There is a lot of uncertainty among investors in terms of market outlook and earnings, which is affecting the fund flows that may remain subdued for few months, says Aashish Somaiyaa, MD and CEO, Motilal Oswal Asset Management Company. Also, the recent happenings in the debt fund segment carry important learnings for the mutual fund industry. Excerpts:
Debt funds have been in the news for quite some time, mostly for the wrong reasons. Do you think investors should look at investing in debt funds? Is the worst over?
I personally feel there are two aspects to it. First is whether you should invest in a debt fund now. I think the problem has been isolated to one or two issuers, and at the same time the industry has handled it. So, by all means, one should consider investing in debt funds. Let us not paint the entire thing in a particular fashion.
Also, some issuers are working towards resolving the situation. There may be panic now, but I think in the next 3-6 months, we will find ourselves in a better place because some of these things are getting resolved and maybe, the worst is behind us.
As to retail investments, I think the issue is not about whether to invest, but more about where to invest. People think these funds should give us better returns than all the small savings products and the banks but the perception about risk is completely different. Such defaults or downgrades have happened in the past as well and one needs to be conscious of who is investing and how is the understanding of the product. No one should think that this product is totally risk-free. When one tries to chase yield in an otherwise low-yield environment, that is when the risk becomes disproportionate.
What are the learnings for the mutual fund industry from these instances?
First is the customer profile and the product structure. If you have to take risk, then maybe put it in an AIF (Alternative Investment Funds) structure and go to the right client. Second, we should not try to maximise yield in a low-yield environment. Thirdly, communication and expectation setting.
What is your take on the equity market?
The Nifty may be around 11,300 but it feels like 10,000. There is a conundrum. If you ask investors if they want to invest in equities they will say ‘no’, because they feel that while Nifty may be trading near all-time highs, there is uncertainty around EPS (earnings per share) growth.
Then, if you ask about their portfolios, they will say it has underperformed Nifty. Small- and mid-cap investors have all lost money. Investors should not act on their portfolio looking at Nifty because you may not be owning Nifty. Everyone has been preoccupied with the elections. In the background, the U.S. policy has changed, the RBI policy has changed, corporate results are at least better than what they were in the last couple of years, oil prices are not at $90. Change in U.S. policy gives a lot of legroom to our policymakers. Plus, there is a decisive mandate.
In that case, do you think this is a good time to look at passive investments?
Why is it getting attention now? It is because of the last one year return of the markets when the Nifty has been positive but most funds are struggling.
Passive funds will take off due to the youngsters today who are going digital and DIY (do-it-yourself). It will also take off due to the returns-versus-cost debate at a time when the awareness of cost is going up. Also, when fee-based advisory services are going up, the adviser would look for an underlying product that is cheaper.
Another factor is that when you are looking to invest for 20 or 30 years, which fund manager would you trust?
Flows into equity funds are at a multi-month low. In this context, how do you see SIP flows going ahead?
There will be uncertainty for the next two-three months. People would like to see some improvement, some positive news flow, some traction. So, at least one quarter looks uncertain in terms of flows but post that, things will pick up in a big way.
