Bullish expectations to continue: DSP Merrill Lynch survey
Our Corporate Bureau
26 February 2005
We asked fund managers and CIOs at what level they expected to see the wholesale price index (WPI inflation rate) on 31 March 2005 The choices were:
- below 6 per cent,
- between 6.01-6.50 per cent and
- above 6.50 per cent.
All the respondents expect a decline in the WPI responding with "Below 6.00 per cent." This is of significance considering that the RBI governor said that he expects the inflation rate to be around 6.50 per cent by March.
Markets
There was some visible improvement in fund manager sentiment since the last survey. This could have been triggered by the sharp fall in the inflation rate. In the short term, sentiment is more bullish from stable in January.
- 47 per cent now expect the market to be bullish.
- 27 per cent expect a bearish market
- 27 per cent expect a stable market.
The long-term outlook turned positive, though not bullish, with the majority expecting the market to be stable while a significant set still expected markets to remain bearish. Only 13 per cent of the fund managers are bullish on the market.
Credit Spreads
The short-term view on spreads remained largely the same with the majority still expecting stable spreads.
- 33 per cent expect spreads to widen.
- Views over the long term saw a slight shift with more expecting the spreads to
- stabilize.
- No fund manager expects spreads to narrow.
Returns
Although fund managers largely expect stable markets, they have also highlighted risks in terms of bearishness in gilts and widening of spreads. On account of this risk-return payoff, income funds and long-term gilt funds were the most preferred category by fund managers. Following this in second place was floating rate funds
and short-term debt funds.
