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July 4, 2001
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Money > Business Headlines > Report July 4, 2001 |
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MFs may see redemptions, FIIs likely to turn charySangita Shah Mutual funds and foreign institutional investors are set to face the ripple effect of the Unit Trust of India's decision to freeze its flagship US-64 scheme. Market participants are expecting major liquidation from the UTI in the short term. The other schemes of the UTI are also expected to be net sellers in the next few months along with other mutual funds. Major redemptions are expected as the fate of US-64 will have a psychological impact on investors, dealers said. Moreover, the 10 per cent dividend declared for US-64 effectively gives a return of around 7 per cent only considering its last repurchase and sale price of around Rs 14. Since dividend of US-64 is considered to be the benchmark for the mutual fund industry, it will prompt the investors in equity schemes to opt for bond or debt schemes or even gilt schemes which offer higher returns compared to the 7 per cent returns, a senior mutual fund analyst said. Foreign portfolio investments in the country may also witness a downward trend in the next few months extending up to the end of the calendar year. The major reasons include the drop in trading volumes on the exchanges due to segregation of cash and futures market and introduction of rolling settlement in the most liquid stocks. "Poor volumes will further weaken the chances for the institutional investors to get a better price recovery. The selloff by mutual funds will aggravate the situation as the market would be void of either retail participants or the FIIs to absorb the selloff," a leading broker on BSE said. Traditionally, FIIs slow down their investments in the late half of the year as generally they are allowed to increase their investments only if they show profits. "It would be surprising if FIIs even hold on to their investments in the next few months," another dealer said. "It looks like it is going to be tough time. Poor price recovery will increase the cost of transaction for the foreign portfolio investors as they will not be able to churn their portfolios as frequently as they would want to, leading to higher holding costs," Kisan Choksi, chairman of KRC Securities, said. Higher transaction and holding costs will reduce the chances of taking reasonable profits home, which will dampen the fresh infusion of portfolio investments, dealers averred. Powered by YOU MAY ALSO WANT TO READ:
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