CONTRA CONCEPT 3 CONTRA AS A CONCEPT

2

CONTRA CONCEPTCONTRA CONCEPT

3

CONTRA AS A CONCEPTCONTRA AS A CONCEPT

Invests in stocks / sectors that are currently

“OUT of FAVOUR”

But

• Fundamentally strong

• With strong & transparent managements

• Having significant / sustainable competitive advantages

• Having good long term earnings potential, and

• Improving operating parameters

4

HOW CONTRARIANS FUNCTIONHOW CONTRARIANS FUNCTION

Take advantages of prolonged under-valuation /

out-of-favour stocks.

Book profits in over-valued / over-owned stocks.

Move away from the herd and wait to be

followed; if the stocks are fundamentally strong

surely there will be followers.

Continuous Efforts to Identify Investment Avenues By Thinking & Acting Differently

5

VALIDATING CONTRA AS A VALIDATING CONTRA AS A

CONCEPTCONCEPT

6

VALIDATION OF THE CONCEPTVALIDATION OF THE CONCEPT

Concept validated for BSE 100 companies

• Tracked the Avg. Annual Returns of the worst

performing 12 stocks of a particular year over next

2/3 years for EACH of last 12 years.

Example :

• Under-performers of CY 1992 monitored over CY 1993-

94 ( 2 year returns) & CY 1993-95 (3 year returns).

7

CONTRA OUT-PERFORMS IN 2 YEARSCONTRA OUT-PERFORMS IN 2 YEARS

Strong Stocks get beaten down ...

(80.0)

(30.0)

20.0

70.0

120.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Worst Performing Stocks

Subsequently Bounce Back

(80.0)

(30.0)

20.0

70.0

120.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Worst Performing Stocks Next 2 Year returns

And Beat Markets Mostly...

(80.0)

(30.0)

20.0

70.0

120.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Worst Performing Stocks Next 2 Year Returns Next 2 Year BSE 100 Returns

8

SUMMARISING… AVERAGE ANNUAL RETURNS SUMMARISING… AVERAGE ANNUAL RETURNS FOR TWO YEARSFOR TWO YEARS

Minimum TWO Year View Is Critical to Benefit Suitably.

Under-performers of CY

Contra BSE 100 OP / (UP)

1992 43 26 17 1993 19 (4) 23 1994 (21) (14) (7) 1995 14 6 8 1996 17 1 16 1997 78 39 38 1998 20 35 (16) 1999 (2) (23) 21 2000 14 (8) 23 2001 129 46 83 2002 56 51 5 2003 34 27 6

Average 33 15 18

2 Year Avg. Annual Returns

9

GETS EVEN BETTER IN 3 YEARSGETS EVEN BETTER IN 3 YEARS

Those Same Stocks Appreciate More in 3 Years ...

(80.0)

(30.0)

20.0

70.0

120.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Worst Performing Stocks Next 3 Year returns

And Outperformance I ncreases

(80.0)

(30.0)

20.0

70.0

120.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Worst Performing Stocks Next 3 Year Returns Next 3 Year BSE 100 Returns

10

SUMMARISING… FOR THREE YEAR FORWARD SUMMARISING… FOR THREE YEAR FORWARD RETURNSRETURNS

Works Year after Year

Under-performers of CY

Contra BSE 100 OP / (UP)

1992 20 10 11 1993 12 (4) 16 1994 (5) (4) (1) 1995 25 (1) 26 1996 107 31 76 1997 41 19 22 1998 9 16 (7) 1999 16 (13) 29 2000 67 23 45 2001 152 36 116 2002 46 47 (1) 2003

Average 44 14 30

3 Year Avg. Annual Returns

11

HISTORY SAYS … CONTRA PAYS HISTORY SAYS … CONTRA PAYS

In All Scenarios

• Across time - frames.

• Across economic conditions.

• Across market phases

• Across sectors.

