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S. Vaidya Nathan

INVESTORS in the UTI Services Sector Fund may retain their exposures as the portfolio is well positioned to deliver steady growth. The fund has a more pronounced tilt towards stocks from the information technology and banking spaces than earlier this year.

These two sectors hold the promise of further gains over the next six-to-twelve months; frontline IT companies appear set to turn in impressive revenue and earnings growth rates and the banking sector may hold scope for appreciation linked to fundamentals as well as mergers.

In the IT sector, the portfolio is loaded with frontline stocks such as Infosys, Tata Consultancy Services, Wipro, Satyam Computer and Hughes Software. The rest of the portfolio, too, comprises stocks that could help step up returns. The recommendation represents a continuation of our stance on this fund.

The fund's performance over the long term has been fairly impressive with annual returns of about 35 per cent over the past five years. It has also outperformed the benchmark index by a comfortable margin during this period. Over the past year, its performance has been a tad better than the benchmark.

The decline in valuation levels in the banking sector have had a bearing on the performance while IT exposures have boosted the NAV. Banking sector stocks have, however, over the past month attracted enhanced interest. This could pep up the UTI Services Fund. Its lack of exposure to the manufacturing sector could help it outperform several peer funds, as pressure on earnings growth appears likely.

Suitability: The risk associated with the fund is higher than what one would associate with diversified funds, but not as high as that of a sector-specific fund. The investment objective is broad to provide the fund leeway to build a more diversified portfolio than other sector-specific funds.

It could be a complement to a portfolio of funds that include the likes of HDFC Equity, Franklin Prima, HDFC TaxPlan 2000, Templeton India Growth and HSBC Equity.

The returns have more than adequately compensated for the risks. Regular dividend payouts have ensured that a sizeable part of the gains in a bull market have been passed on to investors.

: The fund's exposures in stocks such as Great Eastern Shipping, Indian Hotels, Bharti-Tele Ventures, Container Corp and Blue Dart Express have delivered value. It has, however, missed out on the Bharti story by keeping the stocks' weight at modest levels.

In the banking space, SBI, HDFC Bank and HDFC remain preferred exposures. Bank of Baroda has replaced Corporation Bank in the top ten holdings over the past six months. The portfolio has a healthy mix of large-cap and mid-cap stocks. The fund's asset base of about Rs 105 crore provides it with considerable flexibility in management.

Fund facts: The UTI Services Sector Fund was launched in May 1999 as part of the UTI Growth Sectors Umbrella. The minimum investment is Rs 5,000. The entry load is 2.25 per cent. There is no exit load. The fund manager is Mr Sanjay Dongre.<137>

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