The Hindu Business Line : Time to temper expectations, say mutual fund chiefs

THE fundamentals may be in place for a further uptrend in equity markets, but don't expect a repeat of last year: That is the view of the chiefs of some of the leading mutual funds.

Quite a few diversified equity funds have delivered returns in excess of 150 per cent over the past year. But over the next four to five-year period, investors should expect more moderate returns of about 15-20 per cent, say the CEOs of some of the leading mutual fund houses, when queried on what their investors can expect at this juncture.

Mr S.V. Prasad, CEO of Birla Sun Life Mutual Fund, says that retail investors should be looking to book profits on part of their holdings now. "The kind of party we have seen over the past year is not likely to be sustained. Yes, India is now entering a long-term bull phase like the one the US witnessed in 1982. Economic growth is looking good and pension reforms are beginning to happen, which is what really set off the markets in the US. But I think it would be realistic to expect a 18-20 per cent return from equities from now," he said.

In the short term, he sees the possibility of a correction. "There have been a lot of inflows into the equity markets over the past month, in expectation of the January allocations from the FIIs. If these are delayed or do not happen to the expected extent, there could be a correction. Again, the series of big IPOs (initial public offerings) - GAIL, ONGC, TCS and so on, may pick up a significant share of the FII allocations and temper stock prices. The IPOs could also set off re-balancing by institutional investors. Given the size of these IPOs, they could suck out liquidity from the markets," he adds.

His advice to investors is to book profits periodically and invest through systematic investment plans.

Mr Sanjay Prakash, CEO of HSBC Mutual Fund, too, advises investors to temper their expectations. "We expect earnings growth of 15-20 per cent in financial year 2004-05. The fundamentals are in place for good performance from equities. But the equity markets do not give linear returns. They may remain subdued for long periods and give high returns in a short time span. So, investors should have a long investment horizon to tide over the volatility in markets," he feels.

He believes that FII inflows, which were of the order of $3.5 billion in the September-December 2003 quarter, will continue because "the economic outlook is positive, strong GDP growth rates look sustainable. The geo-political risks are now lower than they were in November. And valuations are still attractive for long-term investors."

But he also cautions that a correction may happen, because the markets need to "cool off" from time to time, after the secular bull run of the past few months. In his view, investors need not panic even if the markets do decline by 500-600 points in a correction. "Invest regularly through systematic investment plans, take profits regularly based on your asset allocation plan," is his advice to investors.

His views are echoed by Mr C. Jeyaram, who oversees Kotak Mahindra Mutual Fund. "I think equities would give you a higher return than debt, even from this level. But the challenge is in managing expectations. In January 2003, if you had told an investor he would earn a 15 per cent return, he would have thought that was a great return. But after the kind of run-up we have seen, investors today are looking for much more. I think investors need to have moderate expectations now to realistic levels of 12-15 per cent," he said.

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