Credit policy triggers fresh hopes

MUMBAI: For debt fund managers of asset management companies, the credit policy has triggered fresh hopes for improving returns from income schemes by exploiting trading opportunities.
Several private sector fund managers have made it clear that policy-led rally in government securities will enable them to post over 10 per cent (annualised) returns for the next six months, at least 200 basis points higher than earlier expectations.
"For the last three months, gilt schemes of mutual funds have generated 35 per cent returns, with over 30 per cent returns generated from capital appreciation and remaining from interest accruals. This was possible due the consistent fall in yields over the last one year (aggregating to over 200 basis points) and this has pushed up the net asset values of all income schemes. Though we feared that this is the end of the road and there is no more scope for trading opportunities till the policy was announced. Now at least in the short-term, more trading opportunities exist and therefore better returns," said a fund manager in SBI Mutual Fund.
On Tuesday, several government papers witnessed a rally of 25-55 basis points in prices and the benchmark 10-year 7.40 per cent paper closed at Rs 103.30, marginally higher than Monday’s close at Rs 102.80.
"We expect a correction in bond prices in a week’s time. Since the liquidity overhang in the money market is substantial, the central bank itself will conduct an open market operation sometime next week to bring back stability in the system," said an analyst in Motilal Oswal Securities.