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Trend Reversal

In a sharp reversal of trend this week, equity funds zoomed with 4.5 percent gain, while the medium term debt fund lost 0.41 percent, putting a ten week rapid stride to a halt. Read more about hows' and whys' of these diverging trends and the fund action at UTI Mastershare…….

In a sharp reversal of trend this week, equity funds zoomed while bond fund fell sharply. The diversified equity funds gained smartly -- 4.56 percent average gain during the week while technology funds went ballistic gaining 14 per cent. On the other hand, after making rapid strides for ten weeks, the average medium-term debt fund lost 0.41 per cent while the more volatile medium-term gilt fund lost .69 per cent.

The BSE Sensex crossed the 3400 to attain a six-month high. The buoyancy in equity markets is largely attributed to the receding fears about the outlook of Indian technology sector and strong institutional interest. The fall in bond funds was mainly on account of large-scale auction by the central bank to correct the falling yields in recent weeks. However, this fall may not be alarming as bond prices are likely to gain stability around present levels. However, funds with high gilt allocation and longer maturity will be more volatile now given such actions by the central bank.

Another key development was indications that UTI will delist its first equity fund Mastershare, from the Bombay Stock Exchange. To provide liquidity, UTI will offer repurchase at NAV related price directly to its investors. So if you own Mastershare, soon you can go to UTI to redeem the units rather than calling your stockbroker.

But for sometime, this provides a compelling arbitrage opportunity. If you buy Mastershare units from the market at its current price of Rs 10 (as on Dec. 10, '01 at BSE), it will translate into a 11 per cent gain, as its NAV is Rs 11.13 as on December 28. The NAV should be little higher now, as the market has gained since then. Of course, you will have to face the drudgery of buying, getting it transferred in your name and then lodge it with UTI for redemption. Moreover, this is not risk-free as you will have to hope that NAV remains at its present levels to negotiate this return. And I missed on the transaction cost, i.e. brokerage payable when you buy this from your stockbroker.

Ofcourse, this is only an attractive short-term deal, not a long-term buy. Mastershare offers nothing special to justify a long-term buy as UTI remains clouded by the uncertainty of Unit Scheme '64. It hurts Mastershare indirectly, as it is unlikely to get focussed management attention with prevailing problems.

But doing all this can yield sweet reward as the fund looks in good health, well spread across large cap FMCG, diversified and technology stocks. The market is also looking up after a long time providing an opportunity for you to make your buck.

Fund Update: During the week, the market gained 144 points on the Sensex and 86 points on the broad-based National Index. The technology funds were big gainers during the week -- Birla IT (14.73%), Pioneer ITI Infotech (14.24%) and Alliance New Millenium (13.93%). The only fund to lose was Pioneer ITI Pharma (-0.44%).