Longer investment horizon fetches better returns

Contra BSE 100 OP /(UP)

2 Year Horizon 33 15 18 3 Year Horizon 44 14 30

12

UTI CONTRA FUNDUTI CONTRA FUND

- A NEW FUND OFFER FROM- A NEW FUND OFFER FROM

UTI MFUTI MF

13


Diversified Equity Fund.

Active Management Style.

Invests in “Out of Favour”, fundamentally strong

stocks.

Take advantage of behavioral and emotional

patterns present in the equity markets

14

UTI CONTRA FUND: FOCUSSED APPROACHUTI CONTRA FUND: FOCUSSED APPROACH

Three-Pronged Investment Strategy.

Segments Based Strategy

Companies Based Strategy.

Cyclical-Sector Based Strategy.

15

UTI CONTRA FUND : SEGMENT BASED UTI CONTRA FUND : SEGMENT BASED STRATEGYSTRATEGY

Invest in Fundamentally strong Segments

with

• Strong & viable business models.

• Currently neglected.

• Critical to economic growth.

16


A CASE STUDYA CASE STUDY

Capital Goods and Auto (Period 1996-2005)

• Neglected during 1996-2001

• Strong Long Term Potential

• Low levels of Automobile penetration &

• Large potential for infrastructure development

Indian Pharmaceuticals

• Favoured sector of the late 90’s

17


Featured Companies:

Capital Goods : L&T, BHEL, Siemens Auto: Tata, A.Leyland, M&M Pharma: Ranbaxy, Dr.Reddy, Cipla

CONTRA CALL: Switch from Pharma to Auto & Capital Goods

Underperformance of

Capital Goods & Auto -

4 Wheelers Over 1995

to 2001.

0

100

200

300

400

500

600

700

800

900

Jan-9

6

Apr-

96

Jul-96

Oct-

96

Jan-9

7

Apr-

97

Jul-97

Oct-

97

Jan-9

8

Apr-

98

Jul-98

Oct-

98

Jan-9

9

Apr-

99

Jul-99

Oct-

99

Jan-0

0

Apr-

00

Jul-00

Oct-

00

Jan-0

1

capital goods indian pharma Auto - 4 Wheelers

18


0

200

400

600

800

1000

1200

1400

1600

1800

Feb-0

1

May-0

1

Aug-0

1

Nov-0

1

Feb-0

2

May-0

2

Aug-0

2

Nov-0

2

Feb-0

3

May-0

3

Aug-0

3

Nov-0

3

Feb-0

4

May-0

4

Aug-0

4

Nov-0

4

Feb-0

5

May-0

5

Aug-0

5

Nov-0

5

capital goods indian pharma Auto - 4 Wheelers

Capital Goods & Auto - 4 Wheelers leaves

Pharma far behind over 2001-2005.

19

UTI CONTRA FUND : STOCK BASED STRATEGY UTI CONTRA FUND : STOCK BASED STRATEGY

Invest in fundamentally strong Companies

• Currently out of favor due to short term reasons.

• Have the potential to bounce back.

• Strong management.

20

UTI CONTRA FUND : STOCK BASED STRATEGYUTI CONTRA FUND : STOCK BASED STRATEGY

Downturn in Commercial Vehicle business &

concerns regarding foray into Car business led to

Company X UNDERPERFORMANCE for

5 Years : A great OPPORTUNITY for a

Contrarion !!

A Great Payoff : Company X has been

one of the biggest OUTPERFORMER in the next 5 Years.

0

20

40

60

80

100

120

140

160

180

Jul-9

6

Oct

-96

Jan-

97

Apr

-97

Jul-9

7

Oct

-97

Jan-

98

Apr

-98

Jul-9

8

Oct

-98

Jan-

99

Apr

-99

Jul-9

9

Oct

-99

Jan-

00

Co. X Sensex

0

100

200

300

400

500

600

Mar

-00

Sep

-00

Mar

-01

Sep

-01

Mar

-02

Sep

-02

Mar

-03

Sep

-03

Mar

-04

Sep

-04

Mar

-05

Sep

-05

Co. X Sensex

A CASE A CASE STUDYSTUDY

A Leading 4 Wheeler Company

21

UTI CONTRA FUND : STOCK BASED STRATEGYUTI CONTRA FUND : STOCK BASED STRATEGY

Company Y, in spite of

being a great 2 Wheeler

company bore the brunt in

98-99 presenting a fabulous

Contra - Entry.

