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Is it time to enter the markets?

November 22, 2003 15:43 IST
Last Updated: November 22, 2003 18:52 IST

Markets continued their southward journey for the second week in a row. The BSE Sensex fell marginally by 0.6 per centto close at 4,838 points while the S&P CNX Nifty with a similar fall closed at 1,540 points. However these numbers only covey half the story. The week was marked by intense volatility; the picture would have looked a lot worse but for the smart recovery (67 points) on the last trading day of the week.

Leading Diversified Equity Funds
Diversified Equity SchemesNAV (Rs)1-Wk1-Mth6-Mth1-Yr3-Yr5-YrIncep.SDSR
PRUICICI DYNAMIC PLAN 18.872.2%8.8%65.5%74.9%NANA84.9%6.70%0.63%
TATA EQUITY OPPORTUNITY 13.352.1%15.5%96.0%137.4%28.4%29.9%8.4%7.27%0.64%
TATA PURE EQ 19.072.0%9.4%85.6%112.2%15.1%32.5%28.7%6.94%0.38%
DISCOVERY STOCK 6.261.8%15.1%62.2%69.6%-2.6%13.9%-4.9%NANA
HDFC CAPITAL BLD. G 18.431.6%7.8%56.7%78.6%18.1%NA8.9%5.21%0.47%
(NAVs as on November 21, 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.)

Equity funds had a mediocre week with top funds delivering returns in the range of 1.6 per centto 2.2 per cent. Pruicici Dynamic Plan (2.2 per cent) and Tata Equity Opportunity (2.1 per cent) surfaced as the week's leading performers. Funds with larger holdings in cash and call money were affected lesser by the fall in equity markets.

It was yet another dull week at the debt markets and the sentiment continued to be negative. The Reserve Bank of India's guidelines on banks' investments in unlisted debt and its implication on mutual fund holdings added to the uncertainty. The benchmark 10-year 7.27 per centGOI yield closed at 5.10 per cent(November 21, 2003), 1 basis point below the previous close.

Leading Income Funds

Income SchemesNAV (Rs)1-Wk1-Mth6-Mth1-Yr3-Yr5-YrIncep.SDSR
ESCORTS INC PLAN G 19.360.3%0.9%3.9%11.4%12.4%12.6%12.7%0.46%0.83%
GRINDLAYS FLOATING G 10.400.1%0.4%2.6%NANANA4.0%0.03%-3.91%
PRUICICI FLOATING RATE G 10.330.1%0.4%2.5%NANANA3.3%0.03%-4.18%
TEMPLETON FLOAT LTP G 11.230.1%0.4%2.4%5.9%NANA6.7%0.10%-0.11%
DSP ML FLOATING RATE G 10.270.1%0.4%2.5%NANANA2.6%0.01%-12.23%
(NAVs as on November 21, 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 schemes performances this week duplicated last week's performance. Escorts Income Plan (0.3 per cent) emerged as the topper for the second week in a row. Floating rate funds have been dominating proceedings for quite some time now. Investors should ensure that a part of their holdings are invested in floating rate funds to provide a hedge against volatility. For income fund investors the right strategy is likely to be a good mix of income funds and floating rate funds with rational expectations.

Leading Balanced Funds
Balanced SchemesNAV (Rs)1-Wk1-Mth6-Mth1-Yr3-Yr5-YrIncep.SDSR
TATA BALANCED 20.031.9%8.3%49.1%67.8%13.9%22.6%14.0%4.41%0.42%
ALLIANCE 1995 G 70.361.2%4.0%40.2%57.7%9.4%29.2%26.1%3.99%0.44%
PRUICICI BAL G 14.200.6%2.6%39.2%52.9%14.3%NA9.8%3.99%0.44%
K BALANCE 14.270.6%3.1%31.6%50.4%13.1%NA10.0%3.28%0.41%
SUN F&C BAL G 10.280.4%4.6%51.4%53.0%9.0%NA-0.9%4.91%0.30%
(NAVs as on November 21, 2003. Growth over 1-Yr is compounded annualised)

Volatile equity markets and dull debt markets took their toll on balanced funds. Barring a handful, most funds found themselves in negative territory. Category leader HDFC Prudence (-0.1 per cent) had a poor week as well. However in spite of this lackluster performance, from a long-term perspective balanced funds play an important role. Their intrinsic ability to combine growth and stability will always keep them in the reckoning.

The markets have left most investors baffled with their recent performance. When the markets were on a rapid ascent we had recommended that investors should book a part of their profits. At the 5,000 plus levels investors were asked to exercise caution, and during the subsequent correction phase hybrid instruments like monthly income plans (MIPs) were proposed to provide stability.

Now that the markets have 'corrected' significantly, it looks like a good time for investors to enter equity funds in small proportions. While substantial investments should be avoided, investors with risk tolerance would do well to accumulate at these levels and increase equity allocations if markets correct further.

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