Reports that the net asset value of Unit Trust of India's flagship scheme, US-64, had dropped below the par value of Rs 10 rocked the markets yesterday
According to reports, the drop in the NAV of US-64 follows the decision of UTI to mark the entire US-64 portfolio of around Rs 15,000 crore to market.
This was done as per the demands of UTI's auditors and board of trustees.
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When contacted about the NAV level of US-64, UTI chairman PS Subramanyam said: "As a matter of policy, we do not disclose the NAV of the US-64 scheme." He added, "this is not a NAV-driven product."
Asked about reports that the board of trustees had refused to sign on the 1997-98 accounts if they contained auditors' qualifications, Subramanyam said this was a "figment of the market's imagination."
"There is no difference of opinion between the auditors and the board of trustees," he stated.
On the depreciation of the US-64 portfolio, the UTI chairman said: "We have fully provided for it (the depreciation of the portfolio). There has been no effort to hide anything from investors."
However, Subramanyam did hint at the fact that there has been a sharp erosion in the net asset values of UTI schemes.
"Unlike the profit and loss account, which is a record of transactions during the year, the balance sheet is a snapshot of a particular date (June 30)."
He explained that "equity values came down suddenly in the aftermath of the nuclear blasts on May 5. This attracted the attention of the board of trustees."
However, he added that all provisions had been made according to prudentially accepted norms, to the satisfaction of the auditors.
"The stock market values on June 30 1998 were an aberration but we have made all disclosures on the balance sheet."
The stock market, as measured by the 30-scrip Bombay Stock Exchange sensitive index, declined by about 20 per cent in the period from May 5 to June 30 1998, falling from 4,147.29 to 3,250.69 points.
Market observers worry that news of the low NAV value of US-64 may put redemption pressure on UTI.
This is because UTI is currently selling new units at Rs 14.40 and repurchasing units from investors at Rs 14.10.