An article on Gilt & Presentation

Whether it is returns across various time frames or rankings in the industry over various time periods both are literally unworthy of bringing up for mention to an investor.

However an interest rate call apparently has already been taken ( by the fund/ fund manager/ AMC) as is evident from the fact that the average maturity of the fund has moved up in recent weeks to over ten years from a low of couple of years. The smaller fund size has only helped in this aspect. Mid October onwards we have already been selectively pushing this product to select clients/ corporate/ HNIs/ bank distributors, which has yielded in some limited inflows as well.

All the macro and micro economic indicators in the environment indicate towards an imminent cut in the interest rates in the economy that too in the immediate future.
The expectation is that RBI would cut rates sharply and in good measure in quick succession to make any relevant impact in the economy. Any half hearted slow inadequate symbolic measure would fall flat in its attempt to make the desired impact.

Most importantly and interestingly there is an near term event which makes the whole exercise worth analysis. We all know that in the first week of January every year SDS ( special depository schemes ) money matures. So will this year ( jan09) but only to be compulsorily be reinvested in govt. securities by around end of third week - beginning of last week of January. what is eye propping is the sheer volume of this amount !! We are talking about approximately one lac thirty thousand crores of rupees, plus estimated 8% interest on this amount. This equals to Rs.145.8 or one lac forty six thousand crores approx. Last years policy changes allow 10% of this to be invested in equities. Assuming this happens & remaining chase the gilt papers guess what would happen to their prices.

Let's also take into consideration the fact that balance govt borrowings for remaining fiscal is to the tune of 35000 crores, which the the govt may not go ahead with considering the prevailing liquidity scenario. Even if it chooses to do so there will be a considerable mismatch between the supply of gilt papers and the money chasing it resulting in an increase in gilt prices ( thus gain in gilt fund NAVs ) . Any ( there wd be ) rate cuts is further going to accentuate the spike in the gilt prices making investment in long dated gilts or gilt funds with higher maturity an attractive investment option at this juncture.

Which means even if there is no rate cuts in the economy , still an investor can look forward to ATLEAST 12-15% return annualized from gilt funds by investing for next three months. It can go up depending on the extent & timings of rate cut (s).

Interest rate cut is a probability but SDS event a CERTAINITY !!

We all need agree in using this available window to market gilt fund more aggressively using this information / logic as a pitch.
We can afford to have a dis agreement on the extent of rate cut or timing of the same but we need a consensus on the direction of the same and subsequently the strategy to aggressively push this idea. Gilt_Nw

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