NATIONAL INVESTMENT (UNIT) TRUST LTD

S.M. ABBAS ZAIDI, S.KAMAL HAYDER KAZMI,
Research Analyst
, PAGE
Nov 03 - 09, 2008

National Investment (Unit) Trust limited Pakistan's largest and oldest Mutual Fund, having approximately 52,000 unit holders. NIT manages the largest fund in the country i.e. National Investment (Unit) Trust with approximately Rs. 85 billion assets under management (39 billion for LOC and 46 billion for Non-LOC funds) and its distribution network comprises of 19 NIT branches, along with various Authorized bank branches all over Pakistan and Arab Emirates Investment Bank (AEIB) in Dubai (UAE). The Trust constituted under the Trust Deed dated 12th November 1962, executed between National Investment Trust Ltd as Management Company and National Banks of Pakistan (NBP) as Trustee. NIT makes saving and investing simple, accessible, and affordable. By investing in NIT, investors will get professional management of funds, diversification, liquidity, low cost, convenience and tax advantage. NIT is very appropriate to investors who wish to diversify and have a long-term Investment horizon. NIT enables the common man to participate in the industrial growth of the country by becoming a part of company. Investors can open an account with a minimum investment of only Rs.5,000 or more at anytime. Investors who invest with a long term holding period stands a very good chance to make capital gain on their investment in addition to the regular annual income. The company has been assigned an asset manager rating of "AM2-" by Pakistan Credit Rating Agency (PACRA), which denotes strong capacity to manage the risks inherent in asset management and the asset manager meets high investment management industry standards and benchmarks. All Investment decisions are taken by the Investment committee of NITL.

FIVE YEARS FUND PERFORMANCE

YEARS

NIT

KSE 100 INDEX

DPU (RS.)

FY04

60.7%

55.3

2.55

FY05

35.7%

41.1

3.30

FY06

28.2%

34.1

5.80

FY07

44.8%

37.9

6.20

FY08

-6.4%

-10.8

6.50

Source: NIT


NIT FUND PERFORMANCE

INDICATORS

FY07-08

FY07-06

Beginning Net Assets (Rs in bn)

100.963

72.955

Beginning NAV /unit (Rs) (Ex Div)

56.18

43.07

Ending Net Assets (Rs in bn)

84.854

100.963

Ending NAV/unit (Rs.)

52.58

62.38

Cash Distribution (Rs.) per unit

6.50

6.20

Dividend Yield (%)

11.57

14.40

Capital Growth (%)

(17.98)

30.44

Total Return (%)

(6.41)

44.83

Maximum Funds under management during the year (Rs. in bn)

104.142

100.963

Source: NIT

FINANCIAL PERFORMANCE OF NITL

During this year, KSE reflected very volatile performance through out the year. Extraordinary fluctuation in the stock market is mainly attributable to different political and economic events which took place during this year. KSE 100 index touched the all time high day end level on April this year but after sharp decline, it closed just above twelve thousand on June 30, 2008. During the year, NIT Fund also grew sizably and touched at its highest ever level of Rs.105.930 billion. The fund displayed much lesser volatility on the strength of its balanced and diversified portfolio. It has outperformed the benchmark of KSE 100 Index by a good margin of 4.4% where Net Asset Value (NAV) of NIT unit declined by 6.4% from Rs. 56.18 as on June 30, 2007 i.e. previous dividend to Rs.52.58 on June 30, 2008 against a decline of 10.8% in KSE-100 index during the same period. NIT has once again showed success with an improved record and declared the ever highest dividend of Rs.6.50 per unit for its unit holders for the year ended on June 30, 2008.

FINANCIAL PERFORMANCE OF NITL

( Rs Million)

INDICATORS

FY2008

FY 2007

CHANGE (%)

Net Income

4,016

19,812

(79.7)%

Capital Gains

929

16,818

(94.4)%

Dividend Income

3,345

3,082

8.53%

Unit holders' Funds

84,854

100,963

(15.9)%

NAV (Rs per Unit)

52.58

62.38

(15.7)%

Earnings Per Unit (Rs)

2.49

12.24

(79.7)%

TRANSACTIONS IN SHARES

Purchases

11,531

46,468

(75.2)%

Sales

6,940

57,488

(87.9) %

Gross Sales of Units (excl. CIP)

