N S Venkatesh, who took over as the chief executive officer at the Association of Mutual Funds in India, or Amfi, late last month spoke to Payal Shah of TickerNews Service on varied topics ranging from outlook for the mutaul fund industry to the bonds market. Venkatesh, a career banker with over two decades of experience in treasury and international banking was also a member of RBI technical advisory panel on money markets, securities market & forex in 2011-16 when he also chaired the Fixed Income, Money Markets & Derivatives Association. Excerpts from the interview:
As the new Amfi chief what are your priorities?
I joined at a time when industry is growing in leaps and bounds, so my initiative will be to ensure that the growth is fully sustained. The market is growing at a rapid pace of more than 30-35 per cent. Today, if we look at the volumes, it must be around 21.48 lakh crore, that could be the AUMs you are looking at and we are at the cusp of a rapid growth in this industry. The financial literacy will be a key thing I will definitely do. In addition to this, the next thing will be to take Amfi towards self-regulatory organisation (SRO) which will ensure that it brings in more discipline. We will now go into the Tier-3 and Tier-4 cities to ensure that more people start investing in mutual funds.
Your comments on the Sebi directive on one scheme in each fund category.
As an industry we welcome this. Some consolidation will happen from 850-odd funds which are currently floating around and may be it could come to around 600 funds. But it is a good step, a step in the right direction. By January we may get a real sense of how much consolidation will happen.
Your views on PSU bank recapitalisation and its impact on bonds market.
I welcome the bank recap scheme. On the bond market side, I would say that this is cash neutral and will not crowd out borrowings of the corporate sector. Hence, the bond market needs not be unduly worried since it will be credit positive.
Where do you see the 10-year bonds yields by the end this fiscal year?
I personally believe that there is a room for an RBI rate cut and yields should start trending downwards from what we are currently seeing. It may trend anywhere between 6.50 per cent and 6.60 per cent. Rate cuts are in the offing, essentially a 50 bps rate cut, with one rate cut in December policy and one more rate cut going into March. After that there could be an extended pause. Crude oil prices may test $70/barrel, but we have seen $142/barrel levels also, hence $60-70/bbl may not be of that much of an inflationary impact for us.
When do you see the FII outflows in debt market to start, especially with Fed unwinding its balance sheet?
If we look at it, the market is growing, so initially they will put it into debt and from the debt, it will go into equity. I don’t see any major outflows happening.
MPC members were cautious with one member talking of a rate hike later. How do you justify the case for a rate cut?
I personally believe that if the inflation trajectory is going to be in the same range as what the monetary policy committee has predicted, then to spur economic growth, you need a rate cut to happen. So if CPI is going to follow the 4 per cent trajectory then there’s no harm in MPC cutting the rates and if the inflation is under control, there is no case to change the goal post of 2 per cent variation, it is 4+/-2 per cent. Since inflation is down from double digit to near 4 per cent, they should look at measures aiming to support growth.