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UTI Petro

UTI Petro, India's only petroleum fund, has rewarded its investors handsomely along with further liberalisation in the oil sector. But as sector funds go, the risk remains high.

In the last two years, petroleum stocks have provided tremendous investment opportunities. The dismantling of the administered price mechanism for oil products in early 2002, the oil field discoveries and above all the disinvestment saga of PSU oil giants—these events have brought the spotlight on the oil sector. UTI Petro was launched in June 1999 providing investors an opportunity to tap the potential of the petroleum sector, and is one of two funds in India yet.

In 2000, when tech-heavy portfolios pounded equity fund investors, UTI Petro stood tall-with a gain of 34 per cent. A heavy exposure to Reliance Industries (as much as 60 per cent in March 2000) was what saved its skin as the stock kept rising. Besides Reliance, there was little activity in the sector. The fund waited patiently by adopting a buy-and-hold strategy. UTI Petro did venture into Infosys and Satyam for a short while, but it is unlikely to have made much of it.

Gradually in 2001, the disinvestment process picked up steam and the fund also spread out its small portfolio across the key divestment candidates--IPCL, IBP, HPCL etc. Seizing the opportunity to capitalise on gains, the fund has been actively churning its portfolio. The fund manager's calls have largely been right so far; a case in point—in the early 2001 rally, UTI Petro booked partial profits in holdings like HPCL and IBP only to pick them up again when stock prices fell.

Year 2002 turned out to be a bonanza—the deregulation of domestic oil prices, the expansion drive by oil majors, the IBP open offer at almost twice the market price and the on-off disinvestment of HPCL and BPCL which continues till date. A whopping 70 per cent return in 2002 and another 74 per cent in 2003 so far is way ahead of any other sector fund's performance.

UTI Petro has stuck to its mandate through thick and thin. Almost all the prominent players in the sector can be found in its portfolio. Nonetheless it is a sector fund and the risks are extremely high. While these risks have been compensated by strong returns, this may not always be the case. Investors looking for petroleum sector exposure can consider this fund but must keep in mind the inherently high risks of a sector fund.