‘Maintaining high domestic flow key to keep market direction’

The topsy-turvy ride of the equity markets has scared scores of first-time mutual fund investors even as maturity of seasoned long-term investors to pump in more money has surprised one and all. BusinessLine spoke to Anthony Heredia, Managing Director and CEO, Mahindra Manulife Mutual Fund, on what lies ahead for investors. Excerpts:

Two years after, how has the joint venture with Manulife panned out for you, so far?

The journey has been exciting. Succeeding in this business not only needs local understanding, but also the access to best-in-class investment practices. Over time, we expect to better leverage the strength and reach of the Mahindra group franchise, while, at the same time, create the right investment solutions for our clients using Manulife resources and domain expertise.

What is your strategy to tap smaller cities?

The strategy will centre around creating the best possible outcome for investors and collaborating with our distribution partners to access them. We do not have a bias towards a particular geography. In top cities, we are focused to build market share and our investment performance will play a large role within that. In tier-II cities, our distribution reach and trust enjoyed by the Mahindra group, in particular, should help attract new investors.

With the cloud of economic uncertainty, how do you see equity market for investors?

There are headwinds in the form of geopolitical issues, inflationary pressures, higher interest rates and commodity prices, including oil. At the same time, on a bottom-up perspective, there is a clear uptrend in corporate earnings growth and broad opportunities across multiple companies within sectors. Our advice to investors is to invest with a minimum five-year time frame, choose systematic investing and focus on products such as balanced advantage, equity savings and low-duration funds that have the ability to be more resilient.

Will there be another FPI outflow from the market, if the US Fed implements another rate hike?

The US Fed hike is on expected lines over 12-18 months and hence most FPIs would have factored it in. What may change and affect outflows is perhaps the extent and pace of the hikes, which one needs to carefully keep monitoring. A more important factor to monitor would be the pace and extent of domestic flows, which had more than compensated for these outflows in the past. Continuation of the domestic flows is key to keeping market direction and liquidity stable. Also, the resilience of corporate earnings from headwinds such as commodity price increase, etc. will play a key role on how flows shape up in the coming year.

Do you expect corporate earnings to come under pressure with rising cost?

It is too early to predict. The March quarter earnings may not reflect cost pressures to a large extent, we believe that they will impact margins in the coming quarters. The key will be the time frame that these rising costs will persist. If the rise in commodity prices persist for a few quarters, select sectors will see an impact, for sure.

Which are the sectors that will withstand the rising cost and deliver better returns to investors?

The more effective way to navigate uncertainty around cost pressures is to look at individual businesses and understand their earnings trajectory, rather than making macro calls around sector. Often in the past, we have seen that even if a sector is under pressure, it translates into better opportunity for industry leaders.

Do you expect inflows into mutual funds to slow down with other asset class also showing signs of recovery?

Flows into mutual funds to remain robust and veer towards allocation funds such as balanced advantage and equity savings. As more investors understand the benefits of regular investment plans, fresh SIP flows will also pick up. Given the interest rate environment, attracting investment in fixed income will be a challenge, while target maturity funds may provide an alternative though it looks difficult to see the category becoming a mass retail alternative for now. In terms of other asset classes, we may see renewed interest, but doubt that it will come at the cost of fund flows in a meaningful manner.

Do you expect passive funds to score over actively-managed funds?

In periods of volatility, active managers have the ability to react and adapt, which will stand investors in good stead. As a fund house, we remain rock solid in our belief on active fund managers. In terms of return expectations, it is important to keep the time frame in perspective, as also the goals you are seeking to achieve with your equity fund investment. Anyone who has over five-year commitment to equity has rarely been disappointed.

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