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Time to separate wheat from chaff

Nilanjan Dey

ALL animals are equal...but some are more equal than others. George Orwell's famous words came true for equity funds last week even as market movements helped separate the men from the boys. Clearly, the `men' were funds that had fallen like any other in the post-March phase, but are already showing signs of doing better than the rank and file. This week, an investor would do well to identify these.

If predictions about near-term movements in market indices are close to reality, most diversified equity funds may, perhaps, begin to outperform the Sensex once again. Investors would need to constantly monitor portfolio compositions of these funds, and determine the ones that are most efficient in terms of sector weightages.

Portfolio monitoring would need a more-than-usual interest in funds' normal disclosures. One needs to go beyond these to the more frequent factsheets, which some funds have started providing. Factsheets, available with leading distributors, give an idea of the latest changes in portfolios as well as fund managers' commentaries on key issues.

On a more expansive plane, fund managers expect the equity markets to gain from the sops recently offered to the IT and pharma sectors. R&D efforts of pharma companies, for instance, would be backed by tax concessions, while IT firms registered in softwa re parks would be eligible for tax holidays. Investors willing to buy sector funds need to keep such sops in mind.

As for income funds, some players are known to have lined up dividends. Investors in debt need to be aware of important factors like the rupee's volatility and the size of Government borrowing. Both could have adverse impact on the bond scenario.

RBI's policy on issuance of long-term securities would also have a bearing on the market in the days ahead. The central bank, one feels, needs to be determined about keeping long-term rates at the current level.

However, a normal monsoon should water down inflationary trends for the year. Investors need to keep a watch on maturity durations of portfolios of their favourite funds.

News for IPO watchers

Franklin Templeton has lined up index and balanced funds. The first index fund from the private sector, this would track the NSE Nifty. The other Nifty-based funds are from UTI and IDBI MF. Investors could familiarise themselves with typical concepts li ke `tracking error' before investing in such schemes.