Markets driven by liquidity sloshing globally for assets: Ashutosh Bishnoi

Suresh P Iyengar Mumbai | Updated on September 07, 2020

Funds injected by central bankers of larger economies keeping markets buoyant, albeit volatile, says Mahindra Manulife Mutual Fund MD

The rampant spread of Covid-19 and its adverse impact on the economy have not managed to rein in the bull run, surprising many a fundamental investor. The opening of the economy after the lockdown has added to the optimism, just on the belief that ‘it cannot get worse than this’. Ashutosh Bishnoi, Managing Director, Mahindra Manulife Mutual Fund, spoke to BusinessLine about what lies ahead for investors. Excepts:

Are equity markets getting narrower by the day, with a handful of stocks projecting a wrongly bullish picture?

The polarisation of the equity markets started over a year ago after the new government announced its annual budget in June 2019. However, as we entered the new year, the diversification had begun to improve, only to be interrupted by Covid in March. Although these last few months have seen even the small and mid-caps rally a bit, we believe the trend to polarisation could gather momentum again as corporate recovery begins and we can see the healthy survivors surge ahead in earnings.

Most MF equity schemes are still even over longer time frames of three to five years. What is the reason?

Over the long term, equities will reflect the earnings and economic realities. India’s GDP growth has been muted over the last few years for a variety of reasons, and this has impacted corporate earnings. A few can buck the trend but not all. In mutual funds, we can only hold well diversified portfolios, so we cannot buck the trend beyond a reasonable point. Even so, in the last one year, most of Mahindra Manulife’s Equity Funds have delivered 10-15 per cent returns, which is good considering the GDP and market performance.

How do you perform valuations in the equity markets?

There is no one-rule-fits-all process that we have. Depending on the type of business we are valuing, the approach changes. For balance sheet-based businesses, such as commodities, the better system is replacement cost of assets, or, for financials it is price to book value. In P&L-based valuations, PE can be applied only if there is visibility of cash flows over long periods. Cyclical businesses for example sometimes have no earnings to report in down cycles, so should we value them as zero?

Which are the sectors that will bounce back faster?

In markets that have opened post the pandemic we have seen a huge demand spurt, and we expect the same to happen in India eventually. That itself could provide an impetus for growth. Experience in other opening economies has shown strong bounce-back in consumer discretionary sectors, travel, entertainment, education, IT, pharma and healthcare, home building, luxury goods, foods, fashion etc. We expect a similar bounce-back in India. Besides, in India, the bounce-back of rural industries is likely to be an added advantage. Markets, on the other hand, seem to be driven more by liquidity, which is sloshing around globally, having been injected by the central bankers and governments of the larger economies. This money is chasing assets across the globe, as also in India. This is keeping markets buoyant, albeit somewhat volatile.

The expenses on travel, holding investor meetings and form printing have been eliminated with the MF industry adopting digital NFOs. Is there scope for reducing the expense ratio further?

I wish it were true that the costs are lower due to a digital approach. Today, each participant of the digital value chain wants his price and it all adds up to quite a lot. Whether it is the payment gateway, bank, depository, exchange, data feed, KYC provider…these are all large costs. However, digital ensures better and safer customer experience and for that the price is worth paying.

Do you think the debt market crisis is over?

The market is not in a crisis. If one looks around, it is the economy that is threatened with a crisis. And could that lead to a market problem eventually? Yes, possibly, if the economic agenda derails. However, we believe the regulatory bodies are seized with the task of setting the course to a better economic future. Debt funds offer a greater opportunity in India than the equity market. Simply because it is satisfying the need of regular income – which is a very key requirement of investors across India. The challenges that we saw in this market beginning two years ago seem to be now ebbing. A lot of work has been done by both key regulators — RBI and SEBI — to bring greater transparency and orderliness in this market. Several more risk management controls have been introduced.

There is still more work on hand in terms of real time price discovery, for which new moves are in the pipeline. We believe the debt mutual funds are much safer today than they were two years ago.

With the RBI deciding to close the moratorium on loans, do you expect more defaults?

We believe that not everyone who took the moratorium was on the verge of collapse. Many took the extra cash because they were uncertain about the timing of recovery. There may be restructuring across corporates, but a large-scale default scenario is very unlikely.

What is Mahindra Manulife Mutual Fund doing to widen its reach and grow its assets under management?

We are so far a deeply penetrated fund house that depends on the IFA channel’s reach across 400 cities. To expand our footprint we are now working to activate online channel partners, banking and national distributors, and to leverage the Mahindra Finance branch network to bring in new investors.

Published on September 07, 2020

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