We Are Close To The Bottom

Manager Speak - Amitabh Mohanty, debt fund manager, Alliance Capital

Q: Doesn't sub-AAA add to your credit risk, especially given that the economy is not in great shape?

Most of the bad news on the economy has already been factored in. If a company has withstood the tough times till now, I don't see them getting downgraded anymore. We are headed for better times and sub-AAA papers offer value. Gilts could go down to 7.40 levels at best and hence the only way fund managers can deliver better returns is by turning to corporate paper. Good AAA paper now offers 8.65 per cent and AA paper offers 9.15 per cent. As the gilts run may just come to a close, this is the only way a fund manager can add value.

 

Q: Isn't liquidity a problem in such paper?

Yes, it is a concern, but we will not over-indulge. Currently, we have about 20 per cent in sub-AAA paper. We will not increase allocation any further. Even if we like some paper, we will not take exposure in it at the cost of liquidity.

Q: Why have you reduced exposure to gilts in recent times?

At these levels, we are not comfortable holding gilts. Even though the border risk has been reduced, it hasn't gone away. RBI signals indicate that we are somewhere close to the bottom. So we don't see too much potential for appreciation in gilts.

Q: What are your return expectations for the year?

This year fund managers have to exhibit a significantly higher level of discipline compared to last year. Probably, there will be a change in the cycle. Portfolio strategies have to be reworked and investor expectations will have to be realigned. We will try to do our best, but I don't expect returns to be anywhere close to what we achieved last year.