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Global sell-off: Money managers advise investors to add debt funds

February 13
00:25 2018

Money managers in India have a simple message for retail equity investors wounded by the global selloff in the past week: add debt funds. While the rout has sent markets from US to Asia into declines exceeding 10 percent, fund managers say there are signs that the six-month selloff in Indian government debt — the longest run since 2000 — may be nearing an end. The nation’s sovereign bonds Friday capped their first weekly gain in a month after the central bank kept a neutral stance in its policy review. “There’s a case for people to get into bond funds,” Rajat Jain, chief investment officer at Mumbai-based Principal PNB Asset Management Co., said in an interview. “While there will be volatility, yields will soften from here.” He recommends shorter-maturity debt funds. Prime Minister Narendra Modi’s government’s decision on Feb. 1 to bring back a tax on equity gains coincided with the turmoil, denting sentiment in the $ 2.3 trillion market that had only marched to multiple records in the past year. The rout has a silver lining: retail investors, who typically hold midcaps that are prone to pullbacks, received a stark reminder on balancing allocations between equities and debt, said Jain. Equity investors “should book profits on the riskiest part of their portfolios and switch to less-risky assets and restore their allocation,” said Unmesh Kulkarni, Mumbai-based head of markets and advisory at Julius Baer Wealth Advisors India Pvt. Aside from short-term debt funds, he recommends “staggered” purchases of long-duration plans as the surge in local yields has gone so far that it “seem to discounting two rate increases” by the RBI. Domestic investors poured 1.48 trillion rupees ($ 23 billion) into stock funds in the first 10 months of the year that began April 1, more than double from a year earlier, data from the Association of Mutual Funds in India show. The flood of cash is the reason why the S&P BSE Sensex hasn’t suffered a 10 percent correction in almost 15 months.

The gauge rose 0.5 percent at 9:47 a.m. in Mumbai, as Asian stocks rebounded from their worst week since 2011.

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