Happy days are here again, at least for the Unit Trust of India's (UTI) IT Fund. It might turn out to be first beneficiary of the recently notified two-way fungibility of ADR/GDRs.
The IT Fund, an offshore scheme, plans to leverage the arbitrage opportunity thrown up by the fungibility fiat of the Centre, as soon as the guidelines are implemented.
Ajay Argal, manager of the IT Fund and also assistant general manger, UTI, said, "The ADR market is currently very shallow and on most occasions trades at a premium to the domestic mart. Two-way fungibility can provide arbitrage opportunities and will also lend depth."
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The fund can invest up to 10 per cent of its net asset value (NAV) in equity and equity-linked securities traded outside India, such as ADRs and GDRs.
The IT Fund has corpus of $70.74 million and is traded on the London Stock Exchange (LSE). The fund has been subscribed mainly by institutional investors. Recently, J P Morgan Chase and Credit Lyonnais Securities Asia ranked it as the top-performing fund in terms of absolute returns among the all India-dedicated funds.
It outperformed the benchmark CNX IT index by 4 per cent in the last three months and 5 per cent in the last six months.
The fund is fully invested in 12 scrips including Infosys Technologies, Wipro, Satyam Computers, Digital GloboSoft, HCL Technologies and Hughes Software.
"We take few big bets on which we are sure before investing in any company and we take a 12-15 months view on the company, " says Argal.
The fund can also invest up to 10 per cent of its NAV in unlisted equity and equity-linked securities of Indian IT companies.
On the issue of inflows in the fund, Argal said, "Most institutional investors are very comfortable with Indian companies and the fund is witnessing occasional inflows, despite adverse market conditions."
Since September 11, the fund has seen average outflows of $1.5-2 million monthly, baring November and December. The fund operates on a monthly sales.
Commenting on the outlook of IT sector in the company, Argal said, "Indian firms will continue to have the edge over competition, at least in the next two-three years."
He also pointed that most domestic companies have by grown at a higher rate compared with its international peers.