Notwithstanding the gloomy global outlook, Indian stock markets are making a new high on consistent basis. Investors have been pouring through equity mutual funds with monthly inflows of ₹14,000 crore through Systematic Investment Plans alone. Anthony Heredia, Managing Director, Mahindra Manulife Mutual Fund shares his views on markets with businessline. Excerpts:
Do you think the current market rally is sustainable given the general election round the corner?
The current rally is driven by strong domestic and FPI flows. The general consensus is that Indian economy and by extension markets present a better medium- and long-term outlook as far as growth is concerned, and flows reflect that sentiment. There will always be inherent risks to sentiment including aspects like upcoming State and general elections, persistent higher global inflation and slowing global growth. But we see playing out of any of those risks to have a short-term impact in terms of market corrections, long term outlook will remain unchanged.
Can Indian economy be de-coupled from global economic recessionary trend?
Indian economy has multiple facets, a majority of which are driven by factors local to India. That being said, given the scale and increased share of exports in our economy, it would be unrealistic to expect complete decoupling of our economy. There will always be sectors and businesses that have greater linkage to global factors and events, and keeping a close watch of how global growth is panning out and relative valuation in those sectors is key to deciding exposure to those sectors.
What would be the impact of China slowdown?
One would need to assess the nature of the slowdown and key areas that potentially get impacted. For example, if the slowdown results in softer commodity prices, there may be positive implications for multiple sectors that do see margins impacted by commodity prices. On the other hand, real estate-related slowdown that may have wider systemic implications can see a cascading impact on financial stability and impact markets in a meaningful way. We also need to assess the policy reaction to any slowdown and assess accordingly. In all, a flexible approach will be the most prudent way to deal with this.
Do you think first time SIP investors will have a bad experience when market falls?
The nature of SIP is long-term disciplined investing that pays in the long term. Whether SIP or lump-sum investing, poor experiences are more often a function of short investing timeframes rather than valuation entry points. Hence, our recommendation to any investor including first-time investors would be to focus on simple diversified funds and have an investment time frame that extends beyond five to seven years at a minimum.
Any new fund offering from your fund house?
We have launched a business cycle fund. It is based on the fact that business cycles are getting shorter and sector rotation is on the rise. Instead of investors looking at multiple sector or thematic funds to play these changes, a business cycle fund conceptually leaves that decision to a fund manager who will look to optimally increase concentration in sectors where the cycle is favourable and do so in the context of how the markets are valuing that opportunity. A product like this can be a long-term tactical addition to every investors’ portfolio as they look to create wealth over the next decade of economic growth in India.
Will AMCs margins be squeezed with new TER being planned?
We are still awaiting the final proposal from the regulator. We believe that the industry has already done a lot in terms of passing on economies of scale and hence do not expect much disruption when the final proposal is placed for consultation.
Will MF penetration be impacted by lower TER?
Potential for further mutual fund penetration has miles to go before one can conclude that MFs are an integral part of every Indian investor’s portfolio. As long as the industry continues to deliver value to investors, particularly in terms of investment performance and distribution partners continue their work of expanding reach, we will continue to see growth.
Your view on heady flows into small cap funds?
The flows have captured the relative valuation opportunity that existed at the start of the year, and the view that the future winners in the markets will come across capitalisations. At this juncture, investors need to be clear that the time frame for investment in small-cap funds needs to be very long-term. For time frames lower than five years, they should look at multi and flexi-cap funds, which also have reasonable exposure to small caps as well.