Don’t want to hard sell our funds, says Chirag Mehta of Quantum AMC

We began as the first direct-to-investor mutual fund, an idea not prevalent at that point in time. Thus, our strategy took its own time to play out. Direct plans for the industry started only in 2013. We did direct plans ahead of time in the interest of investors and as transparency came in (due to regulations) we also started working with distributors. We don’t want to launch multiple funds for the sake of it. Overall, we have 10 products so far and all cater to some or the other need of the investor. Even when the SEBI classification mandate for funds came in, we did not have to move/merge funds. We don’t want to hard sell any of the funds. We want investors to buy into our funds. Investor centricity is a slow process. We know it and we are willing to work for it. The assets will grow at their own pace. At one point, there will be an acceleration and we will grow significantly. If doing the right thing for investors has cost us growth, we don’t mind.

If you look at examples from developed markets, there have been many fund houses who do not have associates which provide the distribution and reach, but have, over a period of time, grown significantly. We don’t believe that’s a bottleneck. Especially now after the Covid outbreak, everyone has become used to doing things digitally. In this sense, ability to reach investors is easier. So, it could be a way for us to expand, penetrate into tier-3 cities, educate investors and get them on board. This digital push induced by Covid could be the inflection point for us and from now on, the growth could be much better.

The long-term equity fund which focuses on a value strategy as well as the tax-saving fund (which is a somewhat a replica of the long-term equity strategy) have a long-term track record. Post 2017, the cycle turned out-of-favour for value funds not only in India, but globally too. Only after Covid, we have again seen some rationality come back now in terms of investors looking at valuations, financial strength, and quality of companies. People were earlier looking at the growth story doing well, but now in the light of risks such as inflation ranging higher and interest rate hikes from central banks across the globe, valuation is again being seen as a factor when it comes to investing.  The value fund is seeing improvement in performance than in the last three years. So, if this continues, then I think value fund should start doing well. The ESG fund, since inception, has done better than the traditional market cap-weighted indices and also among the peer group. ESG as a theme has very long-term drivers. Even in the Covid fall and rebound it (ESG fund) did better than the traditional indices, which shows the process we follow is working for us.

During 2016-2018, we were not convinced on the growth momentum and if you look at the earnings then, there was not much growth during that period. We are now seeing a revival and we are on the cusp of a good economic growth cycle. Given that, we think cyclicals - be it financials, capital goods, and with the lag effect of income growth, consumer discretionary  - may do well. Of course, inflation could be a spoiler. But the quality companies we have in the portfolio will pass on the costs, as we have seen in the cycle of 2005-07. We then had growth and inflation in tandem and these companies were, over a period, able to pass on the cost pressures that they were facing. Inflation could delay growth by a quarter or two. We are positive on economic growth and these sectors are positioned to benefit from the recovery. We are just seeing an impact of a couple of quarters on the broader markets. If you look at services growth, that’s been picking up – there is a bit of pent-up demand built into tourism and hospitality which will see much better earnings growth, going forward. As things normalise, even on the manufacturing side, we should see growth. Commodities will mean revert.

One reason for the change may be the fact that asset management is not core to the group’s business. Some may feel that they might have some expertise but lack others such as distribution expertise and therefore look to consolidate. So different factors are driving this play. Among new entrants, some have that reach and investor base and the logical extension now is getting into products. They are looking at differentiated offerings focused largely on passives, as against established fund houses, which focus more on active funds. But investor base has increased manyfold. Since the overall market is expanding, there will be enough room for both active and passive offerings to grow.