The recent volatility in the stock market and economic uncertainty that could rear its head in the run-up to the General Election next year, have made many new investors sit back and take a relook at their mutual fund investments. Sunil Subramaniam, CEO, Sundaram Mutual Fund, feels that mutual funds will never fail long-term investors. Excerpts:

Where do you see the listless market heading this fiscal?

The markets will mostly remain volatile due to political uncertainty, both on the domestic and the international fronts. There is a US Senate election slated for November. The recent rhetoric by the US President is oriented towards winning votes in that election.

On the domestic front, there is an election in Karnataka, followed by the General Election in the first half of next year. The news flows around the election would continue to impact the market. However, the economic data emerging on both domestic and international fronts are very positive. I would put this as political uncertainty and economic certainty. The flow into the market through mutual funds and investment by the Employees Provident Fund Organisation (EPFO) would continue to support the market.

Do you see a revival in corporate earnings this fiscal?

Certain sectors such as consumption, and auto have shown a revival last quarter. I believe, Nifty earnings for the last fiscal should be in high single digit, but for the December quarter it should be about 16 per cent higher, which augurs well for a Nifty growth of 18 per cent in FY19. For the last two-three years, the market has been expecting earnings to pick up, but that has not happened. Now the tide is turning. The World Bank survey of turnaround in the global economy is good for the IT services sector.

Have you completed the process of scheme rationalisation?

Our funds are already managed mostly according to the SEBI prescription. For instance, we do not have any large-cap stocks in our mid-cap schemes to bring down volatility. We haven’t changed even 5 per cent of our portfolio. In fact, we welcome this (move by SEBI), as sometimes, our fund performance with other similar schemes were not matching as they had blended together large- and small-caps. While reviewing the schemes, we found an opportunity to launch three new funds — pure large-cap, equity savings, and multi-cap funds. We will launch it in 12-15 months.

What is the risk attached to political uncertainty?

The major risk is a hung Parliament. State elections may not weigh in much. Whatever happens, BJP will have majority in Rajya Sabha next year, as most previous State elections have gone its way. But the challenge is they need majority in both Houses to pass certain difficult reforms. A coalition government is the biggest risk for economic growth. Even if the Opposition comes to power, it would have learned a lesson from what has happened. It will now be more reform-oriented.

Will reforms get reversed if the Opposition comes to power?

The governments’ ability to influence economic development has greatly diminished over the years. However, it can positively impact by spending on infrastructure and facilitating speedy project approvals, et al . India is a country with a young population thumping for growth. A bad government can possibly drag the GDP growth to 6 per cent but not to 2-3 per cent. However, a good government can take it to over 10 per cent.

Do you think SIP inflow will continue?

There has been no major impact on SIP flows for us, so far. While the one-year SIP return has turned negative, 68 per cent of the industry’s SIPs have delivered returns of about 25 per cent as their tenor is over five years.

I don’t think a person investing for five years will pull out just because of one year of negative return. As long as there is confidence in Modi and the prospects for economic growth, there is no issue with SIP flows.

However, incremental SIP creation may slow down, but as the book itself is worth over a billion, it is not at risk.

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