Hybrid funds to rule the roost in 2012
Hybrid funds which have a mix of both equity and debt portfolios are thus best placed to unleash a sustained rally in 2012.
By Hiren Dhakan
Associate Fund Manager, Bonanza Portfolio Limited
Equity markets have corrected 20-25% in the year and look very attractive at current valuations of 12-13x P/E (one year forward earnings). Midcaps and smallcaps have been hit even further.
Any positive developments on the global level w.r.t. European sovereign crisis in the year could trigger the return of foreign institutional flows back to emerging nations, of which India would be a major beneficiary. The reversal of flows would also ease the pressure on the government to control rapidly falling rupee.
At the same time, inflation has already started showing signs of taming down. The domestic political deadlock is soon expected to ease as we are nearing the general elections and the government may soon expedite the infrastructure reforms as a lot has yet to be accomplished out of what is planned.
Secondly, inflation numbers has been majorly fueled by primary articles inflation. It has been helped by rapid income growth which triggered change in food consumption habits as well as higher settings of minimum support prices. The primary articles inflation touched approximately 23% in December 2010, and averaged 13.5% since then.
We thus highly anticipate rate cuts to come in the first quarter of 2012 if the economy numbers don’t show any improvement. This could trigger a rally into bond prices as they share an inverse relationship with interest rates. Income funds, gilt funds and other funds with long term debt papers would be the major beneficiaries of any such move from the central bank.
Hybrid funds which have a mix of both equity and debt portfolios are thus best placed to unleash a sustained rally in 2012. Selecting amongst MIPs, balanced and asset allocation funds should be done after ascertaining personal risk-return profile and income/liquidity needs.
If you are planning to invest for anywhere between 3-5 years, balanced funds are the one or if you are planning to invest for anywhere under 3 years, you should ideally go for MIPs which have up to 75% allocation into debt and also provide regular income.
Associate Fund Manager, Bonanza Portfolio Limited
Equity markets have corrected 20-25% in the year and look very attractive at current valuations of 12-13x P/E (one year forward earnings). Midcaps and smallcaps have been hit even further.
Any positive developments on the global level w.r.t. European sovereign crisis in the year could trigger the return of foreign institutional flows back to emerging nations, of which India would be a major beneficiary. The reversal of flows would also ease the pressure on the government to control rapidly falling rupee.
At the same time, inflation has already started showing signs of taming down. The domestic political deadlock is soon expected to ease as we are nearing the general elections and the government may soon expedite the infrastructure reforms as a lot has yet to be accomplished out of what is planned.
Secondly, inflation numbers has been majorly fueled by primary articles inflation. It has been helped by rapid income growth which triggered change in food consumption habits as well as higher settings of minimum support prices. The primary articles inflation touched approximately 23% in December 2010, and averaged 13.5% since then.
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However, since late October, primary inflation has been steadily falling. At the same time our GDP growth has been slowing significantly. We are seeing gradual slowdown from 9.4% in Mar-10 quarter to just 6.9% in Sep-11 quarter. RBI has already stalled the rate hike cycle and has signaled its concerns over faltering economic growth. We thus highly anticipate rate cuts to come in the first quarter of 2012 if the economy numbers don’t show any improvement. This could trigger a rally into bond prices as they share an inverse relationship with interest rates. Income funds, gilt funds and other funds with long term debt papers would be the major beneficiaries of any such move from the central bank.
Hybrid funds which have a mix of both equity and debt portfolios are thus best placed to unleash a sustained rally in 2012. Selecting amongst MIPs, balanced and asset allocation funds should be done after ascertaining personal risk-return profile and income/liquidity needs.
If you are planning to invest for anywhere between 3-5 years, balanced funds are the one or if you are planning to invest for anywhere under 3 years, you should ideally go for MIPs which have up to 75% allocation into debt and also provide regular income.
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(The views expressed in this column are the author's own and do not represent those of EconomicTimes.com)Download
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