… Since then

Company Y continues

to dazzle

0

40

80

120

160

200

240

Aug

-98

Oct

-98

Dec

-98

Feb

-99

Apr

-99

Jun-

99

Aug

-99

Oct

-99

Dec

-99

Company Y Sensex

0

100

200

300

400

500

600

700

800

Mar

-00

Sep

-00

Mar

-01

Sep

-01

Mar

-02

Sep

-02

Mar

-03

Sep

-03

Mar

-04

Sep

-04

Mar

-05

Sep

-05

Company Y Sensex

A CASE A CASE STUDYSTUDY

A Leading 2 Wheeler Company

22

UTI CONTRA FUND : CYCLICAL-SECTOR BASED UTI CONTRA FUND : CYCLICAL-SECTOR BASED STRATEGYSTRATEGY

Invest before cycle upturns

• Indian Market has adequate exposure to Cyclical

sectors.

• Invest during cycle downturns.

• Significant outperformance during Trend

Reversals.

• Exposures to select companies which are strong

enough to withstand Cyclical pressures.

23


Long Period of Underperformance during Global Metal

Downturn

… Back with a bang with the hint of the

Cycle Upturn.

0

50

100

150

200

Jan-9

5

May-9

5

Sep-9

5

Jan-9

6

May-9

6

Sep-9

6

Jan-9

7

May-9

7

Sep-9

7

Jan-9

8

May-9

8

Sep-9

8

Jan-9

9

May-9

9

Sep-9

9

Jan-0

0

Steel Sensex

0

100

200

300

400

500

600

Feb-0

0

Jun-0

0

Oct-

00

Feb-0

1

Jun-0

1

Oct-

01

Feb-0

2

Jun-0

2

Oct-

02

Feb-0

3

Jun-0

3

Oct-

03

Feb-0

4

Jun-0

4

Oct-

04

Feb-0

5

Steel Sensex

A CASE STUDY : STEEL A CASE STUDY : STEEL SECTORSECTOR

24


Completely Out of Favor for 2 years...

… Sweet-heart of the day.

0

500

1000

1500

2000

2500

3000

Feb

-00

Aug

-00

Feb

-01

Aug

-01

Feb

-02

Aug

-02

Feb

-03

Aug

-03

Feb

-04

Aug

-04

Feb

-05

Aug

-05

Sugar Sensex

020406080

100120140160

May-9

8

Jul-98

Sep-9

8

Nov-9

8

Jan-9

9

Mar-

99

May-9

9

Jul-99

Sep-9

9

Nov-9

9

Jan-0

0

Sugar Sensex

A CASE STUDY : SUGAR A CASE STUDY : SUGAR SECTORSECTOR

25


MINIMISING RISK WITHOUT MINIMISING RISK WITHOUT

COMPROMISING RETURNSCOMPROMISING RETURNS

As UTI CONTRA FUND invests in already beaten

down stocks, downside is minimised.

26

HOW UTI CONTRA FUND HAS LOWER HOW UTI CONTRA FUND HAS LOWER DOWNSIDE RISKDOWNSIDE RISK

Undervaluation / Under-ownership implies

Worst of fears already factored in

Relative insulation to negative market triggers

Ensures

Relative downside protection

Multiplier effect of positive newsflows

However

Returns may take a little longer time to unfold

27

CONTRA INVESTMENT THEME : CONTRA INVESTMENT THEME : NOT A DO-IT-YOURSELF KITNOT A DO-IT-YOURSELF KIT

Sole Underperformance is not an exhaustive

criteria.

