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Monday, Jan 21, 2002

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Fund managers' fact-sheets for 2002

Nilanjan Dey

HOW will 2002 shape up? That's the big question before mutual funds, a question that all fund managers are trying to answer in various ways. A summary of their statements, as reflected in fund fact-sheets, can help us grasp these viewpoints better.

First, the negative factors affecting the equity market, beginning with matters concerning India. As everyone knows, the domestic economy is still in the middle of a slowdown, which has adversely affected the stock market. The fiscal situation continues to be weak, and targets are not likely to be met.

On the international front, fiscal problems in Argentina have already made headline news. There is a general depreciation in emerging market currencies. The US economy is in recession, marked as it is by lower corporate earnings. There is increased violence in the Middle East, an escalation of which can upset oil prices.

And, on the positive side, reforms are happening in critical areas. India, where valuations are low, remains an attractive destination for global investors. There are chances that retail investors will come back and the market will see more long-term investing.

It is still too early to say whether the IT sector — as in the past — will lead the stock market to recovery. If that happens this time round as well, tech funds can still salvage some of their lost ground. Fund managers will keep an eye for such indications as inflows of large orders for Indian IT majors.

If that is the equity story, where does that leave debt and debt funds?

Here is a list of factors that will affect their performance in 2002: Poor credit demand from the industrial sector, declining interest rates, inflation, concerns over the rupee, foreign exchange reserves situation and, of course, the overall credit policy defined by the RBI.

Fund managers do not believe that interest rates will be under pressure in the days ahead. Fiscal deficit, they also feel, will exceed targeted levels. And the market will have to live with relatively high returns on savings instruments such as relief bonds.

The favourable liquidity position could well be the saving grace for debt funds. Bank deposits are on a high, and MFs are looking at tapping some of this stockpile to increase their asset base.

And, on the new launch front, there are indications that the next few months will continue to see new fixed-duration schemes, including one from Kotak Mahindra MF. The latter has sent its offer document to SEBI for approval.

Some MFs also believe there is increased scope for index funds in India. UTI, for one, can come up with a few innovative products.

Meanwhile, as transaction trends for the month (up to January 17) suggest, gross purchases of equity are less than gross sales by Rs 487.05 crore. However, gross purchases of debt are more than gross sales by Rs 1,380.59 crore.

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