The Hindu Business Line : Inflation will remain a key pointer for debt funds: Birla Mutual

Kolkata April 15 Do not lock a lot of your money into longer term debt funds right now, counsels Mr Navneet Munot, CIO - Fixed Income, Birla MF. "Those willing to take a call on debt may well do so very carefully. In the near term, we do see considerable action insofar as shorter duration products are concerned," Mr Munot, who also handles Birla Mutual Fund's hybrid funds, said.

He also talks a bit about equity, especially mid-caps.

Excerpts.

If you are to advise a debt fund investor at this juncture, how will you do so?

Investors should remember that inflation has been a prime issue for policy-makers in recent times. Prices have lately moved up, the move being critical in case of certain key items. Prices of agri-commodities have particularly led to concerns. This has served as a backdrop of sorts for proponents of debt funds. At another level, the country's interest rate structure has evolved enormously.

For an investor, these factors are typically important. As for his actual investments, the key issues to watch out for include a fund's holdings in terms of its credit profile.

What sort of changes do you expect to take place in the fixed-income market this fiscal?

We are not entirely certain as to when stability will return on the rates front. Having said that let me tell you that the year ahead will be very revealing for those who wish to pursue fixed-income strategies.

All things considered, allocating a considerable portion of one's assets to longer term options may not be the most appropriate thing to do at this point. Of course, a lot will depend on an individual investor's approach to asset allocation.

On the other hand, shorter term products will generate a great deal of interest. However, inflation will remain a key pointer. The extent of Government spending and capital inflows from overseas will be significant too. These will help in mapping the liquidity scenario. We will have to see how RBI reacts to the dynamics in the market.

So, action with regard to longer term debt products is ruled out?

An investor may want to check out whether interest rates are getting any closer to their cyclical peaks. Also, some sections may want to look at deposits, which are currently offering attractive rates.

As the March numbers have shown, the run-up to the year-end saw some serious activity on the fixed maturity plan (FMP) side. A wide range of FMPs came into being, underlining the market's appetite for such products.

Where does this leave equity investors, especially those who are fixed on mid-caps?

Well, there is so much of re-rating potential in the area of mid-caps. And we are not talking about recent experience in India alone. Other markets too have seen considerable activity revolving around mid-caps. But, yes, not everything is perfect here. There are a lot of companies with liquidity levels that are very disappointing. Not everybody has researched them.

But the short point is that mid-caps - we are referring to these selectively - have frequently seen great upside. An equity investor needs to keep this in mind when he sets out to search good mid-cap stocks.

Perhaps it will make sense if he stays put for a relatively longer period and not get out of his mid-cap allocations far too early.

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