In conversation with George Heber Joseph CEO and CIO, ITI Mutual Fund

"We Feel The Bull Market Has More Legs To Grow"

With all the three engines of economy, namely, consumption, investment and exports firing together after a long time, George Heber Joseph, CEO and CIO, ITI Mutual Fund, opines that this is the right time for investors to take the mutual fund route

The equity markets have corrected a bit from their recent highs even though valuation still seems to be stretched. So, can we expect the current correction to go deeper? How should investors approach equity mutual fund investing at the current levels?

Corrections have always been an essential feature of all bull markets. After a strong run up in a relatively short timeframe, some correction in markets is inevitable. However, we should not lose sight of the big picture. The big picture is that Indian economy and corporate earnings are starting an upward cycle after a period of weak growth. Corporate profits to GDP were 3 per cent in FY20, a level last seen in FY03. We are already witnessing signs of improvement in earnings. Several sectors, particularly related to the investment cycle, are coming into a growth phase after a decade of weak growth. Consumption and exports are doing well. Thus, all the three engines of economy, namely, consumption, investment and exports are firing together after a long time. Investors therefore must remain constructive on the markets and use corrections, as and when they come, to their advantage.

The broader market equity indices continue to outperform frontline indices even in the current volatile market. Do you believe it is the right time to take some profit from the broader market-based funds?

In every bull phase, mid-caps and small caps outperform the large-caps. Therefore, over a longer period we continue to believe that they will outperform large-caps. In the near term, being a high-beta segment, they might correct more in case of market correction. Hence, we have been advising investors to use the SIP or STP route to take exposure to mid-cap and small-cap segments.

As of now you have 14 schemes with none of them being passively managed funds. What is your take on passively managed funds in India and do you have any plan to launch any such funds?

We continue to believe that in the Indian markets actively managed funds will outperform the markets over the medium term. During the period of FY 2018-20 the market breadth was weak and due to a narrow rally the ETFs showed better performance. However, as the market rally is now broad-based and economic growth is recovering, active funds should do well.

It seems that the Reserve Bank of India might slowly change its accommodative stance and start notching up the key policy rates. In such circumstances, what should be the investment strategy towards debt funds?

Both the Reserve Bank of India and the US Federal Reserve may have indicated changes to the degree of accommodation, but their monetary policy stance is expected to remain accommodative over the medium term. Any potential rise in interest rates is expected to be gradual and to a large extent this has already been priced in by the markets. However, bond markets are expected to witness higher volatility over the coming years as compared to the secular and benign trend prevalent last year. We therefore feel that active and flexible strategies such as dynamic bond funds are well-placed to generate inflation-beating returns.

We have seen AMCs such as Aditya Birla Sun Life AMC, HDFC AMC and UTI AMC getting listed. Do you also have a plan to get listed?

Right now, our focus is on growing our AUM and increasing DS our market share. As of now, we do not have plans to get ourselves listed.

The industry’s SIP numbers have recently crossed the mark of Rs 10,000 crore. What does this imply and do you believe it will be the prime source of inflows towards MF schemes and more importantly how is ITI’s SIP book growing?

SIPs have been the mainstay of equity inflows and are the most stable source of inflows into MFs. SIPs have been a focus area for us and our SIP book is now in excess of Rs 25 crore. The share of SIP inflows is gradually increasing in the total inflows of our fund.

How will SEBI’s new circular on discontinuation of usage of pool accounts by entities, including online platforms other than stock exchanges for transactions in the units of MFs, affect business? 

The circular was issued a month ago for implementation from April 2022. The circular focuses on increased transparency and clarity in executing each individual transaction, and thus is in the right direction. This may require some sections of the advisors or distributors to make certain changes in the operating procedures. However, we do not see any material impact on MF inflows. Such procedural changes do not affect the basic rationale for investing in MFs. MFs will continue to remain a very attractive investment avenue for investors

Taking the current situation into consideration, what would be your advice to retail investors?

We feel the bull market has more legs to grow. The Indian economy is entering an upward cycle. All the three engines of growth – consumption, investments and exports – are growing together after a long time, leading to broad-based earnings’ growth. Hence, investors should not be unduly worried about corrections but use them to their advantage. At this juncture, investors can do lump sum investments in our balanced advantage, multi-cap or value funds. We advise investors to use the SIP or STP route to invest in such funds.