The Hindu Business Line : `Market will move at its own pace'

TAKE a good, hard look at all the aspects of the CNX Nifty Junior index and what you will see may surprise you." That sound byte comes courtesy Mr Shyam Bhat, Assistant V-P (Investments), Principal Mutual Fund.

He was referring to a whole lot of things, especially to what he feels are the prospects of the 50 stocks ("the next level") that make up the index. These, in fact, are the most liquid stocks in the market excluded from the better-known and extensively used S&P CNX Nifty.

Excerpts from an interview.

What can drive the market from these levels?

Well, some quarters seem to be waiting for a liquidity-driven rally in the short-to-medium term. As I see it, the market will move at its own pace, irrespective of expectations such as these.

However, the rate of growth may well draw sustenance from a few basics. These are known to all and one may only repeat them. Higher FII flows in the coming months can make a difference to valuations. The monsoons will be here soon and developments on this front will be tracked closely. Generally speaking, the Government's spending on infrastructure can push things forward.

Does this mean that a natural move-forward will not happen?

Investors are not really worried when they consider the fundamentals.

There are a number of positive factors that can impress even the most conservative market participant. Our forex reserves, for instance, are healthy. The upturn in the capex cycle should be treated as a positive. A good GDP growth rate this year is not ruled out for India. The performance of sectors like banking, metals, capital goods and auto are to be watched carefully.

These, as well as a number of others, are expected to provide a fair number of opportunities for the vigilant investor.

What can MF investors expect by way of new schemes?

Commodity-linked products are a possibility. Investors, one hears, are waiting for gold exchange traded funds. That said, the market can expect more innovative schemes in the days ahead.

Fund houses have in the recent past come out with a number of smart options and the trend are likely to carry on.

Principal MF's latest offer is centred around Nifty Junior. What is so special about this index?

Our research indicates that the index has, as on March 31, 2005, outpaced both Nifty and Sensex over the past one, two and three years. Nifty and Nifty Junior are sustained in a way that ensures no replication. No stock appears in both benchmarks simultaneously.

There is a feeling that you are now positioning the international fund a bit differently. Your comments?

No. The fund's investment objective remains unchanged. The regional allocations have also not been tinkered with. It remains suited to those who wish to diversify into global markets and reduce dependence on a portfolio that is chiefly focused on one country, India.

Investors must appreciate that the fund is trying to create a high-quality international portfolio, subject to conditions stipulated by the regulators. We seek to identify stocks that can provide capital appreciation in the long term.

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