[04:25:02 PM] => Myiris : Welcome to the myiris chat session.
[04:27:16 PM] => Myiris : Our guest, Mr. Ramgopal. K , Chief Investment Officer, Fixed Income, IL & FS Mutual Fund will be joining us shortly.

[04:31:19 PM] => DISCLAIMER
[04:31:51 PM] => Mr. Ramgopal. K. is the Chief Investment Officer, Fixed Income IL & FS Mutual Fund. At the time of this conversation / chat, Mr. Ramgopal may or may not have positions in the stocks mentioned below, although holdings may change at any time. The views expressed by Mr. Ramgopal is based upon information that he considers reliable, but does not represent that it is accurate or complete, and it should not be relied upon as such. Mr. Ramgopal, his company and its affiliates, officers, directors, partners, and employees may, from time to time, have long or short positions in, buy or sell and deal as principal in the securities, or derivatives thereof, of companies mentioned herein and may take positions inconsistent with the views expressed.
[04:32:35 PM] => None of the information contained herein constitutes, or is intended to constitute a recommendation of any particular security or trading strategy or a determination that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. You should consult with and rely upon your own advisors whether and how to use such information in making any investment decision.

[04:33:13 PM] => Lastly the views expressed by Mr. Ramgopal have no bearing whatsoever with that of IRIS Ltd. IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website www.myiris.com.
[04:34:09 PM] => Myiris : Welcome to the chat session Mr. Ramgopal.

[04:35:24 PM] => Ramesh Naik : Sebi is planning to link the capital base of AMCs to the quantum of funds managed by them. Don't you think that this will increase investor confidence, ensure liquidity in times of crisis and help meet contingencies? Why has then the MF industry rubbish the proposal? Will you please honestly state your views regarding this proposal? Do you support or oppose it?
[04:38:07 PM] => RG : We must appreciate that Mutual Funds (MFs) do not run balance sheets of their own. MFs operate as pass through entities that are designed to pass on all the benefits of investment (and the negatives therein as well) to the investors, akin to a "trust". On the other hand, financial intermediaries (FIs) accept liabilities and create assets in their balance sheets. Since the assets created are held in their corporate capacity, the benefits and the losses arising out of such asset creation accrue directly to them. Whereas, the investors in the fixed liabilities of FIs get a fixed return and do not share profits on such asset creation.
[04:38:48 PM] => It is this basic difference in the structure which makes the concept of capital adequacy important for FIs while it is not of much relevance to a MF. However, there are existent SEBI regulations to ensure that there is a threshold level of networth for carrying on MF business.
[04:40:06 PM] => Thus, to summarise, while a minimum capital adequacy has a relevance for a MF, a percentage capital adequacy would not, in my view, be appropriate.

[04:41:08 PM] => Raghuvir : Reserve Bank has decided to allow MFs to become members of the negotiated dealing system from the first stage of operation. What will be the impact of the same?
[04:42:50 PM] => RG : As of now, dealing in government securities (g-secs) is a telephone market. Earlier, the WDM segment of NSE has tried to bring about dealing in g-secs through electronic medium. This has not caught on and the WDM remained a reporting formality for WDM brokers. The negotiated dealing system (NDS) proposed by RBI is expected to usher in electronic trading in debt paper, particularly g-secs. MFs are large investors in g-secs and corporate paper and would need to be part of any electronic system of dealing being implemented.
[04:43:20 PM] => The NDS as and when implemented is expected to give a fillip to the market by higher order of transparency, faster and more accurate price discovery and an official medium for reporting all trades. The back-office and settlement module linkages can be expected to add to the ease of settlements.

[04:44:20 PM] => Mahesh R : Do you think the interest rates go down further?
[04:46:20 PM] => RG : Yes. There is certainly scope for interest rates to go down. Especially, the administered rates such as PPF Post office saving rates, Tax relief bonds etc. And also the deposit and lending rates of commercial banks have not really come down. So far, the sharp drops in interest rates that we have seen are restricted to the benchmark securities in government and corporate paper. There has not been a wide spread fall in interest rates.

