Do you believe in exit polls? Well, the stockmarket displayed its faith in big broad jitters all through the period of so-called 'uncertainty' when it was not clear how decisive the country's electoral verdict would actually be. This led to a peculiar end to April 2004, a month that had otherwise seen stocks on the ascendant for its first three weeks. Starting with the second round of exit polls on April 27, the thought of a fractured mandate gave investors nightmares. The impact was even more intense than 9-11, with the BSE Sensex crashing 213 points on a single day.

Market participants got spooked for no good reason, as it turned out, with exit polls proved inaccurate once again; the actual results did indeed have a coherent message. Yet, it was no ordinary month of trading, with sentiments in such a state of flux. Even the index heavyweight Reliance Industries had seen a huge fall in its stock price, despite its phenomenal Q4 numbers. PSU stocks were hit the worst, given their susceptibility to changes in government policy. HPCL and BPCL, for example, lost about 7 per cent on a single day.

Mayhem it may have seemed like, but of minor consequence; all the sectoral as well as broadbased indices closed higher than the previous month's levels. The BSE Healthcare index was up by 9 per cent. The bse it and BSE Bankex saw appreciations of 7 and 6.5 per cent, respectively. The two diversified indices BSE Sensex and NSE Nifty, however, rose by just 1 per cent in April.

There was no major change in FII investments, with net equity inflows of Rs 7,638 crore. Mutual funds were net sellers-with outflows of Rs 219 crore.

The trend in the debt market was bullish in the first half of the month, as inflation held low and the RBI cancelled the scheduled securities auction of Rs 5,000 crore in April and opted for a maiden MSBS issue instead. Yields, however, rose sharply as the month ended-in fear of irreconcilable parliamentary schisms.

Diversified Equity Funds

The diversified equity funds did well, with an average category return for April at some 6 per cent. Funds with higher exposure to mid-cap stocks have gained more. Sundaram Select midcap is the top gainer, with a chunk of its corpus in pharma, chemicals and sugar sectors (Balrampur Chini Mills was one of its top holdings). Lupin helped it gain, too. Principal Growth Fund, the second placed, did well on auto, banking and cement sectors. Alliance Equity Fund scored on Pantaloon, Trent, E-Serve and Bharti Tele-Ventures.

Sectoral Equity Funds

Pharma sector funds dominate the sectoral schemes' ranking. The leader, SBI Magnum Sector Umbrella- Pharma, scored well with its top holdings of Ranbaxy, Wockhardt, Uniphos Enterprises, Lupin and Aventis Pharma. SBI Magnum Contra Fund, which is relatively diversified, got the second place.

Tax Saving Funds

With average category return of 6.5 per cent, ELSS schemes posted modest gains in April. Prudential ICICI Tax Plan did the best, scoring well with bets on KPIT Infosystems and Trent. Sundaram Tax Saver, which is a tiny corpus of around Rs 56 crore, is second. Principal Tax Savings Fund, with high exposure to banking and cement stocks, finished third in April.

Balanced Funds

The average return from balanced funds was around 4 per cent in April, with all funds in the category managing to see some appreciation in their net asset values. Kotak Balance, with high exposure to pharma, is the top performer-though it also gained on Balrampur Chini Mills and EID Parry.

Outlook

Uncertainty in the run-up to elections is a fact of democracy-as also shifts in policy upon a change in government. Responsive bourses, thankfully, tend to discount these factors quite quickly. It helps that the incoming government's broad thrust of policy is not a mystery, so trading could resume its optimism-responding to the real issues of corporate and economic import, free of bias. India Inc's success story is not all hype, surely; good news is good news.

Yet, global factors-the possible US interest rate hike, the Chinese gear-shift and so on-must be watched. Global commodity prices could change. The outlook on bond markets continues to be cautious, as the rise in crude oil prices could result in inflation-though a cooling-off is a possibility too.

Gold And The Dollar

Investing in gold is rather complex, linked as it is to the dollar.

By Shilpa Nayak

Buy gold, they said. They were right. In fact, they, the gold bulls, are still basking in the reflection of their rich haul over the last two years that saw the yellow metal zoom. And guess what-they're still asking you to buy gold.

