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Week marked by volatility. What now?

November 08, 2003 17:02 IST
Last Updated: November 08, 2003 18:04 IST

The much-awaited Monetary and Credit Policy was finally announced this week. Contrary to market expectations the RBI Governor chose to maintain status quo on the bank and repo rates and there were no rate cuts.

The debt markets didn't take too kindly to the policy and yields rose sharply. As the week advanced, markets stabilised with the central bank's downward revision of the inflation. The benchmark 10 year 7.27% GOI yield closed at 5.08% (November 7, 2003), 2 basis points below the previous close.

Leading Income Funds
Income SchemesNAV (Rs)1-Wk1-Mth6-Mth1-Yr3-YrIncep.SDSR
UTI REGULAR INC.11.170.6%0.7%6.7%10.6%NA11.0%NANA
GRINDLAYS DYNAMIC BOND11.930.4%-0.3%6.3%14.4%NA13.8%1.67%0.32%
ESCORTS INC PLAN G19.250.3%0.6%4.0%11.9%12.3%12.7%0.35%1.151
(NAVs as on November 6, 2003. Growth over 1-Yr is compounded annualised)
(The Sharpe Ratio is a measure of the returns offered by the fund vis--vis those offered by a risk-free instrument)

Income funds registered moderate growths during the week, which can be attributed to the sharp rise in yields (bond prices fall when yields rise) and gradual recovery thereafter. Cancigo (0.7%) and UTI Regular Income (0.6%) topped the list during the Monday to Thursday period.

Despite the initial turbulence, markets have reacted positively to the monetary policy. Prospects of better credit delivery and the upward GDP projection seem to have found favour with industry leaders as well. In an exclusive interview with personalfn, Mr. Nilesh Shah, CIO - Debt, Franklin Templeton asserted that economic policies and projections in terms of GDP and inflation are realistic.

From the retail investors' perspective, it's time to tone down their expectations. While the sharp growths in income funds triggered by rate cuts maybe a thing of the past, the significance of income funds in their portfolio has not diminished. According to Mr. Rajiv Anand, CIO - Standard Chartered Mutual Fund, "This is a good time for the retail investor to come in with a long-term view."

Income funds will continue to score over comparable investment avenues (fixed deposits and bonds) in terms of liquidity, tax-efficiency (dividends are tax-free and long term capital gains eligible for indexation benefit) and their ability to clock higher growth.

The equity markets experienced yet another volatile week. The BSE Sensex finally breached the 5,000 mark barrier on Monday, but there was more to follow. Profit booking set in and the Sensex closed at 4,972 points. The S&P CNX Nifty rose by 2.3% to close at 1,592 points.

Leading Diversified Equity Funds
Diversified Equity SchemesNAV (Rs)1-Wk1-Mth6-Mth1-Yr3-Yr5-YrIncep.SDSR
DISCOVERY STOCK6.5916.2%17.1%84.6%84.3%-1.1%14.8%-4.4%NANA
TAURUS STARSHARE11.3014.7%17.6%96.5%98.2%9.9%20.3%0.5%6.94%0.44%
BOINANZA EXCL G14.9012.2%12.5%86.6%105.7%41.4%28.9%11.0%6.43%0.58%
TATA EQUITY OPPORTUNITY INC.14.5210.3%14.9%118.2%140.7%28.4%30.2%8.2%7.59%0.46%
HSBC EQUITY GR22.048.8%15.1%109.1%NANANA112.7%6.92%1.10%
(NAVs as on November 6, 2003. Growth over 1-Yr is compounded annualised)
(Standard deviation indicates by how much the values have deviated from the mean of the values. It measures by how much the investor has diverged from the mean return either upwards or downwards. It highlights the element of risk associated with the fund.)

A word of caution before we comment on the weekly performance of equity funds, the NAVs are as on November 6, 2003, hence they don't reflect the sharp fall on Friday when the markets lost nearly 75 points. In the first four days, leading equity funds registered strong growths in the range of 8.8% to 16.2%. Discovery Stock (16.2%) topped the list followed by Taurus Starshare (14.7%). Leading funds Franklin India Bluechip (7.6%) and HDFC Top 200 (7.0%) had a relatively moderate week.

Leading Balanced Funds
Balanced SchemesNAV (Rs)1-Wk1-Mth6-Mth1-Yr3-Yr5-YrIncep.SDSR
MAGNUM BAL13.575.8%12.0%62.6%72.7%3.3%19.1%13.3%4.72%0.32%
TATA BALANCED19.855.4%6.8%56.0%69.4%13.7%22.6%14.0%4.22%0.46%
SUN F&C BAL G10.515.2%8.5%62.7%62.7%10.3%NA-0.3%4.89%0.37%
ING BAL CUM8.975.2%6.9%47.0%46.9%0.6%NA-1.7%4.36%0.32%
(NAVs as on November 6, 2003. Growth over 1-Yr is compounded annualised)

Balanced funds drew from the surge in equity markets in the first two days. Magnum Balanced Fund (5.8%) emerged as the top gainer followed by Tata Balanced fund (5.4%). Category leader HDFC Prudence fund (4.6%) had a reasonable week as well.

Yet again investors find themselves in a predicament, not knowing what to do next. On one hand positive signs like a higher GDP growths at lower inflation seem to suggest that the economy is all set to display above-average growth, on the other hand markets have run up too fast and the volatility is proving to be a handful for most investors.

In the present situation, investors must have a debt component in their portfolio to provide the much-needed hedge against volatility in equity markets. Going forward, balanced funds and monthly income plans (MIPs) must increasingly find a place in your portfolios.

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