The Hindu Business Line : Funds lack direction; await signal

INVESTORS in debt funds have found themselves in a volatile situation in recent weeks, and there is no indication that the volatility faced by them will end quickly. However, the last few days were comparatively easy and funds have managed to gain some of the ground they had lost earlier.

In equities, too, life has not been smooth for fund buffs. NAVs have moved in a narrow range and no clear trends have emerged. At the moment, the market is generally avoiding fresh commitments before the Union Budget. Positive statements by the Finance Minister can, however, change things for the better on this front.

It is too early to say whether fund managers will generally end the year on a positive note. War fears, it must be kept in mind, have not receded entirely and fund circles agree that a war unleashed upon oil-rich Iraq will create a lot of tension in the domestic market.

The scenario has led fund houses to reiterate their stated objectives to distraught investors. On the equity side, they must focus on capital preservation and risk control even as they hunt for good picks from among a host of interesting sectors.

As for debt, funds would need to work hard to generate attractive returns consistent with the principles of capital preservation and liquidity. Above all, they would have to manage their schemes within the specified risk-return parameters and not stray too much in their quest for results.

Going back to the Budget, the market would love to hear encouraging pronouncements on taxes, infrastructure, housing, capital goods and the like. Decisions to energise the capital markets (ones that help the cause of investments in the long run) will also be welcome.

However, there is at least one different point of view. Dr Mark Mobius of Templeton has written to investors to say that budgetary measures are a "false hope story". Here are excerpts from his message: "The Budget is increasingly becoming a non-event. Over the last four years tax-related announcements have not been very significant. Also, reforms-related proposals have not been vigorously followed up by action."

Dr Mobius further feels that "with elections due in some States, many of the (Kelkar Committee) recommendations could eventually be watered down". Incidentally, he also believes that the path to disinvestment is still "far from being clear" and that the "implementation of other larger privatisations may also face similar hurdles (that is, like HPCL and BPCL) as they come up for divestment".

On another front, funds have started talking about tax-saving options before the March 31 year-end deadline. It needs to be seen whether the forthcoming Budget has anything special insofar as Section 88 of the I-T Act is concerned. A tax sop can result in more inflows into these schemes in the days ahead.

Feedback may be sent to blcal@vsnl.net

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