Cratering Oil Shares Force Mutuals To Alter Course

Mutual funds (MFs) are altering their investment strategy to recoup some of the losses incurred following the meltdown in public sector stocks- especially in Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL).

A fund manager with a public sector fund said, "Many funds are sitting on cash after having sold the stocks when the first signs of trouble over the disinvestment in these companies surfaced."

Still others have shifted to Oil and Natural Gas Corporation, which is being seen as an attractive hedge in case of an increase in oil prices. Some funds are shifting to software and pharmaceuticals, which will not be much impacted if a war breaks out in the Gulf.

Industry sources said those funds which were left holding the stocks till the shelving of the oil PSUs' sale was announced, have sold only around one-third of their holdings.

"Many are still holding on to the stocks hoping that three months down the line when the disinvestment process begins then the prices will pick up again," a fund manager said.

In fact, funds which were heavily weighted in favour of PSU stocks to the extent of 10 per cent of their assets are still hanging on to a substantial holding on expectations of a better price realisation later on.

A fund manager with Unit Trust of India said that fund managers' strategy for PSU stocks will depend upon their weightage. A really aggressive fund manager with a heavy weightage to the stocks would have sold part of it and would be holding on to the rest.

This will provide the fund with enough cash to buy into other sectors, while retaining their original holdings in PSU stocks and wait it out. Those with lower weightages of stocks were still sticking on to it, sources said.

Fund managers said that a similar strategy was being pursued with respect to other PSU scrips as well. Shares of Shipping Corporation of India and National Fertilisers lost more than 14 per cent today, while HMT was down more than 18 per cent on news of a delay in their divestment.

"But the disinvestment will happen, sooner or later," market sources said, adding that the fund managers had decided to hold rather than sell off everything. No funds are, however, stocking up on the shares.