News Analysis

‘FPI selling, an opportunity for domestic AMCs’

Aarati Krishnan BL Research Bureau | Updated on January 09, 2018 Published on November 22, 2017


With a career in asset management spanning both bonds and equities for well over two decades, A Balasubramanian, the CEO of Aditya Birla Sun Life Mutual Fund is a keen observer of the economy, policy and markets. BusinessLine caught up with him at Mumbai to pose a few questions on the recent turbulence. Excerpts:

Ever since the Central Statistics Office (CSO) released its Q1 estimates showing GDP growth at 5.7 per cent, there has been a lot of debate on how demonetisation and GST have slowed the economy. What is your observation?

We think that consumer sentiment has made a comeback from demonetisation and GST. Yes, we did see some disruption in July and August, but we saw normalcy returning to most businesses. Today, if you look at money supply in the system, it is strong. If you look at indicative sales numbers for, say, cars, air conditioners or refrigerators, sales have been quite good recently. Interest rates in the economy have sharply declined. And rates being where they are, I think it is only a matter of time before spending appears attractive to many consumers vis-a-vis saving.

In the long run, if the intent of these reforms is fulfilled and the businesses at the bottom of the pyramid become compliant, there can be significant pay-offs for the economy in terms of a wider tax base, more tax collections and richer data. But we need to allow time for that to happen.

Many mutual funds in India are aligned to the growth style and haven’t been early participants in the market rally in cyclical stocks. We have recently had the recapitalisation of PSU banks which delivered a huge re-rating in their stock prices. Where does Birla Sun Life Mutual Fund stand on this?

I think that it hasn’t been a question of growth or value. In the last three to four years, the market has been rewarding certainty of earnings, no matter which sector the company hails from. At Aditya Birla Sun Life, we have been very focussed on this aspect in stock selection and that has paid off for us.

On PSU banks, recapitalisation is a very good move from the Centre. It has provided clarity that the government is willing to pump in the required capital into these banks. I see this move being followed by bank consolidation. This statement of intent in itself is good enough for the markets because it has set a limit to the downside on PSU bank stocks.

The big bounce we saw in these stocks is on account of the relief that the worst-case scenario has not played out. But the upside potential is still not clear.

As a fund house, we have had allocations to PSU banks based on their earnings outlook, but clearly we were not positioned for this one-off event. We did not foresee a 30-35 per cent kind of overnight move.

However, our fund managers have been taking differential calls in other sectors over the last three-four years that have helped performance. We were early at spotting opportunities in metals, chemicals, cement, and had higher ownership in these sectors. We were also among the early movers to foresee the higher growth in retail banking, cars and home loans.

We’re hearing about how the large flows into domestic MFs can shield Indian markets from foreign investor pullouts. Is this view correct?

I do think that domestic MFs will provide stability to the markets as they receive higher allocations from domestic investors. The thing we need to understand is that, FPI actions in India are a function of many factors. When FPIs sell in India, they may not do so out of a negative view on India per se, but because they see better opportunities in say, the US, Europe or China. It is essentially an allocation call.

In recent years, India-dedicated funds have reduced in size and allocations are flowing into global funds, which have India as only one of their many possible options. Those flows will tend to be fluid.

But a lot of money is coming in through the FDI route. For domestic asset managers, FPI selling is an opportunity to acquire stocks at a price that they like. As the market grows, we also need sellers in the market. FPI selling actually provides a counterpoint to the high valuations we are seeing today.

I also believe that it would be an excellent development for the markets if SEBI increases the minimum public shareholding norms for listed companies. This will increase the market’s free float and create more deployment opportunities for foreign and domestic investors. This can also lift India’s weight in the MSCI indices and increase ETF allocations to India.

Published on November 22, 2017
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