Mutual fund investors finally have something to cheer about. The unexpected rally in the equity market has made many richer. Though the fundamentals remain weak, the increase in foreign fund flow on expectations of a stable Government taking charge at the Centre has taken the capital markets to new highs.

ICICI Prudential Asset Management recently joined the trillion dollar club with all the three segment funds — debt, equity and multi-asset — doing well. Nimesh Shah, Managing Director, ICICI Prudential AMC, in an interview with Business Line said investors cannot make money if they invest when GDP growth rate is high and fiscal deficit is low. Excerpts:

What should investors do after the recent market run-up?

We keep telling investors that they should invest when GDP growth is bad. In fact when everything looks bad that is the best time to invest. So, right now it is the time to invest because the GDP growth is low, IIP growth rate is low, fiscal deficit high and inflation is slightly high. The best part is everything will improve as the current account deficit has been reined in. The macro economic situation is much better compared to what it was six months back. RBI’s strength to support the rupee is much different today against what it was six months back. Fundamentals for growth in India are very strong.

Do you expect FIIs to pull out in the event of a hung Parliament?

If FIIs pull out as you say, it is even better and investors should invest more. One should take a three-year call on India. Irrespective of the election outcome, there is a huge potential. Any Government that comes to power has to create good economics. The stock market will not wait for policy announcements to happen, companies to do well, EPS to increase and then move up. If you invest in uncertainty, only then can you make money. Historically, if you had invested in 2002 and 2009 you would have made lot of money. By investing in 2007 you would have not made much money.

Are high NPAs of the banking sector a concern?

Our banking fund has done very well in the last so many years as we look at private and public sector banks differently. If the country grows at 6 per cent, banking will grow at 15 per cent. This is the thumb rule. There are issues in the public sector banks with fears of NPAs, one is still not sure about it. The shares of public sector banks are highly discounted. Banking will always have challenges when the overall economy is hit.

Should people invest in ETFs?

ETFs will be attractive in India only when the funds are not able to beat the respective indices. If an active fund management can give more returns than the benchmark why should one invest in an ETF? Even after providing for expenses, most funds have managed to beat the benchmark. Till active fund managers are beating the benchmark, why should one invest in passive funds?

Do you expect a consolidation in the MF space?

Consolidation will keep happening. Some of the foreign investors have sold of their assets. If you are not serious about your business and you do not invest across the country, at some point in time you have to sell off. Till now, the sale has happened at a high valuation. Good for the guys who have sold it and all the best for the guys who have bought it.

In India, valuation will remain high because there is huge potential. If you manage money well, you will get good fund flow. If you can prove that your funds have performed well, then your market share will increase without moving out of office.

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