Middle-class needs to be mobilised for increasing retail participation in MFs

Mr Ved Prakash Chaturvedi, Chief Executive - (Capital Markets & Investment Management Group), L&T Finance Group said that savings of the growing middle-class need to be mobilised for increasing retail participation. He believes that for the markets the worst is possibly over and recommends prudent equity investment at this point.

What is your view on Indian equities market at this point?

The Indian equities market is being influenced by four factors – firstly, the global situation and specific concerns with respect to events in Europe; secondly, there is a focus on domestic inflation, interest rate and the rupee situation; thirdly, a close watch is being kept on the growth rate of our economy and earnings growth of various companies and last, but not the least, foreign investor interest in the Indian market is being carefully tracked. Similarly, some headwinds are expected from news flow from overseas markets. However, our sense is that the market valuations are factoring this in and actually some positive news may be in the offing.

With commodity prices and oil prices coming down, we may have some early signs of good news on inflation and also on interest rate Our sense is that the worst period of our equities markets is now behind us and provided some factors fall in place; we can see improving cheer in our markets in the future. However, this improvement will only be gradual and will be accompanied with some volatility based on the news of the day. It should be noted that equity investing is only for long term investors and individuals should take proper advice before investing.

How do you propose to increase retail participation in the country?

We are a country with a growing middle-class, a high savings rate and a long term stable approach towards deployment of our savings. As we have seen in the past, increasing affluence of the growing middle-class has increased the saving pool as well as gradually increased the allocation of savings to more actively managed products like mutual funds and others. This trend of increasing allocation of saving through actively managed mutual funds (Debt/Equity funds) is slowly gathering momentum and we find more and more individuals becoming participants as mutual fund investors. The glass is however, only half full and there is a long way to go in reaching a minimum level of penetration for mutual funds in India. In our view three trends will drive the increase in penetration: Firstly, increased middle-class affluence, secondly increased usage of technology facilitating investments, continued positive investor experience and greater integration of our markets with global markets.

Given that the economy is facing a slowdown, what should retail investors do?

Over the last three years the investment engine has slowed down owing to a combination of global and local factors. However, the other engines of consumption, global opportunity for our skill base and financial intermediation are still driving growth. Thus, we can infer that while there is a short term slowdown in the growth rate, growth continues to be significantly above global averages. Serious long-term investors should examine their risk-return appetite and invest in a basket of appropriate securities after taking proper financial advice. Our sense is that the growth rates in the Indian economy will present value creation opportunities in the medium term from properly selected equity stocks. Should retail investors’ asset allocation strategy change? What proportion should be in equities, debt/fixed income and bullion?

Individual investors have to determine their asset allocation based on their own risk appetite and long-term return goals. Proper financial advice should be taken before deciding on asset allocation. As a thumb rule, investor should look to invest 100 minus their age as a percentage in equity oriented assets and balance in other assets. So a forty-year-old person can invest 60 per cent of savings in equity assets and remaining assets can be equally divided in real estate, gold and fixed income. It should however, be noted that while this is a general rule.

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