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Confusion reigns supreme

Nilanjan Dey

THE whole of last week, the country's mutual funds scenario was in a ferment. Leaks on UTI's investments, reports of a possible JPC probe and jerky market movements let go confusing signals. For things to turn normal, the dust has to settle quick and fas t. But till then, one must stay prepared for more confusion.

A firm statement from UTI, market circles feel, would help remove some of the doubts about India's largest fund house. UTI, it is believed, would do itself a service if it comes out with details of its investments in the so-called `K-10' stocks. Such a s tep could actually turn out to be a morale-booster for the big daddy of MFs.

Given their discounted values, MFs are urging investors to consider picking up the right funds in order to strike a balance between debt and equity schemes. The correct mix would enable them to benefit from the next market upturn.

On the infotech front, a number of funds are in their last leg of restructuring. Most have substantially reduced their exposures. In many cases, they have completely exited from leading IT counters. Simultaneously, funds have been buying steadily into se ctors such as petrochem, pharma and infrastructure. The market would like them to use their cash positions to do some more prudent investing.

Funds are currently declaring their unaudited half-yearly -- October 2000-March 2001 -- results. A discerning investor (who is willing to go beyond the arithmetics of returns and yields) would do well to go through these results to get furth er insight into the workings of MFs.

On the debt side, funds seem to be getting used to the idea of softening interest rates. The recent narrowing down of spreads over Government Securities for corporate bonds is also being taken into account.

Liquid funds, given recent changes in call rates, have been adjusting their exposure to this area with the hope of locking in at better yielding money market assets.

A section of gilt funds is maintaining a low portfolio maturity, which somewhat reduces interest rate risk. Such funds are suited to meet the requirement of short-term investors.

Debt fund managers generally feel that there is sufficient liquidity in the system -- a belief strengthened by recent developments. Their outlook on interest rates is more or less on the positive side.

Meanwhile, as transaction trends in May suggest gross purchases in equity trailed gross sales by Rs 165.68 crore. On the other hand, gross purchases of debt were more than gross sales by Rs 718.96 crore.

As for new launches, income schemes have been planned by Alliance Capital and HDFC MF. For the investor, there would be tax benefits and, hopefully, safety of capital. Stanchart MF is planning a liquid scheme with a high minimum application criterion.

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