[04:48:21 PM] => Kamesh : Sir, How does the volatility and fluctuations of the forex market affect the income funds?
[04:50:05 PM] => RG : To the extent that forex market fluctuations affect bond markets and interest rates, the income funds would be affected. A sharp fall of Rupee against US $, would tend to make the interest rates harder. This happens as following. (a) Traders and merchants buy dollars, which require funding through higher Rupee borrowings. (b) RBI, if it wants to defend the currency, (i) resorts to selling dollars (which means buying rupees) which drains Rupee liquidity from the system, (ii) hikes benchmark rates such as bank rate, (iii) hikes CRR, which directly drains liquidity from the system, (c) A combination of the above.
[04:51:40 PM] => All these tend to increase the cost of funding dollar purchases and hence a sharp drop in the value of domestic currency tends to increase in interest rates. During the last few years, RBI has demonstrated that the forex stability is of paramount importance and not hesitated to hike interest rates whenever Rupee depreciated sharply.

[04:52:49 PM] => MS20 : How would you compare the performance of your funds?
[04:53:56 PM] => RG : In our view, the schemes of IL&FS MF have done very well. Since I handle the fixed income schemes of IL&FS MF, I would restrict my comments to the fixed income schemes.
[04:55:21 PM] => The Bond Fund of IL&FS has been delivering consistent returns comparable to the top bracket of income funds. At the same time, the interest risk embedded in the portfolio is acceptable and consciously and proactively managed so as to deliver superior performance at controlled risk levels. The portfolio is also designed such that it is capable of being restructured at short notice. This has been made possible by investments in liquid, benchmark securities.
[04:57:44 PM] => IL&FS Liquid Account has been consciously positioned and managed as a highly liquid, low risk scheme, with instant liquidity and capital preservation as the principal objectives. The fact that it has also delivered consistently comparable return is a bonus. The portfolio duration of this scheme is one of the lowest in the industry and hence any return comparison must consciously factor in this.

[05:00:42 PM] => Saini : How do you see the GILT prices movement over the next quarter?
[05:02:00 PM] => RG : Stable to higher. There are bound to be bouts of volatility and also adjustments across the yield curve, but the secular trend of lower interest rates should be in tact.

[05:03:51 PM] => Ganesh : Sir, What is the average duration in your debt portfolio? How would you rate its performance vis-à-vis competition?
[05:05:54 PM] => RG : The portfolio modified duration as of date is 3.39. The performance has been satisfactory in absolute and relative terms; relative to competition and relative to the risk levels embedded in the portfolio. I would also like to study various parameters such as percentage of liquid securities, percentage of impact cost if any in the portfolio, NAV returns along with portfolio modified duration etc., before venturing into inter-fund comparisons. However, most of this data is not readily available. From whatever is available at third party sources such as "myiris", our schemes seem to have done fairly well and are in the top bracket of performance.

[05:07:52 PM] => Robin 45 : Sir, what do you think of the bond market?
[05:09:01 PM] => RG : Bond markets have been rallying even as we speak. This is a secular trend associated with the sharp drop in yields/interest rates that we had been seeing since 1997-98. There seems to be a reasonable case for continuation of the firm undertone of bond markets, especially since the economy is not faring well.

[05:10:29 PM] => B_Reddy : Are oil prices going to be the most important determinant of the rupee?
[05:12:04 PM] => RG : There are various factors going into the determination of Rupee value. Current account flows such as exports, imports, remittances etc., capital account flows such as FIIs, FDI etc., and balancing flows such as aid, borrowings etc., all have a bearing. India has a large oil import bill and hence oil prices after they have shot up last year are back in prominence as an important determinant this year.
[05:13:32 PM] => However, the sharp increase in the oil prices after the 911 event (Brent DTD touched $31; pre 911 it was at $27) have reversed entirely and Brent DTD is now at $ 20.85 (last week it briefly went below $19). Oil prices are expected to stay on the softer side since global slowdown has brought down demand and Middle East seems to be bypassed in the post 911 hostilities.

