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Kelkar's visit prods UTI to moot several measures to shape up

In a move to shore up market sentiment and confidence of retail investors, the Unit Trust of India is trying to convince the ministry of finance into accepting its proposal to increase the repurchase value of its units.

Other moves in this direction include maintaining a 20 per cent dividend for the ongoing fiscal and making the income on UTI units tax-free.

It was only on October 1 that the UTI had announced an increase of 15 paise on its repurchase and resale value from Rs 14.10 to Rs 14.25 and from Rs 14.40 to Rs 14.55 respectively, after it faced a major crisis over distribution of 20 per cent dividend from retained earnings.

It is learnt that during Finance Secretary Vijay Kelkar's meeting last week with the UTI top brass, stress was laid on reducing the importance of foreign institutional investors on the stockmarkets and encourage domestic financial institutions like the Industrial Development Bank of India, State Bank of India and Bank of Baroda to prop up the stock markets.

Market analysts said the sentiment has improved after Kelkar's visit and there is a sharp possibility that domestic FIs and banks will enter the markets. Today, the Bombay Stock Exchange reported significant uptrend with Sensex soaring by over 100 points.

It is believed that the domestic FIs will soon emulate the UTI which has been on a selective shopping spree in the stock market.

Industrial Development Bank of India alone can pump in a massive Rs 10 billion of its outstanding corpus into the market.

Even State Bank of India has decided to purchase US-64 units to the tune of Rs 1 billion. ''It is our routine practice to invest in US-64 units. Keeping track of our liquidity positions, we invest commensurately in the scheme. Very soon we will invest some more money in the US-64 scheme,'' SBI chairman M S Verma said.

Bank of Baroda too is exploring the possibility of investing in US-64 scheme to the tune of Rs 600 to Rs 700 million. The only advantage of this scheme, the bankers feel, is that it is open-ended, making the entry and exit hassle-free so that investors can encash their units at will.

Verma expressed confidence in the US-64 scheme and added that there is no need for the investors to panic as the UTI is till confident of disbursing a dividend of 20 per cent during the current fiscal. Add to this the proposal to make the income from this scheme tax-free and it sounds like a sure recipe for the investors to throng back to the UTI in droves.

Compiled from the Indian media by Prasanna D Zore