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November 7, 2000
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Morgan Stanley Growth Fund reduces tech exposure

In an across the board downturn in the markets triggered by the tech meltdown since early March 2000, Morgan Stanley Growth Fund has sought to descend to more comfortable climes.

For the first half ending September 30, 2000, the portfolio shows a marked dilution in ICE concentration from 53 per cent as on March 31, 2000 to 33 per cent on September 29, 2000. Apart from the sharp fall in infotech, communication and entertainment (ICE) stocks in the last six months, the fierce trimming has come about by way of heavy offloading in stocks of Infosys and Zee Telefilms.

The fund sold around 175,000 shares in Infosys to currently hold roughly 260,000 of them. Similarly, it has sold around 400,000 shares of Zee Telefilms and currently retains 1.345 million shares. Another erstwhile top league stock that has been almost eliminated is SSI, where MSGF has retained only 3600 odd shares against 170,000 shares in March 2000.

Further, the fund has also sold stocks at some of the old economy counters of finance and automobiles and replaced them with fast moving consumer goods and pharma. While the fund did frenzied buying in Asian Paints, Britannia Industries and Dabur India, it also added Novartis to its roster and augmented its exposure to Cipla. Yet another new entrant in the portfolio is Reliance Industries.

Despite the sell-off, Infosys continues to be the top holding of the fund. As on September 30, 2000, the sectoral allocation of the fund stood as software 29 per cent, automobiles 11 per cent, consumer non-durables 7 per cent, engineering 6 per cent, financial services 6 per cent and healthcare 5 per cent. Media and telecom account for a marginal 2.33 per cent and 2 per cent respectively. The top eight stocks of the fund account for 50 per cent of the portfolio.

With a portfolio heavily tilted in favour of ICE stocks earlier this year, the fund has suffered a 34.44 per cent erosion in net asset value during the year-to-date period ended October 27, 2000 with technology stocks coming under selling pressure.

MSGF, a 15-year term closed-end equity fund, was launched in February 1994. With liquidity available only through listing at major stock exchanges, the fund is currently available at a whopping 22.6 per cent discount to NAV. Since November 1999, the units of MSGF are on the compulsory dematerialised list.

While MSGF holds quality stocks that can yield reasonable returns in the long run, the fund is attractive for the prevailing discount and its diversified portfolio, which offers an excellent opportunity for long-term investors. However, the fund is unattractive for its dividend payouts since it would entail an additional cost of 22 per cent for investors in the form of dividend tax. The fund has till date declared two dividends of 7.5 per cent each in July 1999 and May 2000.

Though returns since launch are a dismal 5.8 per cent, the fund has, post-restructuring in 1997, made a decisive turnaround at the back of consolidation in the top stocks and the increased focus towards quality stocks of the growth sectors of software, pharma and FMCG.

The fund breached its par value in January 1999 and returned 138 per cent during calendar 1999. The improvement in the performance over time has reduced the discount of the traded price. Besides, the fund has pepped up its NAV by buying back units from the bourses. Till March 2000, the fund has bought back 259.3 million units or 26.5 per cent of its initial asset base of Rs 9.79 billion.

Source: Value Research

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