Thorough screening of Management Quality &

Business Model a must to stay away from Junk

Companies.

One has to be definitive regarding the “Discovery

Triggers” of the Contra opportunities.

UTI MF placed well with a strong in-house

research and risk team.Professional Fund Management Expertise Is Required

Extensively.

28

WHY DUE-DILIGENCE IS IN-DISPENSABLE : WHY DUE-DILIGENCE IS IN-DISPENSABLE : EXAMPLEEXAMPLE

Actual Graph of Two Flashy Stocks Which Never Bounced Back. TWO of MANY !!!

-

50

100

150

200

250

May-0

0

Aug-0

0

Nov-0

0

Feb-0

1

May-0

1

Aug-0

1

Nov-0

1

Feb-0

2

May-0

2

Aug-0

2

Nov-0

2

Feb-0

3

May-0

3

Aug-0

3

Nov-0

3

Feb-0

4

May-0

4

Aug-0

4

Nov-0

4

Feb-0

5

May-0

5

Aug-0

5

Nov-0

5

Sensex Stock A Stock B

29

UTI CONTRA FUND : SUMMARISINGUTI CONTRA FUND : SUMMARISING


• Will think & act differently

By investing in Out of Favour stocks.

• But will NOT ignore the fundamentals

• Will have lower downside risk

30

UTI MUTUAL FUND : LEADING ALL THE WAYUTI MUTUAL FUND : LEADING ALL THE WAY

Largest MF in the Country with AUM of About Rs. 25,416

crores (as on Jan 31, 2006)

Equity AUM of approx. Rs 12,721 crores

Fresh Collection of Rs 2080 cr in the UTI Leadership Fund

• From more than 3.5 lakh applications

56 Domestic Funds, 5 Offshore Funds

30 Equity, 24 Debt and 2 Balanced Domestic Funds

Systematic & Disciplined approach to investing

Dedicated Equity Research Cell to assist Fund Managers

Comprehensive risk management practices

31


FEATURES & NFO DETAILSFEATURES & NFO DETAILS

32

UTI CONTRA FUND: SCHEME FEATURESUTI CONTRA FUND: SCHEME FEATURES

Type of Scheme :

An Open Ended Equity Oriented Scheme

Investment Objective:• To provide long-term capital appreciation by investing in

Equity Markets• To adopt a Contrarian Approach

• Look for Out of Favour Stocks• Look for Under-Valued Stocks because of Emotional & Behavioural

patterns in the Stock Market

Options Available • Growth Option• Dividend Option (with Payout / Reinvestment facilities)

33

UTI CONTRA FUND : SCHEME FEATURESUTI CONTRA FUND : SCHEME FEATURES

Portfolio of the fund would be focussed

• Maximum Number of stocks: 50

• Minimum 80% of Equity exposure

• Benchmark : S& P CNX Nifty.

Asset Allocation:

INSTRUMENT % of Net AssetsEquity & Equity Related Instruments based on Contrarian Strategy 80- 100%Debt & Money Market Instruments 0-20%

34

UTI CONTRA FUND : SCHEME DETAILSUTI CONTRA FUND : SCHEME DETAILS

Purchase and Redemption Price

• During the NFO, the units of the fund will be sold at Rs. 10 plus

Load applicable.

• Continuous purchase and redemption of units at NAV based prices

on an ongoing basis from 20th April 2006.

Investment Amount

• Minimum initial investment is Rs. 5000/-.

