Asset Management Companies (AMCs) will continue to grow regardless of the blip in the economy as they offer a variety of products for savers and are economical with high governance standards. With interest rates at record low, investors will have to re-deploy savings in other products such as equities, international equities, multi-asset products and precious metals, among others.

Mutual funds will remain the first port of call for investors for diversifying their portfolios, according to Satish Ramanathan, Managing Director and Chief Investment Officer–Equity at JM Financial Asset Management. Excerpts:

How did the second wave of Covid-19 impact Indian economy and financial markets?

We believe that the second wave would have had a higher impact in rural India and consumption recovery may not be as quick as last year. Manufacturing sector was less impacted in the first wave as compared to now. Also, many States have developed their own protocols, delaying the recovery process.

Textiles, auto-ancillary and some of the export-oriented industries have been affected, while the IT sector has been less impacted. IIP has declined sequentially by 13 per cent in April 2021. We expect sequential contraction to continue into May as well, and some stabilisation in June. Similarly, diesel sales—a barometer of economic activity— has also declined by 20 per cent sequentially in May 2021.

Given the unevenness in recovery, which are the sectors that you expect to jump back to normalcy?

In calendar year 2020, it was consumption that rebounded and this time we expect US-based export businesses to pick-up. The US and Europe are likely to enjoy the benefits of a recovery due to mass vaccination drives. Consequently, we expect industries such as IT to do well and manufacturing in segments such as home textiles among others to pick up. Agriculture is also doing well and will continue to do so on the back of a good monsoon expected this year.

Do you see a churn in the AMC space?

The AMC space will see innovation and growth. Individual participants may have their own reasons to enter or exit the space. The penetration of mutual funds is still limited and it will take time as a new set of investors (younger entrants into the workforce) start deploying their savings.

With bank deposit rates at levels below inflation, investors will accept more risk for additional return and we sense mutual funds with a professional management at the helm could fill in the gap. There may be shifts within the mutual fund space – exchange traded funds (ETFs) and offshore funds among others, but all in all, we remain optimistic about this category of savings.

We (JM Financial Asset Management) are exploring several innovative strategies for investors in both equity and debt formats. Some of the options include sectoral funds and global funds.

Which strategy would you suggest — ‘chasing a winning stock’ or ‘building a winning portfolio’?

Our stock-picking strategy is to look at the fundamentals of a business and determine the suitability of the company in our portfolio. The business should be sustainable, grow organically, generate adequate cash flows to repay debt, pay dividends, grow the business and also be fairly valued.

We do not really bind ourselves to whether the stock has performed earlier when it comes to our decision to buy or not. From our point of view, we focus on building a winning portfolio. Focussing on the basics really helps in filtering the noise so prevalent in the market.

We have noticed that there are several new businesses which have grown in the past decade. Some of them have had staggering profit growth –be they in water pipes or NBFCs. Our focus has always been to identify these businesses early and grow with them.

Will the ESG concept have an increasing role in the investment decisions of fund managers in times to come as is seen in the developed markets?

We believe that ESG will become intrinsic to our stock-selection process. We need to bear in mind that India does not have the luxury of the developed world when it comes to the environment aspect. We need hard commodities to build our infrastructure which may not be environment-friendly. So, do we stop building our infrastructure? This is a question that we need to answer along the way.

Fortunately, as investors, we have the choice to move to the services sector which is highly compliant as regards ESG. Over the medium term, ESG-compliant companies are more sustainable and also result in superior performance.

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