The difference, however, is that gold bears haven't gone missing from the global bullion market; they're there, pointing to the expected rise in US interest rates as a key reason to sell gold. Recent economic trends, they say, suggest a recovery of the US dollar rather than a rout. So things should go right back to the halcyon days of gold being something grandma speaks of in weaker moments, not investors.

Which argument would you put your money on?

Brief History of Gold

Gold, remember, has defined 'precious' ever since cavemen decided to club one another over the head for it. Not for nothing. The metal is a reliable store of value, come civilisation or high water. A study of gold prices done by the World Gold Council, a body that promotes the metal, shows that one ounce of gold would consistently purchase the same amount of goods and services as it would have done 400 years ago.

"Gold," says Sanjeev Agarwal, Managing Director (Indian Sub-continent), WGC, "is more of a saving instrument than an investment avenue. It is a safety net that lets you control the overall volatility in a portfolio. Over time, an investment portfolio with an allocation in gold improves the consistency of portfolio performance during both stable and unstable periods." The metal acts as a better portfolio diversifier than other asset classes, he argues, apart from serving its classic function as a hedge against inflation and other forms of currency instability.

Yet, the metal was thought to be losing its luster barely half a decade ago. Modern economic systems were seen to be turning gold's non-decorative role obsolete, and central banks were trying to offload their tonnes. The benchmark price hit a low of around $260 per ounce in April 2001, and was projected to slide further. The price in January this year? Some $413.

What happened? To some, it's a three-digit answer off the American calendar: 9-11. To others, it's the US recession that originated almost a year before that. Either way, US assets lost appeal, interest rates fell and the dollar-the famous 'greenback'-came under strain, falling by over 50 per cent vis-à-vis the euro (and around 20 per cent vis-à-vis currencies such as the Indian rupee). The basic story? America's economic headaches as represented by its twin-deficits (trade and budgetary), together with the vulnerability of the world's 'reserve currency' to security risks, have sent investors fleeing to the safety of gold. Gold bulls, plainly, don't expect much relief from these circumstances. The bears do.

Dollar Watch

Dollar optimists see a US recovery in the carefully-worded annotations made by America's central banker Alan Greenspan, especially the hint of a "measured" hike in the bank's benchmark interest rate. Such a move would prop the dollar directly, too. Gold, then, could return to its earlier downward trend. Mumbai gold traders seem to have bought into this line of thought, going by reports of a gold downturn.

But many analysts see no significant change in global circumstances (some even see a short-term escalation), and are still betting on a secular downturn of the dollar, which would strengthen gold.

As a rupee-denomination gold investor, what should you do?

Take currency fluctuations into account, first of all, since India's gold market is now more globalised than ever, and prices tend to reflect the going rate internationally. Other things being the same, a rising rupee against the dollar (this year's earlier trend) would eat into any gains gold makes globally (in dollar terms), just as software exporters find themselves shortchanged.

But the rupee's strengthening has had another effect: of leaving gold attractively priced for any new investor. "With the rupee stronger against the dollar," says Jignesh Shah, MD, Multi Commodity Exchange of India, "Indians can buy more gold at the same price."

It's not that simple, though. It may be just a blip, but the past few days have seen the rupee fall against the dollar. If this becomes a trend, rupee buyers could make higher gains than dollar buyers of gold. Of course, the exchange rate direction is far from certain. "Investors have to understand that there is an exchange risk that exists when invested in gold," cautions Shah.

Once you build the local rupee-dollar currency risk into your calculations, the real indicator to watch is still an exchange rate: the dollar's weakness against the euro. For, it's the bigger factors that will eventually determine which way gold goes; and the latest images from Iraq are not looking pretty. "Going ahead," says Shah, "the currency fluctuation, US elections, Middle East instability and the geo-political unsteadiness will see more money being invested in gold."

Portfolio Plan

Whether it is the gold bulls or the bears you're inclined towards, the WGC recommends holding gold as part of a broader portfolio plan anyway. By its calculations, just the volatility of the metal-and its return as an option-is reason enough to have 5-20 per cent of your allocations devoted to it. Gold funds and the like could be on their way, too. It is, after all, a well-regarded hedge against uncertainty.