Interview

"Market fluctuations and near-term negative returns have always remained temporary and as time progresses; they do get adjusted in one’s portfolio returns and builds a good experience."

A Balasubramanian
CEO, Aditya Birla Sun Life AMC

You are one of the oldest fund houses and have witnessed three market cycles closely. What is the key to your success? Also, how do you look at the MF industry from an AMC point of view?

We as a Fund House have seen multiple market cycles and incidentally, as of this month, we are also completing 25 of years of this successful journey and our contribution to the Mutual Fund industry’s growth. Our AMC’s success so far, has come largely on the basis of our ability to create solutions for the growing needs of investors across the country. In order to do that, one has to build a strong team, combined with credibility of the process that drives the organisation’s success. Ultimately, staying committed to the business in delivering consistence of experience to our customers and distribution partners have helped in building the organisation as one of the top AMCs in our 25th year and of course, maintaining leadership position in the industry. I would say our success is the outcome of a strong brand value, shareholders’ commitment to this business, risk management practices, investment management capability through a strong team and ability to provide greater service to both our customers and distributors. Having brought to scale both in our customer acquisition and AUM strategy, we believe the Mutual Fund industry will continue to grow to newer heights in the years to come. Asset management industry would evolve to a strong industry going forward, one that is chosen not just to channelise resources into the capital market, but it will also take a leading role in the development of capital market by becoming the largest provider of capital both in the form of debt & equity and also in growing businesses across the country.

Equity mutual funds have recorded one of the lowest inflows in the recent times, i.e., in the month of November 2019. How do you see this?

This year so far, one has witnessed lower flows in the form of lump sum investment in equity. This has been the trend since January 2019 and got worsened in terms of net flows in the month of November. I would assume it is the function of overall experience of investors, especially in the last two years and also, overall economic slowdown that is being seen. Lastly, the year began with a few regulatory changes related to the distribution model which moved completely to trail commission model. There was also a change in the incentive model to attract SIP, from upfront to trail model. All these changes came together in the year 2019 and hence, the marginal slowdown should be seen as creating a base for the next round of growth. Therefore, slowdown in flows should not be seen as negative as we have seen these cycles in the past also and post such a slowdown, the industry has only seen a leap forward to the next level.

You have recently launched ‘Aditya Birla Sun Life PSU Equity Fund’. Enlighten us on the factors that attracted you and also, what are the investment strategies you are going with?

We keep doing new fund launches on the basis of spotting opportunities and the ongoing emerging investment themes for offering differentiated products to our investors. This fund especially, is dedicated for investing in the government-owned listed enterprises. Most of the governmentowned companies in the listed space are attractively valued and they are now being either consolidated or being put up for strategic sale. Both should provide an opportunity to unlock value for investors. The theme provides an opportunity to own this space as a tactical bet in the portfolio.

Recently, the Bharat Bond ETF was launched which is said to be the first corporate bond ETF in India. What are your thoughts on the same? Do you have any plans in the future to come up with your own corporate bond ETF?

Bharat Bond ETF did gather a huge response from institutional investors.This is another way to raise money from the market by bundling of various borrowers in one ETF format and offer to investors. As we have seen in the past, new instruments are being created such as InvIT, REIT and now Bond ETF in order to expand the debt capital market and attract more investors both from retail and institutional space. I am sure Bond ETF will be complementary to the large pool of bond market in our country and provide an opportunity to participate; in addition to mutual fund pool-based fixed income schemes that are already familiar to investors.

Aditya Birla Sun Life Frontline Equity was one of your best-performing large-cap funds. However, post recategorisation, wherein the benchmark was changed from S&P BSE 200 to Nifty 50, the fund has performed poorly as compared to its benchmark. In your view, what led to this underperformance?

ABSL Frontline Equity has built huge credibility among the large-cap schemes by providing a solid investment experience to investors over a 20-year period. Last year post re-categorisation and also change in the bench mark from BSE 200 to NIFTY 50, did have some impact on the portfolio performance. The impact on the relative performance was largely due to the difference in index weight and portfolio underweight to few securities. Over time, such gaps have been addressed and at the same time, the portfolio will still make an attempt to generate alpha by focussing on stocks from the non-Nifty companies to the extent of 10 per cent to 15 per cent. I am sure our Portfolio Manager would be in a position to bring back the consistency of performance in the portfolio with these changes as we move ahead.

What are your thoughts on passive investments and do you think passive investment will make a better future?

Passive investments have picked up in India in the last two years post Government of India allowing Provident Funds to invest up to 15 per cent in Indian equity. So far, a large portion of its size has come from these investors, that too to a few large public sectorowned mutual funds. Such a disproportionate flow into ETF resulted in a few large weight stocks in the Nifty and Sensex to perform far better than broad market as well as many companies in the Index. This never used to happen in the past; however, this phenomenon has become a new normal. This has created more awareness for Index Funds and a passive way of investing among investors as well as advisors.

In our view, passive funds will remain complementary to actively managed funds and actively managed funds over time will do well given the diversity of stock winners that can potentially come from other Nifty and Sensex stocks.

Equity markets are trading at their all-time highs and are also highly volatile. So, how do you look at the performance of equity mutual funds in 2020 and what are the categories that you see will spearhead the returns?

Equity market has been doing well largely due to the inflows as mentioned above as well as from global emerging market funds. This will continue even during the year 2020 given the fact, liquidity is high and interest rates are low, hence more allocation towards equity. Having said that, recent slowdown in Indian economy would have created a bottom and there is a high probability of the economy bouncing back gradually as the government has started taking firm action to reverse the trend. This in fact has reversed the sentiment and brought back the hope and optimism towards equity market. In this scenario, we see multi-cap funds as a leading choice, and at the same time, we also witness mid and small-cap funds make a big come back as they are trading at all-time lows and have shown huge underperformance in the last two years. This underperformance may not last for too long and they would come back in the recognition in the year 2020.

There is a fall in the number of ARN renewals as well as new ARN registrations. So, is this a hint of some major change in the mutual fund distribution space trend? How do you look at it from AMC’s perspective?

It is a function of economic model under which these ARN holders have built their business. If someone does not have a long-term commitment to this and is looking at the whole financial business as an opportunity, I am sure they would move away to something that gives them more predictability on their earnings. However, those who believe it is a business of scale combined with giving personalised service to its investing customers, they would look at this as a long-term business model and those people are building the business to its next level. There is a space for everyone, irrespective of size as long as they are able to remain relevant to their customers and their families and friends as their family advisor or as their financial caretaker.

What will be your advice to retail investors for 2020?

Keep a high focus on asset allocation between all products using goal-based investment approach and continue to keep investing in the form of SIPs and STP to build a long-term portfolio. Market fluctuations and near-term negative returns have always remained temporary and as time progresses; they do get adjusted in one’s portfolio returns and builds a good experience. In order to get that experience, one bull market is sufficient which normally comes once in three years and therefore, riding the ups and downs by staying invested is the key to success. No business can be built without going through ups and downs and is equally applicable for the investment world too. Therefore in the year 2020, investors should keep a focus on SIP way of investing in mutual fund and build fixed income schemes too as a part of the portfolio.