This has been achieved by reducing the holdings of longer duration gilts. "We already have short duration corporate debt holdings," explained Prudential ICICI AMC, chief investment officer, Dileep Madgavkar.He is convinced that interest rates are unlikely to go up because RBI has followed the policy of keeping a close watch on money supply in the system. RBI's decision to introduce price-based auctions against coupon-based auctions of government securities has helped improve volumes in the gilts market as there is less confusion over different maturities, he added.

The gilts market has become extremely volatile with volumes drying up due to uncertainty about the movement of interest rates in the short term. But Madgavkar does not expect interest rates to go up further and expects activity to pick up in the long end as inflows into the system pick up next month.

An indication of the volatility in the gilts market is available from the sharp drop in returns generated by Prudential ICICI Gilt Fund. In the month to May 31, 2000 returns under the treasury and investment plans were 4.39 per cent and a negative 6.22 per cent respectively.

Compare this to the returns of 9.56 per cent (treasury) and 5.50 per cent (investment) over 3 months to May. The last six-month returns were even higher at 15.59 per cent (treasury) and 16.21 per cent (investment).On the equity side, Madgavkar said he did not see the need to make any major reversals either sectorally or scrip-wise.

"We have stuck to our investments by and large. Trading opportunities have to be taken but our portfolio remains largely unchanged," he pointed out. On the immediate outlook, Madgavkar said the economy was looking up and fears on the rupee front were largely over.

Expectations of excellent corporate results from leading software stocks like Infosys and Satyam and signs of industrial recovery and improved corporate tax collections in 1999-2000 have helped stabilise the secondary markets, he said.

As at May 31, 2000, Prudential ICICI had Rs 3,958.39 crore under management. Its income plan continues to be the flagship scheme with a corpus of Rs 1,872.77 crore.