The assets under management of mutual funds crossed the magic figure of ₹20 lakh crore recently. Despite uncertainty over tax collection under GST and a slowing economy, equity schemes registered highest-ever inflow at ₹20,362 crore last month. BusinessLine spoke to Lalit Vij, Managing Director, Principal PNB Asset Management Company, to make sense of this bullish trend. Excerpts:

Are you comfortable with the current rally?

Though markets have gone up, investors are punishing those sectors where there is no earnings growth. I expect markets to test investors’ patience in the next few months, but it is not in bubble territory yet. Long-term investors can expect double-digit growth. The good thing is people are staggering their investment. Distributors are more cautious and advising balanced funds more. Expectations are sort of grounded. While we are bullish on India growth, we have provided global investment opportunity to Indian investors through our Principal Global Opportunities Fund.

Is steady flow through SIPs holding the market?

The flow has added a lot more stability to our markets. It is not as volatile to global developments as before. Even among foreign fund flows, I believe there is a lot of steady money coming now from endowments, large universities and pension funds. India accounts for about 8 per cent of the emerging market universe, but it gets a fair share of both hot money and stable funds.

Is retail fund flow exposed to more risk?

I do not think so. The continuous flow into mutual funds, despite analysts perceiving the markets to be expensive, is a reflection of retail investor faith in mutual funds. The Indian population is fast ageing. Of the 20 per cent of the ageing population, about 8-9 per cent are women. This is probably going to be a high percentage. The concern of the government is how they are going to safeguard the interests of old people. Clearly, our pension system is not adequate. The placement in many government schemes are significantly low. Retail investors’ focus should shift from wealth creation to lifestyle maintenance post-retirement.

What are the major risks for the markets?

The global geopolitical issue involving North Korea, US and China is a major risk. In India, the only concern is demand and manufacturing sectors’ low capacity utilisation. It may reverse in 12 to 18 months. We have seen short-term impact of GST affecting June quarter (numbers). It may take another one or two quarters to stabilise.

The complacency of people in taking risk is also a factor of concern. There is hidden risk in fixed assets as well. This is in terms of corporates honouring their commitments. We have seen what is happening in the banking sector. A lot more care needs to be taken on the fixed income side. People should not consider that they are in safe zone by investing in fixed income schemes. Of course, SEBI has taken a number of measures to ensure there is no mis-selling.

Can mutual funds handle more fund flows from bank deposits?

The debt market is definitely deep enough to handle any amount of fund flow. There are enough bonds and commercial papers available from PSUs and governments. Though we are not seeing highly-rated corporate issuances, there are enough commercial papers from decently rated corporates in the market. Whenever there is an eventuality, SEBI has taken proactive steps to check with fund houses on their investments. Fund houses also need to be more vigilant. The current infrastructure and process are quite mature to handle any kind of eventuality.

Do rating agencies need to buck up?

We have all the top rating agencies in India and SEBI has also been very active in this front. SEBI has already issued circulars to rating agencies on what they expect from them. It is now their responsibility.

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