Rising interest rates due to global central banks’ monetary tightening and its impact on debt and equity markets has weighed down pension assets growth, prompting the pension regulator PFRDA to lower its AUM growth aim this fiscal to 22.5 per cent. 

PFRDA now expects pension Assets Under Management (AUM) to by end March 2023 touch ₹9-lakh crore, up 22.5 per cent over the level of ₹7.37-lakh crore as of end March 2021. 

At the beginning of this fiscal, PFRDA had guided for 28-30 per cent growth in AUM. Last fiscal, pension assets under NPS and APY grew 27.5 per cent. 

“We hope to end the current fiscal with AUM of ₹ 9.5 lakh crore if no more damage is done. Till December 17, we have touched AUM of ₹8.5-lakh crore with a year-on -year increase of 22.5 per cent. We will maintain this 22.5 per cent growth for the next three months as well,” Bandyopadhyay told businessline.

He highlighted that even a 22.5 per cent growth, although lower than earlier expected 28-30 per cent, is a “robust” growth rate in the current difficult external environment and sticky inflation situation in several economies including India.

“We are now tempering our growth expectations due to interest rate increases happening around the world including India to tackle the sticky inflation. 

“We were anticipating 28-30 per AUM growth. But we have to reset our expectations in tune with the ground realities. I do expect RBI to go in for one or two more rate hikes next year before coming to a neutral stance in early part of 2023-24,” he said.

Inflation

If inflation is taken care of and rates start coming down, even a bounce back in pension assets growth could happen in second half of 2023-24”, Bandyopadhyay said. 

Pension assets —NPS and APY—have been clocking compounded annual growth rates of about 30 per cent in recent years on the back of strong interest from the non-government sector (corporate sector and all citizens model).

Bandyopadhyay, who will demit office as PFRDA Chief next month, noted that pension assets AUM interestingly gets hit more by interest rate volatility than by the volatility in equity markets. 

The main reason being this is the fact that equity component of NPS corpus investments is 16 per cent, while fixed income accounts for 84 per cent.

“If interest rates move up (in seven months RBI has tightened rates by 225 basis points), then rise in interest rates negatively affects AUM. “When interest rates go up, value of debt instruments fall. When you are carrying more than 80 per cent of corpus in debt instruments, it affects your portfolio very badly. I also keep a look at the equity market, but more intently at the debt market. Our future to a great extent is linked to the debt market,” he said.

Incremental flows

Bandyopadhyay highlighted that incremental inflow of NPS and APY monies has already surpassed ₹1-lakh crore this fiscal. “Till December 17, we have taken stock that net inflow of NPS is more than ₹1-lakh crore. Earlier we were anticipating the accretion to be about ₹1.3-lakh crore this fiscal. Now, it maybe ₹1.6-lakh crore for the entire fiscal. I cannot remain in cash for long time. We have to keep investing. Markets will be choppy, but we have to keep investing,” he said.

Bandyopadhyay said that he expects the ongoing Russia-Ukraine conflict to be a prolonged one. “The supply-side shock that we saw at the beginning of the conflict is now getting sorted out and commodity prices should come down. This should help us in keeping inflation under check. Second half of 2023-24 should bring further good tidings for our economy and could see a rebound in pension assets growth,” he added.

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