 and early 2000.

However, the quality of stocks now held by the fund makes for a lower, risk profile. It is a far cry from the times when the likes of Himachal Futuritistic, Global Tele-Systems, SSI and Shyam Telecom pegged the risks at a rather high level.

Portfolio review: The fund has been passively managed with marginal changes across the portfolio. The following are notable trends:

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