The Hindu Business Line : `Overseas funds may not now look with same enthusiasm'

Kolkata April 8 For the first time in months, investors are seriously considering a higher allocation to debt, argues Mr Rajan Krishnan, Business Head - Asset Management, Principal PNB AMC. "We can see the trend in a backdrop marked by a combination of issues... lower appetite for risk, higher interest rates and not-so-encouraging trading volumes", he said in an interview with Business Line.

Excerpts:

Some sections, so far focused on equities, are specifically inclined towards debt. How do you view this?

The buzz that was associated with the end of the year has died down. So have some of the sentiments that have compelled investors to check out equities in the recent past. The trend is changing. Clearly, there are quarters that want more exposure to debt. We do not have to look far to ascertain the reasons.

Overseas institutions, as some believe, may not now look at Indian stocks with the same enthusiasm. Interest rates are on the rise and the market is not discounting the premise that rates may go up a bit more. All these, and there are other reasons too, have come together to spell bad news for equities. At least, in some segments of the market, spirits are not high enough. That means debt may gain more prominence.

It can't be that stock pickers are simply sitting idle...

I am not saying they are. What I need to convey is that followers of equity now seem to have become cautious. Investors are not really buying at lower levels - as they may well be expected to do. It is not this is true only in India.

Even as we speak, Asian markets seem flattish. The point is there is not enough liquidity in the case of countless stocks.

How do you expect Q4 results to shape up?

While I cannot speculate on how corporates will do this quarter, I can generally tell you that the results of the next quarter will possibly hold the key to many things. As it is, the current financial year will be extremely challenging for those who want to capture the growth of companies in their portfolios.

In other words, those good days marked by easy 30 per cent returns, in a manner of speaking, will not be here any more. From an average investor's perspective, this is the time to get into sensibly-managed funds, ones with decent track records. Waiting endlessly - and this is true even for the smart individual - for the bottom to be identified is not quite justified.

What can bring down sentiments even further?

Well, inflation is a big issue for the markets. For the central bank, this is a serious concern. RBI has been taking some pretty serious steps to rein in inflation. We have observed that lately. It remains to be seen whether these steps achieve what they were meant to.

Shouldn't retail investors take all this as a major warning?

They should. A year ago, nobody could have blamed them if they put almost every Rupee in equities. Not so, now. Instead, as I indicated, debt seems to be the no-brainer alternative. Consider, for instance, an equity specialist who has the courage of telling you that returns may be in the range of 12-15 per cent over the next one year.

Consider also a debt product that may not very far off that mark - and without letting the portfolio face a lot of risk. An investor who does not want to become too adventurous will know what to choose.

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