 Fund house DSP Merrill Lynch surveyed fund managers and chief investment officers (CIOs) in January for their views on the market and their portfolio strategies. Compiled below are responses from 15 fund managers and CIOs, managing over Rs776bn in assets. We asked fund managers and CIOs at what level they expected to see the wholesale price index (WPI inflation rate) on 31 March 2005 The choices were: All the respondents expect a decline in the WPI responding with "Below 6.00 per cent." This is of significance considering that the RBI governor said that he expects the inflation rate to be around 6.50 per cent by March. Markets
There was some visible improvement in fund manager sentiment since the last survey. This could have been triggered by the sharp fall in the inflation rate. In the short term, sentiment is more bullish from stable in January. -
47 per cent now expect the market to be bullish.
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27 per cent expect a bearish market
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27 per cent expect a stable market. However the bearish views remained unchanged.
The long-term outlook turned positive, though not bullish, with the majority expecting the market to be stable while a significant set still expected markets to remain bearish. Only 13 per cent of the fund managers are bullish on the market.
Credit Spreads
The short-term view on spreads remained largely the same with the majority still expecting stable spreads. -
33 per cent expect spreads to widen.
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Views over the long term saw a slight shift with more expecting the spreads to
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stabilize.
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No fund manager expects spreads to narrow. Returns
Although fund managers largely expect stable markets, they have also highlighted risks in terms of bearishness in gilts and widening of spreads. On account of this risk-return payoff, income funds and long-term gilt funds were the most preferred category by fund managers. Following this in second place was floating rate funds
and short-term debt funds. Portfolio Strategy
In the income fund category, fund managers favored: -
An increase in duration (53 per cent)
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Equally divided in views to reduce duration or keep duration stable (20 per cent)
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Plan to keep bond allocation stable (67 per cent),
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Increase gilt allocation (60 per cent)
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Decrease cash allocation (47 per cent) indicating a bullish sentiment. In the gilt fund category fund managers preferred: Economy
The consensus on the economy continues to remain positive but moderated further over the month as: -
67 per cent of respondents expect a stronger economy and 33 per cent expect it to remain stable.
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No respondent expects a weaker economy.
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53 per cent of fund managers expect inflation to ease
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40 per cent expect inflation to remain stable
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7 per cent expect inflation to rise. Views on the strength of the rupee were largely unchanged: -
47 per cent still expected the rupee to appreciate against the USD despite the recent strengthening of the dollar.
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33 per cent expected the rupee to be stable and
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20 per cent (a growing minority) expect the rupee to depreciate against the USD.
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