18,364

11,587

58.4%

Source: NIT

The Net income of the Fund during year ended 30 June 2008 stood at Rs.4, 016 million which translates into earnings per unit of Rs. 2.49. Net income of Rs.19, 812 million earned by the fund during FY07 included sizeable capital gains mainly attributable to rightsizing of Portfolios and block deals of NIT's holding in few major stocks. NIT follows the policy, on consistent basis, where all the sales and purchases are delivery based and NIT does not sell its stocks in the falling market. NIT has utilized the un-appropriated profit carried forward to the extent of shortfall. Although it could not match earnings of FY07, however, it was mainly attributed to the capital gain arising from the block deals of NIT's holding in Lakson Tobacco, PICIC & Prime Bank and the gains realized through rightsizing of portfolio which contributed Rs.11, 070 million. NIT proposed to go for a phased redemption which was approved by the Government of Pakistan (GOP) in December FY07. The redemptions which amounted to Rs.4,803 million being 10% of unit holdings of four banks covered under Letter of Comfort (LOC) issued by GoP out of the LOC holders' fund were facilitated from the funds generated for this purpose. The growing confidence of investors on NIT led to ever highest sales aggregating Rs.21,749 million. High value of sales and repurchases of units contributed Rs.357 million towards income on sale and repurchase as against Rs.175 million. NIT's weighted average borrowing rate for the year was 11.55% per annum as compared to the weighted average placement rate of 8.95% per annum.

SECTOR WISE BREAK DOWN OF EQUITY PORTFOLIO FY07-08

INDICATORS

PERCENTAGE

Fuel and energy

30

Financial services

20

Pharmaceutical and chemical

15

Others

12

Cable and Electric goods

5

Paper and board

4

Textile

4

Engineering

4

Cement

3

Automobile & allied

3

Source: NIT


TOP TEN HOLDINGS OF NIT'S PORTFOLIO AS ON 30 JUNE 2008

S. NO.

COMPANY

MARKET VALUE

% OF PORTFOLIO

1

Pakistan State Oil

11,317

13.36

2

Fauji Fertilizer Company Ltd.

5,867

6.93

3

Bank Al Habib Ltd.

3,545

4.18

4

Habib Metropolitan Bank

3,377

3.99

5

Siemens (Pakistan) Engineering

2,799

3.30

6

National Refinery Ltd

2,543

3.00

7

Soneri Bank Ltd.

2,398

2.83

8

Packages Ltd.

2,296

2.71

9

International Ind.

2,195

2.59

10

Glaxosmithkline

2,151

2.54

Source: NIT

CURRENT SITUATION

During the current financial year the economic situation of Pakistan has gone bad to worse. The board of KSE members has recently announced to keep the floor mechanism in place, which was put in place on August 27 in a bid to save the investors and members from the expected default, owing to the continued recession and crisis in the share market. The Karachi Stock Exchange imposed the floor at 9,144 points on August 28, after a 36% fall from the beginning of the year. The floor mechanism, which was to expire October 27, now will last until the government promised funds and put option mechanics are finalized. The exchange board said on Oct 14 the floor would be removed on Oct 27.

However, an extraordinary meeting between the KSE board and the Govt will be held soon. The idea is that the further extension on floor mechanism will give enough time for the state enterprise fund, National Investment Trust (NIT) (entrusted with organizing the newly market stabilization fund) to arrange needed funds mainly to execute bailout programme plan to buy up toxic outstanding shares in the CFS market and those pledged with the banks. So far the government is looking towards NIT to fulfill the necessary injection of substantial funds in the share market and additional risk management of leverage products to counter the expected financial turmoil after the removal of floor. So far the NIT with the help of the technicalities of the put option guarantee to the foreign investors and the newly announced fund of Rs20 billion still requires additional time for implementation. Therefore, in the present situation, the KSE board decided that the floor mechanism should remain in place until the government funds and put option mechanics are finalized.

SECTOR WISE BREAK DOWN OF EQUITY PORTFOLIO IN SEP 2008

INDICATORS

PERCENTAGE

Financials

21

Oil and gas market

20

Cable and engineering

9

Pharmaceutical and chemical

8

Fertilizer

8

Refinery and power

7

Others

7

Textile

5

Food and sugar

5

Automobile

3

Cement

3

Paper and board

3

Transport and technology

1

Source: NIT

CONCLUSION:

National Investment Trust (NIT) has declared the highest ever dividend of Rs 6.50 per unit for its unit holders for the financial year 2007-08. Despite the volatilities and huge decline in stock index, NIT remained adhered to its policy of not selling in the falling market. NIT has been generating activities in the market with the view to pick value stocks and at the same time to support the market through its operations. With, the rising inflation, higher interest rates, rising input costs and difficult international macro economic outlook are difficult issues for the country. Going forward, we expect a balanced approach from this government in tackling the macro economic challenges it faces. Right now the Govt is looking towards NIT to provide enough funds to remove the floor of Karachi Stock Exchange as NIT has announced a new fund worth Rs 20 billion which can also help the foreign investment but it needs some time for the implementation. Nit however, is strongly geared to meet any new challenge and with its business strategy and professional team. The last five years have proved that NIT without any doubt has made a very strong position in the market. Therefore, we can expect NIT to continue and play a dominating role in promoting a broad based participation in the country's equity markets in the coming few days. It is believed that NIT will provide superior returns to its unit holders in future as well.