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One Stock doesn't make a Summer

Equity Funds with the largest exposure to BHEL and ABB haven't benefited from their rally.

These index stocks are on cloud nine. And there is a reason for that. Both electrical engineering giants, Bharat Heavy Electricals Ltd (BHEL) and Asea Brown Boveri (ABB), recently touched their 52-week highs. While BHEL is present in both the Sensex and the Nifty, ABB can be found in just the Nifty. Besides impressive results these power companies are expected to benefit from the reforms in the power sector. The recent passage of the Electricity Bill is another boost for the sector. If reforms in power tariffs at state-government level take place the profitability of the power sector would improve. This could also lead to a re-rating of the stocks in this sector. This already seems visible in the case of ABB and BHEL.

As for BHEL, the stock has moved from Rs 145 in end-October 2002 to reach Rs 220 in end-March 2003. ABB, on the other hand, has seen a rise in its scrip price from Rs 213 in end-November 2002 to Rs 324 by end-March. While BHEL moved up 55 per cent, ABB has gained 52 per cent.

Equity funds with an MNC theme have been the largest investors in the ABB stock in NAV terms. While UTI MNC held 6.56 per cent of NAV in the stock, as on November 30, 2002, K-MNC held 5.58 per cent. As the stock has been appreciating, UTI MNC has held on to the stock. In March this year, the fund marginally increased exposure to the counter. K-MNC, on the other hand, has kept the number of shares constant.

As for BHEL, Cholamandalam Growth is the largest player in NAV terms here. By October 31, 2002, the fund had 7.95 per cent of its portfolio invested in the stock and this remained largely constant. Boinanza Exclusive Growth which occupies the second position in terms of its holdings in the stock (7.85 per cent in October 2002 end) kept its exposure in this counter steady till December 2002. Since then it has been steadily offloading shares.

Surprisingly, neither Cholamandalam Growth nor Boinanza Exclusive have any exposure to ABB. In the case of UTI MNC and K-MNC, there is no exposure to BHEL. It may be that the stock does not fit in their investment universe of multinational shares.

In spite of having large portions of their portfolio in a stock, which has been doing well, most of these funds don't seem to have benefited. Cholamandalam Growth is an exception. Bet-ween October 2002 and March 2003 it has generated a 8.25 per cent return against the category's 4.46 per cent. Boinanza Exclusive Growth, on the other hand, has underperformed, turning in a 3.66 per cent return.

Both UTI MNC and K-MNC funds have underperformed their category. They have returned -5.38 per cent and -4.98 per cent between November 2002 and March 2003, respectively, when the category generated an average return of -2.21 per cent.

All this goes to show that a good stock doesn't guarantee you category-beating returns.