Sucheta Dalal :UTI's bail out transactions It's now up to the Joint Parliamentary Committee to fix responsibility (14 May 2001)
Sucheta Dalal

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UTI's bail out transactions It's now up to the Joint Parliamentary Committee to fix responsibility (14 May, 2001)  

The Securities and Exchange Board of India’s (SEBI) preliminary inspection report is very circumspect in its comments about Unit Trust of India (UTI) but the statistics it has annexed tell a different story.

SEBI says that UTI remained a buyer of Ketan Parekh’s favourite stocks even when other funds were selling these scrips and charges it with entering trades only to “benchmark” prices for the market operator.

The statistics however show that UTI attempted a huge bailout of Ketan Parekh or his favourite companies when the market crashed this March by buying massive quantities of Himachal Futuristic Communications Ltd. (HFCL), Global Telesystems, Zee Telefilms and DSQ Software shares. The pattern of its transactions leading up to the bailout show that UTI may have been inclined to dump these stocks from end-2000 but was either induced or persuaded to change its mind in March.

It was a net seller of HFCL in every month since September 2000 but suddenly picked up 146,000 shares in March  (average price for the month was Rs 439). It has been selling Zee since December, but acquired 8.62 shares in March (average price Rs 127) and it also picked up 1.7 lakh shares of Global Telesystems (average price Rs 259) that month after being a net seller since June last year, barring two months. Finally, it bailed out DSQ Software with a enormous 13.30 lakh share purchase in March after selling 2.5 lakh each in January and February respectively.

The DSQ case is the most outrageous. The scrip, which traded at an average price of Rs 250 this March is down to Rs 90 today, causing a loss of Rs 33 crore in the single month. Why would UTI buy the scrip which every trader in the country knew that the company had diverted over Rs 220 crore to several brokerage firms for stock market speculation at Kolkata? Or that Dinesh Dalmia’s DSQ cheques were bouncing in March and that even Infrastructure Leasing & Financial Services (IL&FS), which UTI chairman P.Subramaniam heads, had initiated action against Dalmia for bounced cheques. Instead of using its enormous clout to keep a check on DSQ, UTI has been bailing out the company and its recalcitrant promoter at the cost of its unit holders.

UTI’s irrational transactions are not restricted to March, its trading activities in these four scrips are questionable all through 2000-01. SEBI’s data would have been far more meaningful and accurate if it had produced a daily/weekly record of UTI’s transactions along with the exact transaction price, but the revelations are still very interesting.

HFCL: UTI held around one crore shares of HFCL at the end of March (15 per cent of its equity). Its average acquisition price would be well over Rs 1000 in the last 20 months, indicating a loss of nearly Rs 800 crore at today’s price of Rs 156 per share. The data also shows that massive sales pressed in particular month (6.2 lakhs shares in August 1999 at Rs 178) were followed up by an immediate repurchase (6.0 lakh shares in September 1999 at Rs 256) in the next, at a much higher price. No fundamental factors could have warranted such churning at a loss to the fund. 

Zee Telefilms: With a holding of 1.5 crore shares, this is certainly UTI’s favourite stock. Except for small sales from December last year, UTI has been a huge buyer of ZEE, at its peak levels for over 20 months. In January 2000 alone it picked up Rs 90 crore worth of stock and continued to be a big net buyer over the next few months even though prices were dropping rapidly. Its highest purchase of 32 lakh shares (Rs 156 crore at around Rs 490 per share) happened in September last year when the price was down to nearly a third of its peak level purchases. As against this, its net sales since December 2000 were paltry. Why was UTI so bullish on ZEE even when prices were tumbling? Was it to keep prices high or does UTI’s research department needs a revamp? The Joint Parliamentary Committee (JPC) which starts its hearing today should seek a few answers.

Global Telesystems: The SEBI report shows that UTI held 43 lakh shares in this March. It was a heavy buyer of the scrip in the Jan to May period 2000, acquiring over 12 lakh shares at an average price of around Rs 1600 but turned bearish since September. From May 2000 to February this year (barring two months) it was a net seller of Global Tele and even sold a huge 1.82 lakh shares in January followed by net sales of 6000 in February. Come March and it suddenly turns aggressive bullish, or bails out Ketan Parekh by acquiring 1.70 lakh shares. Even if UTI were to claim that Global Tele is a good buy at the average March price of Rs 259, the large acquisition when prices were crashing does smack of a bailout. 

DSQ Software: Given the controversy that has always surrounded Dinesh Dalmia’s market operations, UTI’s bullishness about this scrip is itself questionable. Over the last 20 months it made a net acquisition of 23 lakh shares of which 13 lakh were purchased this March at a cost of Rs 33 crore. It was a big buyer in the January-April period last year when software stocks were already taking a beating around the world and its bullishness would have certainly helped in keeping DSQ’s prices high. So aggressive was UTI, that it purchased seven lakh shares in the first four months of 2000 at an average price of over Rs 1500. Its highest purchase was 3.8 lakh shares in March at an average of over Rs 2000. Over 20 months its average cost of DSQ shares would be in the region of Rs 765 (give or take a little because of the monthly average) and the scrip is now down to Rs 90. This means that the Rs 184 crore it spent in acquiring DSQ is now down to a miserable Rs 21 crore.

Surely, UTI has some explaining to do about its market acumen and investment capability. And it must be remembered that this is just a tiny segment of UTI’s operations.

UTI’s investments suggest that changes following the Deepak Parekh committee have had little impact on its operations. It is now up to the JPC to fix responsibility and demand some lasting changes.

-- Sucheta Dalal