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GoM advises UTI against block sale

P Vaidyanathan Iyer & Subhomoy Bhattacharjee in New Delhi

To avoid any adverse impact on the stock markets, the finance ministry has advised the Unit Trust of India to refrain from block sale of equity held by it in blue-chip companies. It has also recommended that UTI should not adopt the strategic sale route because of its political fallout.

According to finance ministry sources, sale of equity by the UTI in its core portfolio should be in small lots. By spacing out the sale of shares in big-ticket companies, UTI will be able to realise good value, too.

"Bulk sale will immediately depress the markets resulting in a lower net asset value of UTI's own schemes including the flagship US-64," a source said.

While the group of ministers, which met last week, did not discuss the issue of strategic sale, officials said for the time being, such sale was ruled out. They said when it is known that UTI is selling, it would lead to a systemic crisis in the stock markets.

The GoM meeting also discussed a concept paper prepared by the Life Insurance Corporation which mooted a joint alliance to take over all the schemes of UTI.

Official sources said no formal decision had yet been taken on LIC proposal.

The ministry has now asked UTI Chairman M Damodaran to prepare a fresh set of proposals on restructuring the mutual fund behemoth. Sources said, finance secretary S Narayan will meet Damodaran early next week to thrash out the nitty-gritties.

The GoM is also scheduled to meet next week to finalise the bail out pattern for UTI along with IFCI's restructuring proposal.

The finance ministry is keeping a watch on the stock market index even as UTI has started selling shares of second-rung companies in small lots.

UTI has also sold its stake in several companies in their buy-back offers. "The markets have not reacted unfavourably to all this," said an official.

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