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The tail wagging the dog . . .

May 18, 2004 15:11 IST

It was Murphy's Law in action this week, everything which could go wrong. . . did!

Election results were declared, the incumbent government was voted out of power and markets reacted by nose-diving. The BSE Sensex lost an astonishing 10.6% during the week to close at 5,070 points while the S&P CNX Nifty shed 12.3% to end at 1,582 points.

Leading Diversified Equity Funds
Diversified Equity FundsNAV (Rs)1-Wk1-Mth1-Yr3-YrIncep.SDSR
TAURUS STARSHARE 11.02-1.28%0.61%93.16%26.85%0.75%7.84%0.35%
BIRLA MIDCAP G 21.35-2.16%2.58%103.59%NA68.16%7.17%0.57%
KOTAK GLOBAL INDIA G 9.74-2.65%-0.17%NANA4.15%1.83%0.08%
FRANKLIN PRIMA FUND G 71.75-3.39%0.85%128.75%62.02%21.65%7.83%0.55%
DISCOVERY STOCK 5.38-3.67%-2.20%57.07%8.29%-5.49%NANA
(NAV data as on May 14, 2004. 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.)

The presence of a party in the government whose views on economic reforms and policies are ambiguous, accompanied by partners who have a rather "regressive" attitude towards reforms doesn't augur too well for the markets. But the need of the hour is to look at the positives. A strong one is that the Congress - the single largest party, which is likely to head the government initiated the reforms process in the country. Election results seem to suggest that we will have a stable government. Another normal monsoon will ensure that a growth in domestic demand will be sustained, fundamentals for corporates haven't necessarily changed (they continue to be robust).

Leading Income Funds
Income FundsNAV (Rs)1-Wk1-Mth1-YrIncep.SD SR
HDFC FLOATING LTP G 10.610.12%0.37%4.30%4.47%0.04%-5.03%
DSP ML FLOATING RATE G 10.500.09%0.38%4.96%4.89%0.03%-5.32%
BIRLA FLOATING RATE LTP G 10.490.09%0.38%NA4.86%0.06%-1.97%
GRINDLAYS FLOAT. RATE G 10.050.09%0.39%NA0.51%NANA
TEMPLETON FLOAT LTP G 11.500.09%0.44%5.16%6.33%0.12%-0.36%
(NAV data as on May 14, 2004, Growth over 1-Yr is compounded annualised)
> (The Sharpe Ratio is a measure of the returns offered by the fund vis-Ó-vis those offered by a risk-free instrument)

The debt markets felt the "election heat" as well. The benchmark 10-Yr 7.27% 2013 GOI yield closed at 5.22% (May 14, 2004), 10 basis points below the previous close. Rising yields brought floating rate funds to the fore. HDFC Floating Rate (0.12%) emerged as the weekly topper followed by DSP ML Floating Rate (0.09%). The ability of floating rate funds to act as an effective hedge in volatile times was highlighted yet again.

Leading Balanced Funds
Balanced FundsNAV (Rs)1-Wk1-Mth1-Yr3-YrIncep.SD SR
FT INDIA INFLATION G 12.03-0.57%-1.05%14.90%NA10.24%1.03%0.35%
FT CONSERVATIVE G 13.29-1.90%-2.01%31.24%NA16.24%1.99%0.46%
DSP ML BAL G 17.79-3.17%-2.66%71.98%26.49%13.55%4.25%0.58%
LIC BALANCE C G 23.48-3.29%-3.22%42.10%16.48%5.36%3.79%0.36%
FT BALANCE GR G 14.00-3.47%-5.41%43.99%NA19.87%4.15%0.51%
(NAV data as on May 14, 2004. Growth over 1-Yr is compounded annualised)

Balanced funds took a hit as well. Funds from the Franklin Templeton AMC made it to weekly top performers list. FT India Inflation (-0.57%) and FT Conservative (-1.90%) occupied the top two positions. Category leader HDFC Prudence (-3.49%) was reasonably successful in the damage control exercise.

For investors these are testing times, however, they should resist the urge to go on a panic sell. Despite the poor showing at the markets, the fundamentals continue to be strong. The surprising election results may have caused the markets to react adversely, but that's in the short term. Remember investing in equities is about having a long-term horizon i.e. over a 3-5 year period. These volatile patches are at best aberrations which get evened out over a longer timeáperiod. In fact, for the seasoned investor this could be an opportunity to invest a portion of his/her investible surplus in diversified equity funds.

We would advise that investors (both sellers and buyers) consider staggering their buy/sell decisions over the next couple of weeks. This is a great way to minimise the risk of you going completely wrong in your call.

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