MUTUAL FUNDS

Inflation Is Expected To Come Down In First Half of CY 2012<
12-Dec-11   17:07 Hrs IST

Ms. Bekxy Kuriakose
Rupee depreciation is beneficial for exports, it can be a disadvantage for our imports and to this extent it can lead to pressure on the Balance of Payments and trade deficit. Inflation is expected to come down in first half of CY 2012 on the back of base effect and softening of food and primary articles inflation to 7.00%. We at Capital Market interacted with Ms. Bekxy Kuriakose, Sr. Fund Manager & AVP-Fixed Income of L&T Mutual Fund, to know the outlook on Rupee, inflation in Calendar Year (CY) 2011.

Here are the excerpts:

What's your call on Indian rupee? Don't you think if rupee continues to depreciate or even remain at current depreciated levels for long, India's growth story is as good as suspended?

Rupee may remain under pressure in the near term due to global events. While the depreciation is beneficial for exports, it can be a disadvantage for our imports and to this extent it can lead to pressure on the Balance of Payments and trade deficit. However, India's growth story is dependent on a wide range of fundamental factors and not just the near term movement of the rupee.

After remaining at high levels for past couple of years, can inflation come down in CY 2012? Will RBI be able to cut interest rate in CY 2012 or the rate will remain stable? What's your view on investment in debt in CY 2012?

Inflation is expected to come down in first half of CY 2012 on the back of base effect and softening of food and primary articles inflation to 7.00%. Depending on the investor's risk appetite a range of debt funds can be looked at for investment including Ultra Short Term, Short Term and FMPs (Fixed Maturity Plans).

Gilt Funds category has been facing net outflows since December 2010, what has been the reason behind it. Do you see any reversal in the trend in CY 2012?

The primary reason could be the rising interest rates leading to lower returns and underperformance of the category as compared to other categories. Stable downward movement in gilt yields can lead to the trend reversing. So far gilt movements have been volatile.

What kind of debt funds would you be recommending to your investors right now and what are the expected returns from them? Given your expectations of where interest rates are headed next year, would you be advocating short term plans or longer term plans which can take advantage of the double indexation facility?

We are recommending Short Term Debt Fund (NFO), Ultra Short Term funds, FMPs and Liquid Fund. Taxation is a separate aspect and only one of the factors to be considered for investments. One has to also look at the category performance and expected returns.

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