Ravikiran is the new fund manager for Sundaram Bond Saver, an income fund from Chennai-based Sundaram Newton Asset Management Company. He replaces Suresh Soni, who has moved to Kothari Pioneer Asset Management Company. Sundaram Bond Saver is the top performer for the one-year period ended April 28 with a sterling return of 16.03 per cent.
Sundaram Bond Saver, with a size of Rs 261 crore, has benefited from its aggressive investments in government securities in a falling interest rate scenario - around 50 per cent of the fund's assets was invested in G-secs on April 28, 2000. The fund has now reduced the average maturity of its portfolio in line with expectation of a rise in interest rates. Around 30 per cent of the fund is invested in triple A bonds, which makes its portfolio a quality one. In an interview to Value Research, Ravikiran talks about his investment strategy and outlook on interest rates.
Q. What is the average maturity profile of your bond fund on April 30 vis-à-vis March 31, 2000?
RK: The average duration of the portfolio has dropped from 3.15 years on March 31, 2000 to 2.45 years on April 30, 2000.
Q. What is your viewpoint on interest rates and what will be your investment strategy?
RK: Over a three-month horizon, the factors that could have a bearing on interest rates include:
a) Government Borrowing Program: There is likely to be a heightened supply of government papers at the long end of the yield curve. With liquidity expected to remain easy, we expect the yield curves to steepen further. We would educate shifting maturities to short and medium term securities.
b) Inflation rates: Hikes in administered prices and changes in the composition of the inflation basket have resulted in inflation rates skyrocketing beyond 6%. The cascading effect of the hike in administered prices, drought situations and their possible concomitant impact on prices of primary articles, low bare levels of the previous year should all combine to keep the inflation rates higher relative to last year.
c) Disinvestment Program: An aggressive and focussed disinvestment program could have a very favorable impact on the bond markets and ease pressure on liquidity.
3. There is a talk of strong forex inflows, which are expected to keep interest rates under check. This largely includes FII investments and companies planning to raise money via ADRs. But given the volatility in US markets, do you see this happening?
RK: While forex inflows in the form of FII investments in the current fiscal will be healthy, we do not expect it to be of the same magnitude as was witnessed last year. Most of the foreign funds invested in India are dedicated emerging market or India funds and so the hike in the Federal rates is unlikely to see an exodus of foreign funds from India, the only caveat being a situation where these funds face local redemption pressures following the rate hikes. Ravikiran is the new fund manager for Sundaram Bond Saver, an income fund from Chennai-based Sundaram Newton Asset Management Company. He replaces Suresh Soni, who has moved to Kothari Pioneer Asset Management Company. Sundaram Bond Saver is the top performer for the one-year period ended April 28 with a sterling return of 16.03 per cent.