The Hindu Business Line : Fund managers shed optimism, turn cautious

WITH oil prices rising and interest rates showing definite signs of hardening, fund managers are shedding the optimism they had six months ago, to take a cautious view on where markets are likely to head.

Though trends in the equity market in terms of FII inflows continue to be encouraging, most other indicators suggest cautious investing, say experts in the mutual fund industry.

There are likely to be no short-term gains from investing in debt funds. With the current volatility in the interest rates continuing, long-term income funds are expected to significantly outperform short-term funds, according to Mr Nilesh Shah, Chief Information Officer, Prudential ICICI Asset Management Company.

In the current investment environment, hybrid funds and flexible income funds would be the preferred investment options, Mr Shah added.

At a recent seminar on `Investing in uncertain times' organised by Mata Securities India Private Ltd, fund managers maintained that equity investments are the best bet in the long term.

"An analysis of the cumulative annualised return between 1980 and 2004 indicate that investments in gold returned 5.40 per cent, fixed deposits returned 8.40 per cent while equities posted a whopping 16.85 per cent during this period," said Mr S. Naganath, Joint President & Chief Investment Officer, DSP Merrill Lynch Fund Manager Ltd.

Though foreign institutional investors have continued to be net buyers in the Indian market and several of them are maintaining overweight positions on India, fears about the fiscal deficit and political stability continue, Mr Sanjiv Duggal, Director & Chief Investment Officer - HSBC Asset Management (India) Private Ltd said.

Hedge funds are expected to continue their investments in markets that demonstrate quick returns. All markets (debt, equity, bullion, commodities and oil) are going to witness heightened volatility and sharp movements in the future. "Investors are well advised to construct a cautious and well-diversified portfolio across a few products such as debt, equity and gold or silver. This will enable them to hedge against a sharp sell-off in one sector and keep up their returns in the future," said Mr Sameer Kamdar, National Head - Mutual Funds, Mata Securities Ltd.

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