The Hindu Business Line : Fund managers call for better look at fixed-income market

HERE is a wake-up call for all those who have been obsessed with equity mutual funds. Some of India's best known money managers, alarmed at the way clients are focusing on equity and equity alone, are fervently calling out for re-balancing of portfolios in favour of more fixed-income, citing the ultra quick run-up in the stock market and the risks involved in over-exposure to a single asset class.

With the Sensex hovering above 9,000 points, it is time to book partial profits and put the capital appreciation in debt, may be short-term debt, and wait for suitable opportunities to re-enter, urge professional fund managers.

The feeling that is simultaneously gaining ground stems from changes that are expected to happen in the fixed-income market. Such changes may be supported by certain positive factors affecting sentiments on the debt front.

"It is a matter of time before things turn for the better, although it seems to be a bit far-fetched right now", notes Mr Sandesh Kirkire, CEO, Kotak Mahindra MF. Others agree, referring to broad determinants such as credit offtake and RBI's general outlook of the economy.

According to Mr Nilesh Shah, CIO of Prudential ICICI MF, at 15-20 basis points above the current level of yields, there will be scope to allocate partly to debt with an investment horizon of up to six months. The Pru ICICI houseview is in favour of longer-term bond funds when 10-year yield is in the range of 7.25-7.5 per cent.

Longer-term income: Longer-term income options have largely been a no-no for investors, most of whom have remained focused on short-term products. The former have lately seen their assets go down, while distributors have generally reported the market's poor response to these funds. On the contrary, investors have flocked to stocks — a trend that many fund houses have taken advantage of by introducing new equity schemes.

The market's attention is almost entirely on equity, a development that may not be a very good sign, feels Mr Rajiv Shastri, CEO of Sahara MF. "Investors' money will flow into the most rewarding asset class. Right now, stocks will win hands down on that front. But a lot of people are taking short-term bets on equity funds, with little regard for other factors," he maintains.

A number of equity funds have indeed done well in terms of addition to assets under management, it is pointed out. These, as Mr U.K. Sinha, CEO of UTI MF, states, have benefited from investors' willingness to allocate more to the stock market. "Has this led to lop-sided asset allocation?" is the question he urges investors to ask themselves.

Others also speak in varying degrees favour of a re-orientation. Mr Ved Prakash Chaturvedi, CEO of Tata MF, advises investors to "use sharp corrections to bring fresh money into equity funds". The parallel reasoning is also simple — invest through systematic plans if one is underweight, and consider taking profits if one is overweight.

New fund offers: At another level, fund circles point to the new choices that will soon be available before investors. On the equity side, the NFO (new fund offer) pipeline is full and bursting, while some fixed-term products are being lined up on the debt side. (See table)

This, sources say, is actually a sign of the times, especially so with fund houses trying to make the most out of the situation. Most of the forthcoming equity schemes are expected to maintain diversified portfolios.