A Reversal Of Fortune

Times seem to have started changing for UTI. The Trust suffered a major setback in 1995-96, when it clocked negative fund flows, with redemptions outpacing inflows. It faced a massive outgo of funds particularly, in its flagship Unit Scheme 1964 a favourite among large corporates and small investors for long. Consequently, the face value of units sold dropped sharply in 1995-96 to Rs 6,373 crore, down from over Rs 12,500 crore the previous fiscal. The drop was a fallout of a number of factors a depressed capital market and a cash crunch in the corporate sector forcing corporates to redeem the units parked with UTI.

 

Compare this with the present situation. UTI now feels confident of mopping up as much as Rs 19,000 crore in 1997-98, touching its highest ever mobilisation figure. The current year has shown signs that the coming fiscal could well mark the peak of UTIs fund-raising fortunes.

How has this change come about? Having scaled down the target for 1996-97 to Rs 6,000 crore in view of the dismal market conditions which still prevail, the Trust was pleasantly surprised to find a change in fortunes as their financial year June draws to a close. The US-64 scheme which is almost a barometer for UTI, has started turning around in a big way. In the last two months of the year, as US-64 was all set to close its books, it saw a sharp surge in corporate inflows to the tune of over Rs 400 crore, propelled mainly by a large south-based corporate group and other companies.

Says B G Daga, chief general manager in charge of secondary markets, Things are turning out to be very different for UTI now from what they were last year. Reason: he would not, if the trends continue, have to press sales in the secondary market, to meet the redemption pressures he had to cope with in the past. In fact, Daga has lately been repeatedly saying that UTI is no longer an aggressive seller on the markets. This is as good a signal as any that times are changing. With the secondary market operations in doldrums, it is something of a vicious circle. If redemption pressures mount, UTI will be forced to sell its holdings in substantial amounts, pushing the stockmarkets down. This, in turn, affects UTIs mobilisations as it depresses the markets.

A recent internal study showed that while the debt markets had done very well lately, the equity markets were set to witness a major growth once again. This would be compounded by the fact that artificial barriers between the financial markets were being brought down, and funds would flow freely from one segment of the financial market to another. It predicted correctly the rise in the A group stocks, and the fact that it would spill over into the B1 and B2 groups of stocks, which had remained stagnant for several months. Therefore, UTI emphasised on equity, and decided to get back to the market with equity schemes after a long lay-off.

As part of a fresh strategy, it has decided to focus aggressively on equity funds, both domestic and offshore, and has made a major pitch recently to foreign investors in Europe to invest into Indian markets through the Trust.

The study, on which the new UTI strategy is based, has shown that in the next phase of reforms, the barriers between the financial markets would crumble, and greater resources would flow into the equity markets. With the banks having a larger pool of funds following reduction in statutory liquidity ratio (SLR) and cash reserve ratio (CRR), the UTI analysis has shown that financial markets will be more efficient with intermediation costs going down.

Coupled with the accent on equity schemes is the new vista that has opened up by way of pension funds. UTI has so far followed the US pension funds model. With pension funds soon to be a major part of its product basket, the Trust is now studying the European pension fund practices to understand the mechanics. Says Basudeb Sen, UTIs chief general manager, UTI is now fully prepared to get into the pension funds area in a big way as soon as the laws are amended.

Sen, who was part of the recent delegation to woo overseas investors, says that UTIs hardsell was mainly to explain to them that political uncertainty had become irrelevant to Indian markets, which had now reached a self-sustaining stage.

In many ways, it is this assessment, coupled with a landmark Budget, which is at the core of UTIs new-found optimism. The markets have already begun rising sharply, with the Sensex crossing the 4,000 mark. And the underlying strengths of the economy and its fundamentals, UTI feels, will further push the political factor back stage. Together with this, is the fact that the financial market itself is set to witness a major shakeout as far as deposit mobilisation by non-banking financial companies (NBFCs) are concerned.

Sen is gung-ho about this. He says after the collapse of the CRB group where several fixed depositors burnt their fingers, UTI will be the most preferred investing option for those who aim to park their funds in safe, regular-return avenues. This will lead to a major fund flow for UTI, and therefore we dont want to fix a mobilisation target at this stage. That will take away the challenge, he points out.

All the same, Sen is confident that UTI will see a Rs 19,000 crore mop up in 1997-98. Gearing up for the challenge, UTI has already put in place a better structural arrangement for funds management, with three asset management committees now looking into three categories of schemes US-64, income schemes and growth schemes. It is also in the process of connecting its offices by V-SAT, to offer better investor services across the counter. It has got its back office act together after facing bad times with the stock exchanges in relation to Mastergain, whose units were suspended by the Bombay Stock Exchange about two years ago for poor investor servicing.

That investors would return in large numbers is borne out by historical facts. With a total corpus of about Rs 56,000 crore at present, UTI is unchallenged in the Indian mutual fund industry, and has seen market share grow despite very bad years. Now, US-64 itself has a total corpus of Rs 20,000 crore, and its unit capital stands at around Rs 14,000 crore, after factoring in last years one for ten bonus units.

Alongside the domestic thrust, UTI is now beginning to enter the international market more frequently. After its India Access Fund, the index fund tracking NSE-50, UTI is now launching its first offshore debt fund, India Debt Fund, which is expected to mobilise around $100 million. The next year will see more such funds, tailor-made to suit the requirements of various classes of foreign debt investors which UTI has identified.

Even in the area of debt funds, macroeconomic fundamentals have buoyed UTIs optimism, since corporate debt is becoming increasingly attractive in India, and the rupee has been rather stable against the dollar over the past few years.

But while hopes and targets are one thing, performance in the marketplace is quite another. Realising this, UTI is putting its best marketing foot forward, both at home and abroad. Because the game of markets, to borrow an analogy from cricket, is never over till the last unit is sold.After two years, mutual funds behemoth Unit Trust of India expects a surge in fund flows. Sourav Majumdar reports

The US-64 scheme, which is almost a barometer for UTI, has started turning around in a big way. In the last two months of the year, as US-64 was all set to close its books, it saw a sharp surge in corporate inflows to the tune of over Rs 400 crore.