[05:15:19 PM] => Bala : Do you think there'll be a major shift from equities to debt fund?
[05:17:31 PM] => RG : I think the investors in debt and equity funds tend to be distinct. No doubt, a part of the massive growth seen in debt funds over last 18 months or so might have come at the expense of equity schemes. But that would not be true of the entire growth. Nor can we say that going forward, we would see shifts from equities to debt funds.

[05:19:30 PM] => Mathew : It is widely believed that with debt funds shifting to demat mode from Nov 1, fund houses are scared that the process could result in a liquidity crunch if they are unable to offload bond holdings specially public sector ones. How real is the fear?
[05:21:09 PM] => RG : G-secs are held in SGL which is a form of demat. In corporate sector also, most benchmark securities are now available in demat mode. To the extent that the Fund is holding liquid securities, the risk of a liquidity crunch is minimal. In some specific bonds, this problem can arise and we find that the pricing on such bonds is already factoring in this.

[05:22:06 PM] => Hanif : Sir, Indian markets seems to have a degree of insulation against the world markets after the US attacks. Why is that happening?
[05:23:53 PM] => RG : I guess the degree of insulation comes from a large domestic economy and large domestic demand, relatively low dependence on external trade, large percentage of agrarian economy, large public sector employment and large fiscal deficits and inelastic government expenditure.

[05:25:32 PM] => ShenaiN : When do you see a reversal in the interest rate trend?
[05:26:39 PM] => RG : I guess we will keep having the bouts of volatility as we had in August and September. But for a reversal of downward trend, we would need economy to pick up significantly. These signs are absent and it may be only in 2002 that a revival might be noticeable. A lot would also depend on the developments on the fiscal front and the progress on Fiscal Responsibility Act.

[05:28:41 PM] => Shalini : I would like to invest in debt. But have no clue whether its the right investment for me. What do I look at before putting money in debt funds?
[05:30:12 PM] => RG : Once you have identified the risk appetite you have, i.e., fixed income risk exposure or equity risk, for choosing a fund, some of the issues you should perhaps look at are : (a) Sponsor/Promoter track record; (b) Investment Philosophy of the Fund (c) Risk Management systems (d) Percentage of liquid bonds in the portfolio (e) Track record in volatile periods.

[05:31:53 PM] => VinayG : Would you advise people to stay out of equity in this market?
[05:32:51 PM] => RG : Well. I am a fixed income manager, not an equity manager. However, one should stay out of equity only if the right risk appetite is not there. If the equity risks are understood, then this could be a good time to invest in equities.

[05:33:37 PM] => Guest45 : Sir, What do you think about the ICICI-ICICI Bank merger?
[05:35:15 PM] => RG : I think it would be good for ICICI group once the short term issues are sorted out. In the medium term, it would provide them synergies on both sides of the balance sheet.

[05:36:01 PM] => Manohar : Are mutual funds facing redemption pressures? What about IL&FS?
[05:36:52 PM] => RG : During September there were reports of redemption. At present there is no such pressure. At IL&FS our fund corpus has been steady and no major redemption is noticed.

[05:37:29 PM] => Dinesh K : Is it the best idea to get out of equity and into debt funds during a recession or is it the time to buy stocks?
[05:38:40 PM] => RG : If you are looking for timing the markets, switching from equity to debt funds could be done just before a recession and reverse just before the end of recession. This, presuming that the markets have not already discounted (or priced in) the impending recession or the end of it. In general, I would like to segregate equity and debt exposures and look at them separately. It is also not necessary that bond and equity markets have to behave in the opposite directions.

