Expert Speak

7th December 2009

An innovative, investor-friendly facility

Tata Mutual Fund has always been known for its investor-friendly dividend policy. Frequent dividend distributions in rising markets have served their retail investors immensely, by acting as a profit booking tool - which investors appreciate all the more when markets turn volatile. Tata Mutual Fund has now gone a step ahead - with the launch of its innovative automatic dividend trigger option - a facility that puts the dividend decision directly in the hands of the investor. Ved Prakash Chaturvedi talks about this new facility and also shares his thoughts on markets.

Congratulations on the launch of the innovative auto dividend trigger plan as also on declaring a dividend within 30 days of launch! Can you take us through this novel feature, its key benefits and how it works ?

The automatic dividend trigger is an investor friendly tool which helps the investor in obtaining appropriate dividends based on how the fund has performed and how the market performs. The basic concept here is that as markets go through various cycles, investors should be able to obtain dividends from market when market appreciates.

Will you now be rolling this feature out in your other equity funds as well or will it be restricted to the Equity P/E Fund only ?

At the moment we have launched this idea with the Equity P/E Fund. As mentioned earlier, it has been a significant success with both investors and distributors giving us positive feedback. We are in the process of obtaining similar feedback with respect to other products and in case our distribution partners and investors wish we will appropriately roll it out.

Will the trigger work only once in a calendar quarter or can multiple triggers play out, if markets rise very rapidly in a given quarter ?

The trigger will play out only once in a calendar quarter. As you know there are two separate triggers. Each of these triggers will play out once each quarter based on the choice that an investor has made.

Global equity markets, commodities and precious metals are all at or very near 12-month highs. Valuation concerns seem to have been overpowered by liquidity : is that a fair statement ? What is your view on the road ahead for Indian equities over the next 6-12 months ?

Global and domestic markets have gone up based on four factors. First is a sigh of relief based on the fact that the worst of the credit and liquidity crisis that we saw in 2008 may be behind us. Secondly, risk appetite for emerging markets and for other asset classes has gradually returned as reflected in the volatility indices. Thirdly, particularly in emerging markets we have seen some uptrend in growth rates for the economy and for individual companies. And finally and most importantly, the liquidity flows from developed markets into various other risk oriented asset classes have inflated asset prices. In our view long term Indian equities present a very attractive asset class. However, given the very sharp run up in the last 6 months driven by some improvement in fundamentals but also large overseas inflows, some caution is warranted.

What are the triggers you will keep an eye on as far as Indian equity markets are concerned, going forward ?

Indian equity markets will be driven by global and local sentiment, fundamental performance of companies, policy framework announcements and liquidity flows based on risk appetite for emerging market equities. The key trigger sense to watch out for are global sentiment and hence issues like the recent issue which happened in the Middle East needs close scrutiny. Similarly, fund flows from overseas will be very important. However, in our view the most important factor to keep a watch out on will be the growth rate of our economy and of individual companies over the next few quarters. In addition, the policy framework particularly with respect to global and domestic liquidity will also impact market sentiment.

Are worries about a double dip recession in developed markets now a thing of the past ? How real are those concerns and how might the global situation impact our markets ?

There is a general belief that the worst of the credit and liquidity crisis is behind us. However, there are some fundamental adjustments which are yet to be made. At the most fundamental level, the Western world has to start saving more and the Eastern world has to start consuming more. Many of these adjustments will happen over a long period of time and not in a short span of 18 months. Hence, in our view we will only gradually come out of this difficult situation. In our view there will be a period of rebalancing and adjustment and hence some corollary market volatility should be expected.

RBI seems to have signalled a reversal in its montetary policy stance. Where do you see the 10 year gilt rates headed over the next 6 months ? What will be the key drivers for interest rates and how do you see these drivers playing out over the next 6 months ?

In the debt markets we see that the current accommodative policy of the central bank will only gradually be tightened. A lot depends on what happens in global economies particularly in the US. An eye should also be kept on inflation numbers as we go into 2010. Our view is that in the initial stages there will be some gradual sucking out of the significant liquidity which prevails. While the next move will certainly be a rate hike, the moot question is when will such a move take place. In case of similar action in developed economies and a spike in inflation numbers we might see some action in this front.