‘Investors should stay confident, keep accumulating equities’

Change is constant and there’s space for everybody to exist as the mutual fund industry shifts and changes, says A Balasubramanian, CEO, Birla Sun Life AMC, reflecting on new restrictions on investing and higher disclosure requirements. In a chat with BusinessLine , he says the fund-house is doing well on its fixed income investments, despite the turbulence with credit quality in India, and is investing ₹15 crore this year to boost its technological capabilities. Excerpts:

Now that the Brexit referendum is over, what do you think will be its impact on Indian companies? What would you want to tell investors?

Brexit as an event brings some more uncertainty on the global economy and, in particular, for currency movements. While many opinions have come along in the last two days, it is very difficult to predict what is in store.

From India’s point of view, it will have very limited impact. However, companies that have exposure to the pound sterling may see some volatility in earnings. At the macro level, India is doing many things that will drive domestic economic growth and is going in the right direction in order to deliver better performance, compared to peers anywhere else in the world. Therefore, one should stay confident and keep accumulating Indian equities and debt schemes as both will deliver better returns.

In the past year, a lot of corporates have been downgraded and mutual funds held some of their papers and suffered as a result. How have you been dealing with this?

We’ve always been cautious and thorough in our working, the kind of credit acceptable to us at any point in time, the kind of covenants we want to take. Sometimes, we let go off opportunities if the credit underlying is not good. If there is a deteriorating balance sheet on a forward-looking basis, we avoid it, as we avoid highly-leveraged companies.

We only buy credit where our internal comfort is high, if the company has enough cash flow to pay both principal and interest and if it can refinance part of the borrowing. That way, our lending standards are well-proven, and as a firm, we stayed above the crisis seen in the market.

There’s been a lot of talk recently about deepening the bond markets and bringing in more participants. Are you able to find good papers to invest in when you receive flows? Is quality an issue?

We’re always looking for good paper to invest in and issuances are there. Of course, all of us manage large pools of money and we are able to find borrowers who are acceptable to us. It’s a question of us accepting them as a lender. Borrowers should also be willing to accept a certain price and accept certain conditions that lenders want.

We’ve been managing fixed income for so many years and we’ve never had a scenario of not having papers to invest in. Borrowers are not in deficiency, especially in India. I think in the future we’ll probably see the securitisation market picking up and more issuances coming from there.

The regulator wants fund houses to disclose how much commission it pays to distributors. Do you think investors will benefit from such a move?

One does not know if people will benefit but it’s about making the system more transparent. All regulatory frameworks are towards creating a high level of transparency. If something is disclosed, it does not mean it will stop growth or discourage people from investing. With change that comes in, the initial reaction is always to be worried because the outcome is unknown.

Our approach must be about how to increase the customer base and increase the AUM and distributor network. Change is constant and we need to adapt. We have a large population, and I think we’ll have multiple models.

Recently, the industry crossed the mark in getting one crore SIPs and Birla Sun Life has a market share of 10 per cent in this segment. Are SIPs the way forward?

I think the conviction on long-term investing is high. Earlier, intermittent volatility created some sense of panic among investors. Now, the awareness level has gone up and even distributors are advising them to stay put. The best way to build your goal is through an SIP and we see average ticket sizes increasing. The average for us is about ₹3,200 but we even have HNIs putting in ₹4 lakh for SIPs.

People are now also starting perpetual SIPs, where they go on investing and stop when you feel you’ve done enough or when you’ve got to your goal. We’re also spending money on development activities. We’re spending ₹15 crore this year, double from last year’s budget, on automation, ease of transacting for distributors and customers, and on boarding and empanelling both groups.

COMMENT NOW