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S Chandrashekhar, Fund Manager, comments on ING Income Portfolio

"We give a lot of importance to the credit quality of the instrument since ours is an open-end fund where liquidity is very important."

S Chandrashekhar has been managing ING Income Portfolio since its inception in March 1999. The fund has generated a return of 12.15 per cent for the one-year ended May 31, 2000. Apart from ING Income Portfolio, Chandrashekhar manages ING Treasury Portfolio and the debt component of ING Balance Portfolio.

ING Income Portfolio had an asset base of over Rs 200 crore as on May 31, 2000 with an average maturity profile of around 2 years. Chandrashekhar has been conservative with his investment strategy with emphasis on credit quality.

Q.You have maintained around 30% exposure to government securities since January this year but towards the shorter end of the maturity profile even as interest rates were drifting down in the earlier part of the year. Do you think you could have earned a higher return by investing long-term?
Chandrashekhar: Yes, I do think that we should have gone long with our investments in gilts since interest rates did take a sharp dip with yield on 10-year paper at sub-11 levels in January this year. We had not expected that a cut in PPF rate, which was done since the government had no money, would lead to such a sharp jump in prices of debt instruments. However, our conservative strategy has paid off now since we have actually gained during the current bout of volatility.

Q.What is your outlook on interest rates? Do you see industrial recovery putting pressure on money supply?
Chandrashekhar: We are in for turbulent times. While RBI has deftly managed money markets in the last one year, the scenario does not look very rosy now. There is a huge borrowing programme and there are concerns on the forex front, inflationary pressure and rising oil prices. If RBI is able to wriggle out of this situation, it will be commendable. As far as industrial recovery is concerned, the broad picture continues to be lacklustre except the companies from the ICE sector, which are growing at a healthy pace.

Q.So, what will be your investment strategy going forward? With liquidity expected to remain easy in July at least, do you plan to buy some medium term paper?
Chandrashekhar: We would like to wait and watch. While the liquidity is expected to ease a bit in July, the RBI will be immediately in the market with an auction since the government has to raise 1.17 lakh crore from the market, which means some 10,000 crore every month. That will arrest any significant rise in prices. In this scenario, we would be towards the shorter end of the yield curve.

Q. What is your bond selection strategy?
Chandrashekhar: We give a lot of importance to the credit quality of the instrument since ours is an open-end fund where liquidity is very important. In the event of redemption pressure, we will be stuck if we invest in A or AA paper since there will be no takers for that paper in the market. The Indian debt market continues to be shallow and hence, we have maintained an average 90% exposure to AAA paper.

Q.Do you expect another round of cut in the cash reserve ratio (CRR)?
Chandrashekhar: Yes, that is one of the effective tools with the Reserve Bank of India and the central bank will use it judiciously to infuse liquidity into the system.

Q.But, does the talk of disinvestment give you a glimmer of hope and will it lead to an improvement in sentiment?
Chandrashekhar: I don't really see much happening on the disinvestment front. Even last year, the government had set a target but could not achieve it. Disinvestment requires a lot of political will and I am not very optimistic on that count.