New Delhi, Dec 29: The fund managers at Cholamandalam Cazenove expect a hardening of interest rates, which is attributed to a host of factors including huge government borrowings and high inflation rate. Pressure on the rupee in coming months on account of weak inflows and high trade deficit will add to firming of interest rates. ``To prevent the rupee from weakening, the RBI kept short-term interest rates high by issuing repos and T-bills at 9 per cent and above. With slippage in revenue collection and possible stagnation in agricultural production, interest rates are likely to rise in the medium term,'' says the fund manager's commentary. As a result, both Chola Triple Ace and Chola Freedom (Income) continue to remain invested in floating rate bonds and debentures of shorter maturity.It may be recalled that Chola Triple Ace was the worst hit when the RBI hiked interest rates by 200 basis points on January 16 this year. Since Triple Ace invests only in triple A rated debt securities, its portfolio isbadly hit in event of interest rates moving up. Thus, by investing in instruments of shorter maturity, the fund managers aim at minimising the impact of any sudden gyrations in interest rates. The portfolio of Triple Ace has an average duration of 1.50 years with a yield to maturity of 11.45 per cent as on November 30.
Since inception, Triple Ace has paid a total dividend of 18.5 per cent, including an interim dividend of 5.5 per cent for 1998-99. As on November 30, the fund had a 91.2 per cent exposure to bonds and debentures while the rest was in money markets.
The fund managers have adopted a similar strategy in Chola Freedom -- Income with 37 per cent of the corpus in money markets. The fund paid an interim dividend of 7 per cent in November. The fund has added the AAA rated bonds of Indian Telephone Industries to its portfolio. The portfolio has an average maturity of 1.48 years with a YTM of 12.76 per cent.
On the equities front, the fund managers do not expect the markets to perk up unlessmeasures announced by the government are followed by concrete action. The growth option of Chola Freedom continues to toe a defensive investment strategy with holdings in non-cyclical sectors. At the same time, the fund is scouting for attractive valuations in undervalued commodity stocks and take view on new growth sectors. ``The expected volatility and negative sentiments are very likely to throw up excellent opportunities for investment in equities,'' says the fund manager.
The fund, which completed its first year of operations on November 30, 1998, has given a negative return of 4.3 per cent. The fund has, however, outperformed its benchmark, NSE-50 by 15.87 per cent. The fund continues to hover below par with its NAV at Rs 9.92 on December 23. The top five holdings as on November 30 are HLL, Infosys, HPCL, ITC and MTNL.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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