The Hindu Business Line : `Adhere to a customised asset allocation plan'

We might see a demand for sophisticated products such as absolute return funds, alpha strategies (including portable alpha), tactical asset allocation (across asset classes/currencies), structured products and products based on quantitative models for the institutional segment

MR VIVEK KUDVA of Franklin Templeton Investments

Kolkata , Sept. 17

The Indian market for mutual funds may in future give rise to a demand for absolute return funds, tactical asset allocation (across asset classes and currencies) and structured products, feels Mr Vivek Kudva, President, Franklin Templeton Investments (India).

Excerpts.

How does Franklin Templeton view the heightened volatility in the markets?

Volatility is an inherent part of investing in stocks and investors need to keep in mind that gyrations in the market tend to be more pronounced in the near term. Increased volatility over the near term could be due to a number of factors - liquidity, earnings expectations, speculation and the like. However, over the long term, equities are inclined to reflect economic and corporate fundamentals, which continue to remain healthy for India.

For retail investors, the best course is to stay focused on the long term and adhere to a customised asset allocation plan.

We have recently seen close-ended and capital protection oriented funds being mooted. What is next in store for MF investors in India?

The industry's product range has transformed in the last 10 years. The product suite now offered appears to be comprehensive, given the current regulations and the way the market has evolved. However, with India getting increasingly integrated with global markets, we might see a demand for sophisticated products such as absolute return funds, alpha strategies (including portable alpha), tactical asset allocation (across asset classes/currencies), structured products and products based on quantitative models for the institutional segment.

Also, there could be options in new asset classes such as commodities or real estate.

Is there scope for index funds?

In terms of load structure, we believe that actively managed funds in India continue to offer a competitive solution. Index funds/ETFs offer a very low fee structure in overseas markets, but such products are likely to do well only if the scope for index out-performance is limited due to the efficient nature of the market. As can be seen from the performance of well-managed equity funds, active management currently provides better risk-adjusted returns.

One has seen FT sliding in terms of AUM rankings in recent times, while some competitors seem to be catching up. Your comments...

Our endeavour has been to build sustainable scale in India, with a focus on growing our retail base and garnering quality assets. We try to have a healthy mix of equity and debt assets.

NFOs have been a significant growth driver for the industry over the past couple of years. FT currently has a market share of 8 per cent and continues to focus its energies on quality growth.

What should the equity fund investor expect from the market over the next 1/2 years?

We usually recommend equities only to investors with a horizon of 3-5 years. Over this period, carefully selected portfolios of stocks will be in a position to deliver 12-15 per cent per annum. We see several structural factors driving the Indian economy into a higher trajectory. These include positive demographics, increased consumption/capex, global offshoring and infrastructure spending.

What can lead to a major decline or a hold-back?

Over the short to medium term, there are a few risks: rising energy and commodity prices, impact of rising global interest rates on liquidity flows and a possible slowdown in reforms due to political wrangling.

While these risks might impact short term sentiment, we believe India's long term outlook remains positive. Near term risks can be managed through prudent stock selection.

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