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Funds on re-think mode

Nilanjan Dey

IN the final analysis, style does not always triumph over substance. Mutual funds understand the old truism, and, after posturing for the last few months (ever since the market crashed), have started to find their feet.

The NAVs - one is referring to values of equity funds here - are not marching up, though. That would take a while, and investors would rather wait for the market to reach its bottom. The patient among them would be rewarded.

That funds are on a re-think mode is evident from the advertisements that some of them have recently released. The message that is going out underlines a kinder, gentler approach - a kind of tone-down - that, perhaps, could have been effected earlier.

If the stock market continues to remain listless, as it has been in the post-moorat sessions, equity funds would not have much to cheer about this week. All of them have suffered from major FII offloading and absence of supportive buying from domestic pl ayers. MF circles feel that the situation would remain much the same in the days ahead.

The performance of the tech sector funds, too, may not be any better in the coming days. The last few sessions have seen significant fluctuation in prices of leading stocks such as Satyam, Infosys and Wipro, all of which are important constituents of por tfolios of many funds.

A section of the market has already discounted tech funds as value-destroyers, much to the chagrin of fund managers who stick to their favourite TMT (technology, media and telecom) buys. They would like investors to cash in on the present situation and a verage out their acquisition costs.

As for debt funds, the fixed-income securities market for these seems to be stabilising. Funds partly attribute this to better tax collection and the mark-down in global oil prices. These developments, in fact, have led some to believe that overall inter est rates may remain steady with a tendency towards further stabilisation over the rest of the current financial year.

The success or failure of State Bank of India's Millennium India Deposit issue would be critical. There are tremors yet again on the rupee front, and this may have an adverse effect on the market from the point of view of stability.

As always, investors would do well to co-relate average maturity periods of debt funds with their own views on interest rates. Funds would seek to lessen interest rate-related risk by suitably modifying the average maturity periods of their portfolios.

Talking of dividend distributions, UTI Software Fund is expected to pay Rs 2.20 per unit. Investors, however, may not find other sector funds undertaking a similar move. Birla Sun Life's MIP closes for initial subscription soon, and, apart from the `ethi cal fund' proposed by JM MF, no other fresh launches seem to be in the offing.

Meanwhile, transaction trends for the month (up to October 25) suggest that gross purchases of equity funds have been more than gross sales by Rs 179.9 crore. Gross purchases of debt funds, too, have been more than gross sales by Rs 461.64 crore.