The Hindu Business Line : First India MF chief sees higher inflow to equity

THANKS to its takeover of First India Mutual Fund, Sahara is all set to be the newest player in the country's Rs one-lakh crore-plus asset management industry. Mr R Balakrishnan, CEO, First India, evaluates last year's experience and looks forward to a challenging 2004.

"I would hope for standardisation of industry practices, so that competition is based on performance and service rather than on incentives and other undesirable practices that our industry has been witnessing," he says.

Excerpts from an interview:

What do you expect from the mutual fund industry in the New Year?

As a CEO, it is a fond wish that investors would remain stable with their investments. Of course, this rarely happens, with constant shuffling being witnessed.

I would expect the industry to see higher inflows to equity combined with switches from fixed income segments. As to whether it would happen in a significant manner remains to be seen. The industry would be seeing increased demands from investors in terms of higher transparency.

And it is time we saw some innovations in customer service and with the impending entry of more players, proactive measures would be in order.

What were the lessons learnt in 2003?

The past year has seen significant consolidation in the MF sector. This year would see the entry of a few large international names, ones that would bring more choices to the table. I do not rule out further action in 2004 in terms of consolidation. However, in a good year, the asking price generally deters a buyer. Let's see how it unfolds... . One thing is clear, though. Distributors have to be extra cautions in their recommendation and concentrate on stability and consistency in performance, rather than simply focusing on size and visibility.

Now that the stock market is up quite a bit, what should be an equity fund investor's strategy?

I expect equities to deliver significant upside from here, even though there is a feeling that 2003 has already seen an up-move.

I expect the buoyancy to continue for the best part of 2004, driven by improved corporate performance and a benign interest rate outlook. A bullish outlook on commodity prices and hopes of deepening of political reform would add to the momentum.

My advice to those who have already invested in equity funds is to either stay put or increase allocations.

For those who have not yet invested in equities (and are perhaps waiting for a correction) it is still not too late.

Returns from debt funds have been under pressure. How will their market unfold in 2004?

For the fixed income segment, 2004 is going to be a testing year. We would perhaps have to depend on finer trading strategies and also consider ways to reduce our costs as the returns to the investors keep falling.

There is need for increased supply of floating rate paper to provide some balance to debt funds.

The other big change is going to be the fallout of the doing away of private placement of debt as a result of listing requirements. In terms of style, I do expect fixed income fund managers to have a more flexible stance, seeking to rebalance their portfolios on a continuous basis. Increased volatility would make it essential to increase portfolio churn, liquidity permitting.

There would be continuous regulatory actions that would make our industry more user friendly.

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