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BUSINESS: UTI CRISIS
Q. How did investment in public
sector shares and the 1998 bail-out affect the UTI?
UTI's exposure to equity increased and return
on investment fell. The Union finance minister told Parliament on August
1 that UTI had invested Rs 6,202 crore in PSU shares between 1991 and
1996. Of this, Rs 4,722 crore was from the US-64 portfolio. Such huge
investment in PSU shares pushed UTI's flagship scheme even more into the
equity trap. Because of the consistent erosion of the values of PSU shares,
the government had to bail out US-64 by buying back Rs 3,300 crore worth
of PSU shares in 1998 and putting them in a scheme called SUS-1999. The
current value of these shares is around Rs 1,500 crore.
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THE UTI AND THE RIL
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March 11, 1994
UTI invests Rs 300 crore in 78,40,000 RIL non-convertible detachable
warrants.
RIL share price: Rs 343.9
August 4, 1994
August 4, 1994
SEBI makes lock-in period for private placements mandatory.
RIL share price: Rs 404.5
October 4, 1994
UTI invests Rs 773 crore to buy 2,00,75,650 shares of RIL at Rs
389 a share with five years lock-in period.
RIL share price: Rs 405
January 29, 1996
January 29, 1996
RIL share prices touch a low of Rs 149.
October 16, 1997
RIL announced bonus shares in the ratio of 1:1. RIL share price:
Rs 411.4
October, 1998
First crisis of Unit-64, its reserves negative. RIL share price:
Rs 109.7
April 25, 1996
CBI inquiry ordered into UTI's investment in RIL shares. RIL share
price: Rs 251.6
March 2, 2001
Stocks scam causes collapse in stock market. RIL share price: Rs
417.45
July 2, 2001
UTI announces six-month freeze on US-64 redemption.
RIL share price: Rs 357.65
The trend line shows movement in RIL share prices. Share prices
are adjusted for 1:1 bonus announced by RIL on October 16, 1997
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While the bail-out brought down UTI's own holding
of PSU shares to Rs 2,900 crore, the market value of these shares too
has plummeted to about half.
Q. Did UTI manage its portfolio
in a way to maximise returns for small investors?
No. Its size and diversity made the fund unmanageable.
Since US-64 held scrips of 1,100 companies, churning the portfolio through
timely buying and selling-when only 300 stocks were tracked by UTI-was
virtually impossible. However, it did churn its top holdings. For instance,
UTI sold over two crore RIL shares between 1999 and 2001 and realised
profits of over Rs 400 crore at prices ranging from Rs 380 to Rs 425.
The problem though, is not restricted to equity.
UTI has a huge hole in its debt portfolio too. Of the more than Rs 23,900
crore debt portfolio, gross non-performing assets have been pegged at
Rs 5,686 crore. The impact of NPAs has been most pronounced on UTI's monthly
income plans.
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