Fund houses sit tight ahead of US Fed meet, RBI policy review

MUMBAI: Mutual fund managers are cautious in taking trading positions ahead of the crucial US central bank meet as any announcement on tapering of its easy money policy will determine the future direction of bonds, forex and equity market, say market experts.

They said trading strategy will also hinge on the September 20 policy review by the Reserve Bank, which will be the first by new Governor Raghuram Rajan, who has created a lot of expectations in the market with his positive-sounding inaugural speech earlier this month.

Though analysts do not see a reduction in the policy rates in the wake of an uptick in inflation and the still bleeding rupee, and also no reversal to the pre-July 15 call money rates, the way Rajan has changed market sentiment is positively weighing on the Street.

"We are not taking any aggressive trading positions before the crucial US Federal Reserve meet and RBI policy review on on Friday. We are cautious and conservative as of now as these two events will determine the future direction of the market," IDBI Mutual Fund Chief Executive Debashish Mallick told PTI today.

The Fed will hold its crucial review meeting later today (Wednesday) in which the current bond buying programme of USD 85 billion per month, which is used as a measure to pump in money to prop up the US economy, will be evaluated.

While some experts expect USD 10 billion reduction in the bond buying programme, others are of the opinion that tapering may not happen during this quarter at all.

"The market expects USD 5-10 billion reduction per month in the bond buying programme, which has already been factored in. However, if it doesn't happen, then the market may rally initially but will remain volatile thereafter," Head of Fixed Income at Sundaram Mutual Dwijendra Srivastava said.

On the trading strategy, he said his fund house is holding longer duration Government bonds.

Another fund manager of a mid-size fund house said any stance of taking trading position will come post US Fed and RBI meets. "We have our fingers crossed before the two crucial events. Any trading position will depend on the outcome of these events," the official said.