Manager speak: Pankaj Kaji, Fund Manager, Prudential ICICI Income Fund
What is your view on interest rates?
Excess liquidity in the system, caused by strong inflow of foreign exchange and weak off-take of credit, has kept interest rates low.
The rate of inflation is currently under control. Given these factors, we believe that interest rates will continue to remain soft in the foreseeable future.
What is your investment strategy for the year? The view is that markets are likely to be more volatile this year. Would you agree?
The fund's strategy for the year will be to actively manage the average maturity/duration of the portfolio in line with the investment objective of the scheme and the progress of macroeconomic numbers.
Factors such as event risks and liquidity mismatches, from time to time, are likely to increase volatility in the market. Therefore, even though the overall trend is not likely to change, there could be sharp corrections in bond prices from time to time.
Given that yields have fallen substantially, what are the returns that debt funds, as a category, are likely to generate this year?
In the year 2002, we have seen yields falling by 200 to 225 basis points on 10-year and 15-year government securities, and corporate bond yields compressed by 130 bp over yields on government securities.
Even though the soft trend is likely to continue, the extent of capital gains seen last year is unlikely this year. The returns generated by debt funds during the year 2003 will surely be affected by this.
What are the limitations that come with managing a large fund like yours?
Large funds give ample flexibility in managing the assets as well as a definite advantage in pricing of papers. Given that our fund's philosophy is based more on a strategic call on interest rates and less on daily trading, our size is a big positive factor in this regard.
