The Hindu Business Line : Meltdown forces fund managers to think different

Funds' take
Existing investments in participatory notes have not shown any sign of withdrawal
`Retail investors are possibly the hardest to convince, especially when such uncertainty is evident'

Kolkata , May 16

Divergent approaches of fund managers, both overseas and local, are emerging after Monday's impact of a metal melt on Indian equities.

The momentum players, in both the investor categories, are pumping out money, said a Mumbai-based manager of an overseas fund. "A period of churning, new finds and entries may dominate in the next few days. But, despite a shake-out as an asset class, the value of Indian equities may not dip for long-term players," he added.

Indications from the India-registered overseas fund circles suggest that a complete exit by some foreign players is very unlikely. On the contrary, some seasoned or new entrants have decided to use the present opportunity for increasing their ownership.

Incidentally, existing investments in participatory notes, which arguably constitute around 50 per cent of overseas investments in the local stocks, have not shown any sign of withdrawal.

The chief investment officer of a Dubai-based equity firm told Business Line over phone that a large part of these investments through p-notes are by NRIs. "This crowd seems to be firm on holding on to the India story," he added.

Local AMCs, on the other hand, are generally seeing the latest trend as a buying opportunity, albeit cautiously. The market has, as a senior fund manager says, in these days are more liable to display "signs of nervousness," which prudent investment professionals should capitalise on.

"This has been a market for stock pickers," said Mr N. K. Garg, CIO, Sahara MF, adding that stock picking too should not be done in an unbridled fashion. Equity funds, he said, need to tread the current volatile terrain with a certain degree of caution and not exhaust their cash positions, if any, quickly.

For those involved in marketing equity products, the latest scenario may not be quite comfortable, it is felt. This is particularly true in the case of retail investors, who are seen as extremely cagey. "Retail investors are possibly the hardest to convince, especially when such uncertainty is evident," said Mr Waqar Naqvi, head of institutional sales at Birla MF. Wholesale participants, however, are more likely to see the situation in a different manner, he said.

Fund houses are aware that some investors would at this stage want them to display a greater level of vigilance. Not many of them, nevertheless, are necessarily willing to turn more to cash or to its equivalent forms. Most players would like to wait a bit further before taking a firmer view on the matter.

According to Mr V. K. Sharma of Angram Stockbroking, the two tenets on which stock markets had risen in the recent past - global liquidity and bullish commodities - seem to be in for a test, at least in the immediate term. "The interest rate of 5 per cent in the US I feel may impact money flows to the emerging markets. The rise of US interest rates has ignited fears of a 0.25 to 0.50 per cent hike in the Japanese interest rates too. Global hedge funds, invested in commodities, may unwind positions in commodities, which may further impact commodity stocks everywhere in the short run," he added.

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