Fund managers expect markets at lower levels in the short term

Fund managers expect markets at lower levels in the short term

Mumbai: Even as global investors wait for the meeting of the US Federal Reserve on Tuesday and watch for an interest rate cut that could influence the movement of markets everywhere, Indian fund managers say that a 25 basis points (bp) or even 50bp cut in US Fed interest rates will neither solve the US’ credit problems nor ease its impact on global equity markets.

Most fund managers in India and South Asia are sitting pretty on a pile of cash, biding their time for another fall in the markets to start buying equities afresh.

The equity markets have already factored in a 50bp cut by the Fed and any decision will create a short impact, according to Ullal Ravindra Bhat, managing director of the Indian arm of Dalton Strategic Partnership LLP (DSP), a global hedge-fund house. “The problems in US are too serious to be eased with interest rate cuts," says Bhat, who expects the Fed to announce more cuts in interest rates in the future. Dalton is holding a “good" amount of free cash to be employed at lower levels in Indian stocks in the future.

S. Naren, head of equities at ICICI Prudential Asset Management Co. Ltd, the second largest asset management firm in the country, says a 25bp rate cut will not inspire any major movements but that a 50bp cut will result in a short rally. “However, if the Fed cuts the rate by 50bp, investors will then start questioning the basis on which the decision was taken. Logically, there should be more cuts in the future," adds Naren.

“This (rate cut) is only a relief measure," says Anoop Bhaskar, head of equities at UTI Asset Management Com pany Pvt. Ltd, another large mutual fund house. “Lowering the interest rates will not save the US economy unless home prices start moving up again. The third quarter results of US companies can drive global market sentiments in the short run," he adds.

Both ICICI Prudential AMC and UTI AMC are sitting on a fair amount of cash, the managers say. “We are booking profits in select stocks and not pursuing any aggressive buys. It is wise to hold some cash," Bhaskar adds.

Although the market hopes the Fed will slash interest rates by 50bp, a 25bp cut is more realistic, say Rajat K. Jain, chief investment officer at Principal PNB Asset Management Company Pvt. Ltd and Sameer Narayan, head of portfolio management services at ABN Amro Asset Management (India) Ltd. “The rate cuts might at best calm the markets for a while, however, the problems will stay alive for long," adds Narayan. Both Narayan and Jain are also holding “fair" amount of cash to purchase stocks at lower prices in the future.

Suresh Soni, a director and head of fixed income at Deutsche Bank Asset Management (India) Pvt. Ltd, is also betting on a 25bp cut. The Indian currency will not face much impact from the Fed’s decision, he says. “The rupee had moved in the past one week, mainly because of strong inflows, particularly to the initial public offer of Power Grid Corp. (the inter-state power transmitter)," Soni adds.

Kitty Chan, a director at the Hong Kong-based CASH Asset Management Ltd, a subsidiary of CASH Financial Services Group Ltd, expects the markets to move down in the short-run, “no matter what the Fed decides to do with interest rates." Another Hong Kong-based fund manager, Mandy Chan, who maintains a portfolio of Chinese equities for ABN Amro Asset Management (Asia) Ltd, however, says that the US rate cuts will not impact equities in this region.

The Chinese central bank announced its decision to raise interest rates on Friday, the fifth such raise this year.

However, the Chinese benchmark index gained more than 2% on Monday, even as all major Asian indices, except the Japanese Nikkei, ended the day in the red.

The Sensex lost about 100 points at the day’s close on Monday after trading at higher levels in the morning.