Although in the short run the market may remain volatile, but in the longer term Indian capital markets are poised for a consistent higher growth in the decade to come. It could mainly be due to stable economic and political scenario coupled with implementation of business-friendly reforms. India, which allows the highest real rate of return in the world will remain an attractive investment destination for FIIs in the long run, said Amar Pandit, founder and chief executive officer of My Financial Advisor, and a member of Financial Planning Standards Board, India, and Financial Planning Association, US, in an interview with Ritwik Mukherjee. On the domestic front, Pandit said with ample liquidity in the economy, the trend of investing in MFs would continue for some time. Excerpts:
What’s your outlook on the Indian economy and the capital market ahead of Diwali?
The outlook of Indian economy is very positive. Despite the capital market at all-time high, the economy is not overheated and the equity market remains in mid-cycle. The strong fiscal reforms, high and further strengthening foreign exchange reserves, domestic liquidity and lower inflation may help keep the market continue its trajectory in the long-run.
What are your main concerns about the market today and why?
On the global front, the geopolitical tension due to polemic between the US and North Korea would lead to volatility in the market. On the domestic front, majority of India’s current account deficit is because of the high import of oil and gold. Hence, any abnormal appreciation of the US dollar with respect to the Indian rupee would lead to higher volatility in the market.
How are institutions/FIIs looking at India now? Will this outlook continue for some time?
Foreign institutional investors (FIIs) have been selling heavily in the market since the last quarter in anticipation of a rate hike in the US and also because of geopolitical risks. But at the same time domestic institutional investors (DIIs) have been steadily buying with an anticipation of improved macro data in the next two-three quarters. India is one of the countries that allows highest positive real rate of return. Hence it will remain an attractive investment destination for FIIs in the long run.
Are there opportunities in the current market situation?
The transition from unorganised to organised sector, banks, housing finance, housing, retailing and auto component spaces offer opportunities. Best way to invest in these sectors is through the mutual fund route as diversification in present situation is the key.
How do you see the next phase of mutual fund growth? Can they help investors reach financial goals?
After demonetisation, lower yield in debt instrument and weak outlook of real estate have resulted in increasing Indian households’ savings in financial instruments. Most of these investments are taking the systematic investment plan (SIP) route to mutual funds. With ample liquidity in the economy, the trend of investing in mutual funds will continue. Mutual funds are the best way to reach financial goals due to simplicity in its structure, well diversification and strict regulation.
Where do you see the AIF (alternative investment funds) industry in India two-three years down the road, in terms of investments?
AIFs are getting popular among high networth individuals (HNIs) due to their flexible investment structure and less regulation compared with the mutual fund industry. With increasing intervention of the securities and exchange board of India (Sebi) to regulate AIFs, the growth rate of the AIF industry may decelerate for some time but in the long run, it would help in strengthening this industry.
How do you propose to differentiate between traditional MFs and hedge funds?
Both mutual funds and hedge funds are pooled investments. But the basic differentiators between the two are that hedge funds are more flexible (in terms of strategies adopted, use of leverage, etc), less liquid and less regulated compared with mutual funds, making these instruments riskier and suitable only for a set of investors such as HNIs.
How should hedge fund strategies be ideally designed?
The main strategy of hedge fund should be to meet investor’s expectation with regards to the objective of the fund. The attempt of Sebi to make it more regulated would help in better designing/functioning of the fund.
Where do you see the Indian market five years down the road? Would you like to put any number for the Sensex in 2017?
The Indian market is poised for a consistent higher growth in the coming decade, mainly on the back of stable economic and political scenario coupled with implementation of business-friendly reforms. In the short-term, market will remain volatile.
How do you pick your own investments – by using technical analysis or employ fundamental data?
Asset allocation decision is probably the most important decision you can make as an investor in achieving your financial goals while effectively managing risk. A number of studies have shown that a portfolio’s asset strategy is the driving force behind portfolio performance and that over a period of time, it accounts for more than 90 per cent of the variation in overall returns. This is the starting point.
Further, within each asset class, the focus is always on ideal diversification. For example, while constructing mutual funds portfolio, we consider various categories and styles of schemes. We choose schemes based on their long-term potential and schemes, which employ fundamental data to create the portfolio.
Which sectors would you bet on at this point of time?
The transition from unorganised to organised sectors, banks, housing finance, housing, retailing and auto component spaces are offering decent opportunities in the current situation s. Best way to invest in these sectors is via the mutual fund route as diversification in present situation is the key.