The Hindu Business Line : ‘Outflows from Indian markets will slow down’

Bharti Axa Investment Managers is making its debut with a plain vanilla equity fund with a ‘flexicap’ mandate. A quarterly dividend option which will trigger profit booking at regular intervals and a daily systematic investment plan are the fund’s unique features. Business Line spoke to Mr Prateek Agarwal, Head of Equity for the fund house, to get his views on the market.

The Indian stock market has outperformed in the global context, over the past one month. Do you see the out-performance sustaining over the next few months?

There is a good chance that the Indian market will continue to outperform. First, clearly, in terms of growth, we will stand out. Though India’s economic growth will slow down, we will still be among the fastest growing economies worldwide.

Once the sharp sell-off that we have seen due to liquidity constraints at some of the large institutions gets over, over time, we may see lower outflows compared to other markets. There is a reasonable chance that India outperforms other markets over a period of time. A global slowdown is not good for commodities. That again favours India from a macro perspective.

Does the depreciating rupee pose a risk to fund flows?

The two key reasons for the rupee depreciation were that a) Foreign investors were large sellers. b) India was running a large current account deficit. With oil falling, the current account deficit is set to improve significantly. Similarly, on FII flows, large entities in India who were in trouble globally have more or less sorted out their troubles in the immediate term, with the spate of mergers, bailouts and takeovers. So, clearly, the selling pressure on that account will not sustain. Given that fact, there is a good chance that the rupee stabilises at current levels. Policy making also suggests that the effort will be to stabilise the rupee at current levels.

Do you then hold the view that the impact of the credit crisis on liquidity flows is behind us?

In the immediate term there will be an impact on account of reduced liquidity. While distress selling by some troubled institutions may not happen, lower liquidity on account of the squeeze on credit may continue. We have seen hedge funds see substantial outflows — that takes leveraged money out of the market. Long-only funds focussed on Asia have also seen redemptions. Both these trends will continue to lead to FII selling in India. But we have seen that sharp sell-offs have not been able to sustain.

With domestic institutions holding substantial cash, can they provide support to the market, if FIIs continue to sell?

We have seen buying by domestic institutions, not only funds, but also insurance companies in the past few months, whenever stocks have gotten really cheap. But everyone is trying to minimise losses for investors. With valuations already becoming reasonably cheap I think we should funds buying into the markets in every sharp fall.

What are the distinct features of your maiden offering?

For the first time, we’re offering a daily SIP, which may help average out volatility much better than a monthly SIP. The other feature is an “eco plan” which allows investors to opt for all communications through email. For ticket sizes of less than Rs 2 lakh rupees, we have reduced management fee by 0.25 per cent. Investors have liked these features. Lastly, we have a quarterly dividend plan, as distinct to the normal dividend plan that most equity funds offer. Subject to the availability of surplus, the NAV of the fund rising over a particular threshold level, will trigger a dividend payout on a quarterly basis. What the investor gains is regular profit booking and a tax friendly means to earn returns. If you look at fund performance over the past year, the markets are back at last year’s levels, but had moved up significantly in between. Had funds booked profits at those times, returns to investors may have been much better.

Given that this a flexicap fund, will you favour a bigger large-cap allocation?

Yes, we would. We believe that the large-cap space may weather any fall better because a change of hands (in stakes) have taken place in the large-cap space, but are yet to take place in the mid-cap space. Valuations are low, but that is true even for large caps. We’ll initially be in large-caps and will look at mid-caps once confidence returns to the market.

Do you go with the view that inflation will begin to subside and interest rates will fall by next year?

Yes, we do. We believe that one could expect that by end of this financial year. We are positive on interest rate sensitives — that includes such sectors as banks and automobiles.

AARATI KRISHNAN

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