MFs find debt issues safer bet than stocks

MFs find debt issues safer bet than stocks
ENS ECONOMIC BUREAU

MUMBAI, JAN 1: Local mutual funds have found debt instruments safer than stock investments. Data from capital market regulator Securities and Exchange Board of India (SEBI) showed that while local funds were net sellers of stocks during 2000 to the tune of Rs 776 crore, their net debt purchases amounted to Rs 3,847 crore.

"This is in sync with what happened in the equity markets," said Shekhar Sathe, chief executive officer at Kotak Mahindra Mutual Fund. Sathe said the fall in overvalued technology stocks in line with global trends was the foremost reason for the decline in the equity markets.

"Twelve months ago, of every Rs 10, investors put Rs 3-3.5 in equity. Now it is down to Rs 0.5-1," said Nikhil Khattau, chief executive officer at Sun F&C Asset Management (India).

The benchmark 30-share Bombay Stock Exchange index (Sensex), which touched an all-time high of 6,150.69 on February 14 this year, closed around 35 percent down on Friday at 3,972.12, led by a meltdown in the overheated technology sector.

Indian mutual funds expect a pick up in equity investments in 2001 with blue chip shares looking attractively valued after last year's declines. Indian mutual funds saw a surge in debt investments in 2000 as the stock market decline prompted investors to look for safer havens, leading fund managers said. Bond yields, on the other hand, have dipped on year, and the benchmark 10-year yield has dropped to 10.92 per cent compared with around 11.20 per cent a year ago.

But after the sharp falls of the last year, fund managers said they saw values in equities. "Equity investments will get a boost going forward," said P S Subramanyam, chairman of Unit Trust of India, the country's largest fund which manages assets of nearly Rs 756 billion.

"Fundamentals of many companies in terms of corporate performance is good and going forward the current year performance should also be good. What is more important is corporates have started attaching higher emphasis to corporate governance and shareholder value," he said

Subramanyam said he was not unduly concerned with the slower growth adding, "I believe it is a temporary phenomenon." "We are seeing net purchases in equities right now with themarket having corrected quite substantialy over the last year," said Ravi Mehrotra, chief investment officer at Kothari Pioneer Asset Management.

"People are looking at fundamentals, some companies are looking good. They are focusing on top line, well managed blue chips," Khattau said. The debt segment also offered strong growth potential withfunds looking to tap investments being made in the banking sector.

Fund managers saw significant scope for debt funds with a large amount of retail fixed income investments still in bank deposits. "We are seeing a continued shift in deposits from banks andfinance companies in fixed income as post tax returns are much higher," Mehrotra said.

He said he expected the industry as a whole to grow by around 40 per cent in terms of assets. While fixed deposits placed with state-owned banks of oneyear tenor will earn around 8-9 per cent, the dividend on gilt plans is roughly at least 12 per cent on debt funds.

"It will develop even more because of corporates... accessing debt from the market directly developing the secondary market," UTI's Subramanyam said. Subramanyam said there was a need for increased floating rate instruments which would increase the choices for funds.