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Sebi probe on UTI gives tech funds the jitters

Sangita Shah and Janaki Krishnan

The Securities and Exchange Board of India's (Sebi) probe covering Unit Trust of India's role in the market crash on March 2 has alerted certain other mutual funds, especially those which have launched infotech-dedicated schemes. The mutual funds are scared that the probe may find linkages to these funds, sources said.

Some of these funds are also reported to have bought into K-10 stocks even when the panic selling had already set in and the prices had started easing. The funds continued to buy in stocks such as Himachal Futuristic, Global Tele, Zee and DSQ Software along with other second-rung technology stocks such as VisualSoft and Aftek.

While the fund managers are of the view that these stocks were good buy at the time of decline, critics feel that the stocks were being bought on behest of interested parties expecting to bail them out of their crisis.

Most of the funds had exposed themselves as high as 90 per cent of the portfolio in the K-10 stocks and like UTI they had also actually bought these stocks when the prices were actually reached at their peaks.

Subsequently, when the rest of the market started selling in a panic, the funds were still buying closely following UTI's line. Even at those levels the process were relatively high.

It is only now after the March crash, the funds started heavily off-loading the exposure and in the process incurred major losses.

Mutual funds had launched sector-specific funds at the boom time of information technology shares and invested heavily in K-10 stocks. Currently, the net asset values of these funds have gone for a toss, hitting as low as Rs 3 in certain cases.

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