VR Logo

Bubbling Energy

UTI Energy has been hit hard by the market downside but is expected to benefit from the growing energy sector

This one’s an old fund that has got a new name, a new mandate and a broader outlook to work with. Earlier known as UTI Petro, the fund was launched in June 1999 to reap the benefits of investing in the petroleum sector companies. At that time, the petroleum sector companies were available at attractive valuations. The sector had strong growth prospects and was likely to benefit from the oil sector reforms like dismantling of administered based pricing, privatization of public sector oil companies and participation of the private sector in oil and gas explorations.

However, the lack of major oil sector reforms coupled with the fund’s narrow investment mandate restricted its performance. The fund did benefit from the dismantling of administered base pricing in 2002 and went on to post returns of a whopping 72 per cent as against the four per cent returns of the Sensex. However, overall, the fund’s performance has been erratic and since its launch, the fund has posted annualised returns of 33 per cent.

It was for this reason that in November 2007, UTI Petro was rechristened and relaunched as UTI Energy. To diversify its portfolio, the fund’s new version had an extended mandate of investing in companies involved in the manufacturing, storage and distribution of energy and other companies ancillary to the energy sector, including equipment manufacturing and financing companies.

The new fund, UTI Energy was probably launched at the most unexpectedly inappropriate time. In just its third month, the fund had to face the sudden downside in the Indian capital markets. Furthermore, since it is a thematic fund, it faced the heat even more and has been down by 48 per cent since January 2008.

The fund’s portfolio is tilted towards large-cap growth oriented companies. The portfolio is diversified across 53 companies that are spread across 23 industries of seven sectors with energy, basic engineering and metals accounting for around three-fourth of the portfolio. The core holdings of the fund are Reliance Industries, National Thermal Power Corporation, Larsen and Toubro, Bharat Heavy Electricals, Tata Power and Oil & Natural Gas Corporation, with an average allocation of more than five per cent each. Since its launch, Reliance industries has had an average allocation of more than 10 per cent in the fund’s portfolio.

Moving ahead, the demand for energy is rising with the economical development and to cash upon the opportunities arising out of the demand and supply gap, the private sector companies are making huge investments. These factors show that the bright prospects in the energy sector, which in turn will also allow UTI Energy to capitalize on the opportunities.