• Additional investments in multiples of Rs. 1

Facilities Available : • Systematic Investment Plan (SIP) and

• Automatic Trigger facilities ( after scheme re-opens for continuous purchase & redemption)

35

UTI CONTRA FUND : SCHEME DETAILS UTI CONTRA FUND : SCHEME DETAILS

Load Structure during NFOLoad Structure during NFO

Application Size/Type Entry Load (% of NAV) Exit Load (% of NAV)

< Rs. 2 Crore 2.25% Nil

=> Rs. 2 Crore NIL0.5% If Exited within 6

months from the date of allotment

Systematic Investment Plan (SIP)

NIL2.25% if withdrawn within 2 years from the date of each instalment

36


New Fund Offer Opens on : 22nd February 2006

New Fund Offer Closes on: 22nd March 2006

Scheme Re-opens for continuous purchase & redemption on : 20th April 2006

37

RISK FACTORSRISK FACTORS

All investments in Mutual Funds and securities are subject to market risk and the NAV of the Funds may go up or down depending on the factors & forces affecting the securities market. Past performance of the Sponsor/Mutual Fund/ Scheme(s)/AMC is not necessarily indicative of the future results. UTI Contra Fund is just the name of the scheme and does not in any manner indicate the quality of the scheme, its future prospects or returns. The scheme is subjected to the risks relating to interest rate, liquidity, securities lending, investment in overseas market, trading in equity and debt derivatives. There may be instances where no income distribution could be made. Please read the Offer Document carefully and do consult your financial advisor before investing.

38

INVEST IN UTI CONTRA FUNDINVEST IN UTI CONTRA FUND

NFO CLOSES : 22 MARCH, 2006

39

INDIAN EQUITY MARKETSINDIAN EQUITY MARKETS

40

WHAT MAKES INDIAN EQUITY MARKETS WHAT MAKES INDIAN EQUITY MARKETS ATTRACTIVEATTRACTIVE

Fast & sustainable economic growth driven by• Demographic changes and Income growth

• Unfolding potential for Consumption

• Focus on Infrastructure spending

• Health of Corporate India getting better

Valuations are not expensive by historic

standards

• Previous peaks at much higher market P/Es

41

INDIA GETTING YOUNGER AND RICHERINDIA GETTING YOUNGER AND RICHER

Explosive effect of rising Per capita Income: Currently at ~USD 750

Historically, at 1% growth, PCI doubled in a life time

At current 4% growth, PCI will reach ~USD 1000 in ~8 years

PCI of top 20% of population (>200mn people) is growing at 9% - doubling in 8 years

Young and richer India has huge implication in terms of multiplier effect on consumption and economic growth

0

400

800

1,200

2001 2016

0 to 14 yrs 15 to 59 yrs 60 yrs & above

Total 1,027m

Total 1,268mOverall

growth 23%

Segment growth 36%

Fast growing consumer class

598m

811m

Source : planning commission of India

Increasing consuming group

42

ECONOMIC GROWTH LED BY CONSUMPTIONECONOMIC GROWTH LED BY CONSUMPTION

13

2636

58

8

0

20

40

60

India Thailand Malaysia Taiwan Korea

(%)

9 13 17

37

40

20

40

60

India Thailand Korea Malaysia Taiwan

(%)

2.8 9.8

82.4

0.4

121.9

0

40

80

120

160

India Thailand Malaysia Taiwan Korea

(%)

816 17

41

40

20

40

60

India Thailand Taiwan Malaysia Korea

(%)

Indian economy is domestically driven economy (85% from dom. Mkt.) unlike emerging markets which are linked to export growth

Consumer loans/ GDPMortgages/ GDP

Credit cards/ GDP Other retail loans/ GDP

Source : RBI, Var brokerage house

43

INFRASTRUCTURE SPENDING ON ANVILINFRASTRUCTURE SPENDING ON ANVIL

0

500

1000

1500

2000

Road

s

Pow

er

Saga

rmal

a

Urb

an inf

ra

Pipel

ines

Railw

ays

Port

s

Airp

orts

SEZ

Wat

er

Rs bn

Infrastructure investments – the key driver to feed the imminent capex boom and drive industrial growth to double digit

44

CORPORATE INDIA GETTING HEALTHIERCORPORATE INDIA GETTING HEALTHIER

Peak Rate of Custom Duty: Operating in a Competitive environment

0

2 0

4 0

6 0

8 0

1 0 0

1 2 0

1 4 0

1993

1995

1997

1999

2001

2003

2005

( % )

