'Interest rates are likely to harden'

FUND MONITOR: S Naganath

Can you tell us a bit about the strategy for the fund?

We aim to build a quality debt portfolio with low downside risk in terms of interest rate sensitivity. We try to minimise active risk across the portfolio.

We endeavour to ensure a high-quality debt component with a conservative risk profile, since the active risk is mostly assumed in the equity component.

What is your outlook for the debt market and the interest rate scenario?

We believe that interest rates may harden marginally by about 25 basis points in the near-term. However, they are likely to remain stable thereafter for the rest of the year.

So, how are you positioning your portfolio?

The debt component is largely anchored in short-dated and floating-rate debt securities. Therefore, in the context of hardening interest rates, we expect to minimise the downside risk of the portfolio.

What is your average portfolio duration? Are you contemplating any changes in the near-term?

The duration of the debt component as on April 29, 2005, was 98 days. We expect to maintain the duration at the current levels in the near term.

What will be the fund's exposure to equity this year? What kind of stocks are you looking at?

We modulate the equity exposure - depending on our short- to medium-term outlook for the equity market - to minimise downside risk and optimise returns. We pick stocks of companies that fall within the top 100 companies by market capitalisation.

Therefore, the focus is on large-cap stocks, which display good fundamentals and enjoy high liquidity.