MFs gear up to counter election uncertainty

MUMBAI: With the uncertainty over general election looming large, mutual funds are taking positions to counter any market volatility till a new government comes in place. Some fund houses are looking at conservative sectors which are less impacted by market trends, maintaining a cash level of 10-20 per cent in their equity schemes. 

Election is perceived to be the biggest domestic event that could dent markets in 2009. Already bruised by the global recession, cautious fund mangers are taking investment calls. 

FMCG, pharmaceutical, infrastructure oil and gas, agriculture and auto have emerged as the preferred sectors to counter any sudden market volatility from the election results. 

“The pay hikes under Sixth Pay Commission for 34 per cent of employees in organised sector will boost sales of FMCG and automobile industries; operating margins of the big companies are expected to go up consequently,” said Gopal Agrawal, head-equity, Mirae Asset. 

Increasing rural income with higher minimum support price for various commodities will add to the prosperity of the FMCG sector. 

“In view of rising rural income and more agricultural produce despite recessionary impact, we will invest in any company (fertilizer, agri products etc.) wherein income comes from rural marketing,” added Mohit Mirchandani, head – equity, Taurus Mutual. 

Taurus Mutual Fund is looking at low beta and low correlation (to broader market) stocks. “These stocks chart their own course with less impact from broader market conditions. Hence, they will act as a cushion against any uncertainty,” reasoned Mirchandani, who is also mulling investing in infrastructure and agriculture sectors. 

Sanjay Sinha, chief executive officer, DBS Cholamandalam, is also positive on the infrastructure sector. “Once a stable government is in place, infrastructure spending is bound to increase with commencement of a slew of greenfield projects,” he explained. 

Tata Mutual Fund has 50 per cent exposure to large cap banks and FMCG companies under Tata Pure Equity Fund, while Mirae Asset is significantly overweight on FMCG, pharma and auto companies under its India Opportunity Fund. 

Pharma companies with adequate cash flows are also seen as a defensive bets against uncertainty by fund managers. 

Meanwhile, UTI AMC is looking at domestic demand driven companies with high cash flows and relatively higher return on equity in the space of telecom, FMCG and pharma.

Source:Economictimes