Growing Profitability

0

10

20

30

40

50

1997

1998

1999

2000

2001

2002

2003

2004

2005

(%)

Sales PBITEfficiently managed: Working Capital/ Sales

1 5

2 0

2 5

3 0

3 5

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

( % )Healthy balance sheets

0 . 0

0 . 4

0 . 8

1 . 2

1 . 6

2 . 0

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

( % )

D e b t/ E q u ity* P u b lic s e c to r P r iva te S e c to r

Source : CMIE

45

LIQUIDITY FLOWS TO EQUITIESLIQUIDITY FLOWS TO EQUITIES

Why FII interest is sustainable• Highest global economic growth rates

• Domestically driven economy provides a hedge

• Own economies at saturation point in economic cycle

Why domestic money flow to equities• Low returns of alternative investments

• Tax issues

• Low historic exposure to equities

46

INDIA AMONGST THE FASTEST GROWING INDIA AMONGST THE FASTEST GROWING ECONOMIESECONOMIES

Growth has been accelerating in each decadeIndustry + services (78% of GDP) growing @ +8%Impact of agriculture on overall growth is steadily reducing Per capita income has grown by 7% CAGR over the past decade and is projected to cross $1,000 by the end of the decade

8.6

6.25.0 5.0 4.8 4.6 4.2

3.5 3.1 2.8

0

3

6

9

12

Chi

na

Indi

a

Mal

ay

Kor

ea

Sin

g

Taiw

an Phil

HK

Thai

Indo

10 year real GDP cagr (%)

46 39 31 25 22

16 2022 27 27

38 41 47 48 51

0

20

40

60

80

100

120

FY-71 FY-81 FY-91 FY-01 FY-04Agriculture Industry Services

Rapidly changing composition of GDP (%)

Source: Var Brokerge housess

47

LOW EQUITY EXPOSURE IN DOMESTIC SAVINGSLOW EQUITY EXPOSURE IN DOMESTIC SAVINGS

Low level of Local Investment

8.8 6.3 9.7 8.9 10.5 9.2

36.3 40.9

12.315.7 17.9 17.4

20.2

34.9 32.9 30.3 31.1 27.6 26.3

11.0

39.439.4 41.641.039.0

14.024.0

1.10.11.72.74.17.73.0

34.0

0%

20%

40%

60%

80%

100%

1999 2000 2001 2002 2003 2004 2005

Contractual Savings (Provident and Pension Funds)Investment in Shares and DebenturesClaims On GovernmentsDepositsCurrency

Source : Var Brokerage Houses

48

EQUITY MARKETS IN PHASES OF SUSTAINABLE EQUITY MARKETS IN PHASES OF SUSTAINABLE GROWTH RATESGROWTH RATES

During periods of strong economic growth, equity

markets perform strongly

Two prominent cases

Domestic investment led growth in the US A (1948-1964)

Export led growth in Japan (1970-1985)

ECONOMIC GROWTH & LIQUIDITY FLOWS EXPECTED TO SUSTAIN INDIAN EQUITY MARKET

OUTPERFORMANCE

49

USA (Dow Jones Industrial Index)

120

220

320

420

520

620

720

820

920Jan-4

8

Jan-5

0

Jan-5

2

Jan-5

4

Jan-5

6

Jan-5

8

Jan-6

0

Jan-6

2

Jan-6

4

Dow Jones performanceDow Jones performance

50

Japan (Nikkei)

0

5000

10000

15000

20000

25000

30000

35000Jan-7

0

Jan-7

2

Jan-7

4

Jan-7

6

Jan-7

8

Jan-8

0

Jan-8

2

Jan-8

4

Jan-8

6

Jan-8

8

Nikkei performanceNikkei performance

CONTRA CONCEPT 3 CONTRA AS A CONCEPT

Economy & Finance

Transcript of CONTRA CONCEPT 3 CONTRA AS A CONCEPT