Invest in fixed maturity plans and short-term debt instruments

The upcoming Budget and the associated announcements would be a key event for the market and the policy course taken on GST and DTC would be of vital interest. Additionally,the question on the further continuation of the fiscal stimulus granted in wake of the 2008 crisis,too,would be an important issue. Other than that,the markets would also take cues from the potential improvement in the economic conditions in North America and Western Europe.

With the markets correcting in the month of January,what kind of portfolio rebalancing should a retail investor look at now?

Firstly,the investors must remain assiduously dedicated to their long-term investment objectives; and the resultant risk-return goals arising from it. Within that confine,if an investor does have an appetite and the need for equity investment,the current correction has provided a 10% discount to do so. Companies and sectors that are adept in managing environmental changes may be a lucrative position to hold. Also,a prudent cash position to capitalise on any such sporadic opportunities may also be advised.

In the next three months,which sectors will you overweight and underweight?

We are bullish on the IT sector on account of revival in the US economy and the resultant expansion of the demand in the said sectors. Moreover,the expanding generic drugs market of the US and the expanding demographic profile of India,make the outlook on the Indian pharma sector bullish. Additionally,we continue to remain selectively optimistic on certain banking segments that maintain high CASA and show adaptability in maintaining net interest margins. We also remain optimistic on the metals sector on account of resurgence in global growth and expanding industrial demand. On the other hand,we maintain a cautious view on the oil marketing companies since rise in the crude oil prices may increase the under-recovery burden on them. Also,the prevalence of the high interest rates has necessitated a cautious stance on the real estate and construction segment.

How do you see various debt instruments performing given the volatile markets and rising interest rates?

Given the continuation of the liquidity deficit,the near-term yields may continue to remain high and may even rise further as bank deposit rates undergo upward revision. As a result,the investment potential of the FMPs and short-term debt remains strong. On the far side of the yield curve,the debt market may adopt a watchful stance in the run-up to the budget. This is to assay the debt-supply scenario in FY12. For now,we expect the 10-year benchmark gilt to trade in the 8-8.25% range,which provides a high-carry opportunity for potential investors.

What do you think will be investor interest in ELSS with the tax incentive likely to be withdrawn post DTC?

The code is still in the formative stage and nothing is yet finalised. And while the ELSS may be losing its tax-status in the previous proposals,I remain a firm believer that ELSS has done a lot in attracting small investors to the potential of the equity markets. In that context,I am hopeful that government may appreciate the importance of the tax-saving status of the ELSS in incentivising retail equity investment. Even though,the investors who have benefitted from the growth potential of the equities market,may have converted to the idea of equity investment through mutual funds,he may not be influenced as much by this proposed change.

There are less than one crore direct investors in the equity markets,and the mutual fund equity schemes too would have around a similar number of investors. The need is to increase the retail participation in the equity markets. There are perhaps more number of foreign residents that have participated in the Indian equity markets through their pension schemes. This has to change. We believe the mutual funds,through their ELSS schemes,would achieve it. The tax status on the ELSS therefore has to be restored in the final DTC.

Given the signs of recovery in the US and falling gold prices,how should retail investors look at the metal?

As per some reports,gold is currently at around 0.3% of total financial assets. Should it rise to 0.6%,(still less than half its 1980s level),the market would still see a massive increase in demand. Many believe that gold is on its way to becoming a permanently accepted financial asset for money managers around the world. So,even if the near-term sheen may be wearing off,gold as an asset-class may not lose its relevance. Having said that,the political uncertainty in West Asia has already buoyed the prices of a co-related commodity — crude oil.