[05:39:45 PM] => Sudha Ramana : Why should one choose debt funds over banks? Could you please explain the advantages?
[05:40:58 PM] => RG : Firstly, there is the advantage of liquidity. Most debt funds are open ended, which give you instant liquidity. Secondly, most of the asset return comes to the investor in a fund situation, while in a bank deposit, the deposit rates tend to be much lower than the asset yields. Thirdly, the debt funds provide a tax advantage in as much as they only pay a dividend tax (10% + surcharge) while bank deposits attract income tax rates.

[05:41:47 PM] => Ashish : What are the benchmarks used for evaluating the performance of your debt fund?
[05:43:07 PM] => RG : Please see some of the above answers. NAV Return, embedded risk levels (measured through portfolio modified duration or value at risk), percentage of liquid securities, track record during the volatile periods etc are some of the benchmarks that could be used.

[05:43:59 PM] => RJ67 : Where do you see the sensex at the end of the year?
[05:44:42 PM] => RG : Since I am not an equity fund manager, I would not like to comment please.

[05:45:10 PM] => Murthy : Sir, Do you comment on specific scrips? What do you think of HFCL?
[05:46:01 PM] => RG : Since I am not an equity fund manager, I would not like to comment please.

[05:46:40 PM] => Pankaj: What is your view on Indian economy going forward?
[05:47:40 PM] => RG : Please see some of the above questions where some comments were there. I think signs of recovery are still absent. Much would depend on the infrastructure spending, recovery from global slowdown, speeding up of reform process etc.

[05:49:14 PM] => Rakesh Mohan : Do you have any suggestions for streamlining MF regulations? Heard that SEBI is planning to tighten the laws.
[05:49:53 PM] => RG : The very first question dealt with the proposed SEBI tightening of networth requirements. On other aspects, I think more than regulation, what we require is transparency and best market practices which can come about better through SROs.

[05:50:11 PM] => Karan556 : Why Vikas WSP is de-listed and why it is now not popular with newspapers and what is the future?
[05:50:50 PM] => RG : Since I am not an equity fund manager, I would not like to comment please.

[05:51:34 PM] => Guest34 : Hello Sir, What are the kind of returns that you are expecting this year?
[05:52:23 PM] => RG : We are expecting healthy returns in fixed income portfolios and fixed income funds. The returns cannot be expected to be as high as last year but still decent for comparable asset and risk classes.

[05:52:41 PM] => Mukesh : What is your outlook on YTMs in the debt market?
[05:53:00 PM] => RG : Stable to lower.

[05:53:37 PM] => SR90 : How do you determine the liquidity of any Gsec?
[05:54:08 PM] => RG : You can look at the traded volume on the NSE which would give a fairly good idea of liquidity of the g-sec.

[05:54:36 PM] => Murugesh : How has been the retail participation of late in debt funds?
[05:55:08 PM] => RG : I believe it has been on the increase as retail awareness of debt schemes is growing.

[05:55:48 PM] => Nalin P : Which is a better option for short-term? Bond or gilt funds?
[05:56:31 PM] => RG : I suspect bond fund; since the liquidity of short term bonds is higher than short term g-secs. But let me immediately point out that the risk profile of the bond and gilt funds is different.

[05:57:04 PM] => Murali : Is this a good time to get into debt? If so why?
[05:59:14 PM] => RG : I think it is a good time to get into debt funds since we feel that interest rates would be stable to lower. This reduces the risk profile of the bond funds. Also the returns on debt funds are expected to be healthy as compared to other assets of similar risk class, in view of the liquidity and tax efficiency.
[06:00:00 PM] => Myiris : That’s the end of the chat session for today.
[06:00:32 PM] => Myiris : Thank you all for your participation.
[06:00:51 PM] => Myiris : We thank Mr. Ramgopal K, CIO, Fixed Income, IL & FS Mutual Fund for his insights and for making this a very lively session.