Mr Nandkumar Surti has headed the investment team at JP Morgan Asset Management since 2006. As Chief Investment Officer of the company, he talks to Business Line about the various challenges currently faced by the Indian mutual fund industry.

What is your view on product consolidation in the mutual fund industry?

The regulator is clear that they want to reduce the number of schemes of similar mandate that are available to the investor. I have heard that a couple of AMCs are already into the process of consolidation. It is bound to happen because you cannot run a plethora of Rs 10-15-20-crore kind of schemes. Anybody who has come in the last three-four years is somewhat insulated because around that time SEBI had brought in the rule that the trustee directors have to certify that a new product launched is materially different from your existing products.

Do you think the budget announcement to allow FII investment will lead to an increase in the retail investor base?

One aspect to look at is that India itself is so large and there is so much penetration possible here. But the good part is that you can now go up and set up a shop directly abroad and widen the investor base. But it will eventually depend upon the ability of the AMC to go and build a business over there. We are awaiting the KYC norms.

So will global AMCs have an edge over Indian AMCs in this regard?

Definitely, yes, we have an edge because we always have somebody in the region who understands that market better, so we can identify it very quickly. For others, it is going to be a bit of a challenge to first conduct a study and then go and approach the markets.

Is Japan a big concern right now?

Japan is a big investor in the money market, from both an FII as well as an FDI perspective. So, in the immediate future there could be some setback on account of that, for the incremental investment that takes place. But once Japan enters an investment phase for the reconstruction process, that itself will present a lot of opportunities to a lot of Indo-Japanese joint ventures that are in operation.

Do you think auto will be further downgraded, considering the impact on the Japanese economy?

No, I think the reverse would happen. There are so many joint ventures, and they have big facilities over there. So for the same vehicle that is there in India as well as Japan, there is a very high likelihood that they may use India as the production base right now because technology has already been transferred here.

Where do you see the markets headed?

We are not very negative on the market but we are not very overtly bullish also…..given the fact that the developed markets are doing better, in terms of immediate growth prospects, you might see some flows or risk aversion in the near future. But as things evolve in line with the government assumption of 9 per cent on GDP growth rate, the markets should start bouncing back.

Are FII outflows a concern right now?

Last 18 months, huge money has come into India by way of FII inflows, upwards of $24-25 billion, some part of it is ETF. If you look at markets last year and the corrections in the recent past, most of the money that has come in the last 12 months has not made any returns. So, the ETF money is at least going to lose patience and as prospects are better in the developed markets, some money would definitely flow back and find other markets.

What sectors are you bullish on?

Sector wise, at this point of time, we are bullish on consumption as a theme; and consumption more in relation to the infrastructure or the investment theme. The second theme is commodities, especially with global growth coming in. Commodities is something on which we have somewhat gone overweight. Correspondingly, it is marginally negative for industries which are going to be consumer of big commodities. They are going to face some margin pressure. So, we are slightly underweight over there. Given the current inflationary expectations and tight liquidity conditions, we have reduced our exposure to interest rate-sensitive sectors. Technology is something we continue to be overweight on.

What new products are you looking to launch in the immediate future?

On the fixed income side, we just entered the market with Fixed Maturity Plans this month. For now, FMPs are on a rolling basis. We are also looking at an MIP structure. And of course as opportunity arises, we are looking to enter the Indian market with our international suite of products and position ourselves as an international fund manager of choice.