The mutual fund industry is growing steadily. The current Industry AUM of Rs 23 trillion would grow to Rs100 trillion in next 8-10 years. Broadening this investor base towards SMEs, MSMEs, and a larger segment of retail investors will give more stability to the MF industry and provide comfort to the fund managers in delivering better risk adjusted returns, feels Aloke Kumar Sasm?al, director, Money Matters and co-founder & director, Parento Info-rmative. Sasmal, who has more than 15 years of experience, told Ritwik Mukherjee that post-May 2019 will set the clear direction of the market. Excerpts:
What is your outlook on the economy and market with the festival months in place and general elections?
So far in CY 2018 market has remained volatile dueto global macro noise, a credit scare and an impending election and expected to remain range bound around mean of (9,700-10,600) Nifty. In Festive month, October, in the cash market FIIs sold Indian equities worth $3.75 billion and domestic mutual funds were net buyers worth $3.33 billion. In CY’18 FIIs have been net sellers to the extent of $5.76 billion whereas domestic mutual funds are net buyers worth $16.40 billion. 2018 has turned out to be far more volatile, although not entirely surprising. The daily up and down moves in S&P500 (+/- 1 per cent) has almost reached the long run average since 1958. This is despite a sharp up-move in US Corporate Earnings, running upwards of 20 per cent, the best in the current cycle. Despite that, US Equity Markets have witnessed a correction of nearly 10 per cent once again after peaking out in September. Till general election next year market will remain same hovering around the long term mean with Nifty ranging from 9,700-10,600.
What are your main concerns about the market at this point of time and why?
Equity markets are expected to remain volatile in short term on back of volatile oil prices, geo-political tensions, trade wars and US monetary policy. Market is going to react to the several global news flow like Bond yields, US trade stance, emerging market flows and currencies, crude oil prices. And on the domestic front credit market related news flows, fiscal challenges, polls and banking sector distress could constitute a sustained drag on growth.
How are institutions/FIIs looking at India now?
In October, in the cash market FIIs sold Indian equities worth $3.75 billion and domestic mutual funds were net buyers worth $3.33 billion. In CY’18 FIIs have been net sellers to the extent of $5.76 billion whereas domestic mutual funds are net buyers worth $16.40 billion. India’s macros have swung radically from best-in-class and very comfortable in late 2017 to a fundamental weakness with short-term risks—and a lot of bearishness. I feel these swings reflect some fundamental weaknesses (CAD), a reasonable level of overvaluation (Equities, FX and Fixed Income), but also got impacted by global flows and linkages. These will not go away quickly, but while India’s macros will be materially influenced by the US dollar, US trades, global capital flows and OIL, the relative fundamentals are more resilient than recent swings suggest.
Do you think there are some opportunities in the market in the present situation?
India has jumped 23 spots in the new World Bank Ease of Doing Business (EODB) 2019 rankings to take up the 77th spot, with a score of 67.23. Among the emerging markets India’s positioning has improved. But I feel the market will hover around its means 15–16 PE; 9,700 –10,600) till the elections and, hence, we would run a relatively defensive portfolio Consumer staples, IT, Pharmaceuticals, emerging large and mid-cap Banks who are continuously innovating in their offering, some select large cap while keeping an eye out for opportunities that expectations swings might throw up.
Post May 2019 with the clue towards the political stability we will start seeing the clear direction of the market. On the conservative valuation toward 16-17 PE, we can see Nifty above 12,000 level by December, 2019.
How do you see the next phase of mutual fund growth in the country? Can mutual funds help to reach financial goals?
Mutual Fund industry is growing steadily and will continue to grow further. Current Industry AUM of Rs 23 lakh crore would grow to Rs 100 lakh crore in next 8-10 years. Currently large corporate, banks and 5-7 per cent of urban population are the main investors in this asset class. Broadening this investor base toward SME, MSME, and larger segment of retail investors will give more stability in this growth and provide comfort to the fund managers in delivering better risk adjusted returns.
Now, different advisor education programs enriching IFAs and Bank Wealth Managers to use Mutual Fund as Financial planning tool for long term and short-term goals. Apart from that different data analytic information providers like Bloomberg, NGEN Research are helping advisors to design appropriate asset allocations strategy as per investors risk appetites.
How do you propose to differentiate between traditional MF and Hedge Funds space?
Hedge Funds are generally managed under closed-door environments. In India where mutual funds have still not penetrated properly it would be too early to introduce Hedge Fund for retail investors. Although there are few Hedge Funds running very successfully under AIF platform (Category-III). I would recommend hedge fund as an asset allocation solution to HNI, Institutions and Insurance companies with an expectation of higher return along with higher calculative risk.
How should Hedge Fund strategies be ideally designed? What should be the considerations?
Hedge Fund uses multidirectional strategy to capture mis-pricing across asset classes. It also takes leveraged positions to encash the opportunity arises due to irrational mis-pricing.
Presently mutual funds are allowed to use hedge strategies to hedge the portfolio only. Once it is allowed to offer a full-fledged retail product, retail investors will be able to take the benefit from market’s negative divergence also. In the broader perspective it will create an additional liquidity in the market also will help the market in fair price discovery. But lot of these depend on market efficiency, which yet developed across asset classes.
So where do you see the Indian capital markets five years down the road? Would you like to put any number for the Sensex in 2019?
I expect earnings to rebound in FY’19E and FY’20E. Though the estimated Nifty EPS estimates growth is at double digits, likely to see downgrades going forward. Different regions are at different cyclical stages, with Asia peaking, LatAm likely at a trough, and a dim outlook for EMEA’s largest economies. EM vulnerability is rising and Asia is most stressed now. Post 2020 I see some sustainability and if the current government comes back to power. The market, in my view, is looking for stability and staying away from the unknown, and viewing the elections as a non- disruptive event. Post 2020 we can see sustainable 15-16 per cent growth and as I said earlier if there is no massive surprises by December we will see Sensex at 40,000.
Which are the sectors that you would bet on at this point of time and why?
I believe that the storm in the Pharma sector seems to be settling down, hence that is a good bet in the next three years?. IT has not seen substantial investments in the last few years, hence with US markets strengthening, this sector is also a promising one for 3-5years horizon.
How do you pick your own investments, if I may ask you? I would also like to know if you use technical analysis, or do you employ fundamental data?
Investments should not be done in isolation. I always suggest in tagging investments to long and short-term goals and do the same in creating my own portfolio. Every six months I do review and asset class realignment of my portfolio.
How should the investors handle their investments for near future & what would you say to retail investors at this juncture?
As I have suggested every investment should be done with a Goal orientation in mind. So my advice to retail investors is to first identify all financial goals. Then select the right asset classes with the help of the advisors. Also they should not review the portfolio too frequently which is created for long term objectives in mind. Patience and discipline is the key to wealth creation.