This Is A Good Time To Invest

Waqar Naqvi
CEO, Taurus Mutual Fund

In this exclusive interview with Dalal Street Investment Journal, Waqar Naqvi, CEO, Taurus Mutual Fund , presents his views on the impact of the virus pandemic on the global equity markets and reflects on whether this is the right time for investors to grab the opportunity of buying stocks at low prices

What is your take on the current market conditions, both equity and debt, and how do you see it panning out in the next few quarters? 

The current market conditions are tough. Returns from equity and debt have been volatile in the past couple of months. Even returns from gold funds have been volatile, but with an upward bias. We see interest rates declining in India in the coming couple of quarters given the fact that the corona virus pandemic will inflict an enormous collateral damage in terms of jobs, salary pressures, reduced volumes of business and higher expenditure of households on daily need items. The Reserve Bank of India (RBI) has stepped in and we see more intervention from it in the coming quarters.

Broadly speaking, PSU debt and government securities look much more attractive than private sector debt at this point in time though some sectors look good – pharmaceuticals being one of them. India, in terms of the central government and the RBI, has the wherewithal to manage the crisis and a reduction in interest rates along with infusing liquidity in the markets will be some of the important steps. We also need to see what stimulus the government provides for different sectors to shore up the economy. Obviously, the government seems to be taking its time, perhaps to better gauge the anticipated damage, which is a sign of maturity. It appears as of now that we have handled the threat of the pandemic on the medical front quite well helped by the extended lockdown. So on the equity front, India should fare better and recover in lesser time as compared to most of the other nations. With India being amongst a handful of economies which are not expected to post negative growth in GDP numbers, depending on the steps which the government initiates, we may see more foreign portfolio investment (FPI) participation in India in a few sectors. The large-caps and companies with lesser debt and higher cash on hand should do better.

We are going through one of the greatest financial crises in recent history. The impact is said to be worse than that of the global financial crises of 2008 and yet the equity market seems to be unperturbed as it is up by 20 per cent from its recent low. How do you explain this?

India had relatively lesser business with China as compared to most of the other nations. So when China was hit, the side-effects were felt by equity markets of several countries but not by India. When the other countries were hit they faced direct heat on their equity markets and so did India to an extent. Now as it becomes clear that India is able to contain the pandemic better, hopefully our equity markets would be less volatile. We also need to watch out for the stimulus package and other steps which the government may initiate to shore up different sectors. Sectors which are worst hit by the virus in India are the nonbanking financial companies (NBFCs) and real estate. Both these sectors were anyway in a bad shape before the advent of the pandemic. The Indian equity markets should remain stable unless we are hit hard by a second wave of this virus.

Inflows into equity mutual fund have increased in the month of March 2020 despite a sharp fall in the equity market. Do you see a structural shift in investor behaviour?

Obviously the smart investors allocated more money to equity as the markets took a sharp fall but it is a bit early in the day to judge anything by one month’s inflows. March, along with January and February, is also a month when taxsaving funds attract more investment. The picture would be clearer by June 2020.

There are various categories in both debt and equity where you are not present. Why have you restricted your operations to a few categories?
We always wanted our products to be ‘true to label’. Taurus Mutual Fund did not launch products from a sales perspective. Even before SEBI came up with its categorisation, Taurus MF had clearly defined its products. When SEBI instructed mutual funds to merge similar products, Taurus MF did not have to merge any two products. We believe the investor needs a few categories in equity and we have products to cater to most of those categories.

Your product portfolio showcases that as a fund house you are more retail investor-oriented rather than institutional. Is it so? And what has led you to such a strategy?

We had considerable number of institutional clients as well till a few years back. But then we became uncomfortable with the debt scenario prevailing in the country at that point in time. We also felt that as a small fund house the risks for us and our investors were relatively higher on the debt side given the expected defaults – which cascaded the debt markets eventually – and hence merged all our debt funds into our liquid fund. So now we have a greater percentage of retail investors as compared to the industry average.

"This appears to be one time when three years or less would be a enough time to generate good returns by investing in mutual funds, depending of course on certain factors. Yet, undoubtedly it is a good time to invest in equity funds"

The Taurus Ethical Fund has given negative 11.68 per cent in trailing three months compared to negative 30 per cent return generated by many equity-dedicated funds in the same duration. What has led to such a superlative outperformance?

The mandate of Taurus Ethical Fund (TEF) is to avoid investing in companies which have debt or those in the financial sector or in other sectors like alcohol, tobacco, etc. So while TEF generally does well, every time a crisis hits the economy it outperforms most of the diversified equity funds considerably. Add to this the fact that our fund manager was wise in his stock-picking.

Currently, in terms of the total assets under management (AUM), you seem to be on the lower end of the chart. So how do you plan to expand your products and AUM in the coming future?

We do not plan to launch any new product in FY 2021. We will continue to work on the basics. While we have limited capital to plan an aggressive expansion, we are not only in profit but we do not have any accumulated losses as well. A good time to unfold our strategy is when volatile events such as the current pandemic are behind us.

What would be your advice to retail investors at the current juncture?

This is a good time to invest. Mutual funds have always promoted long-term investing as an idea where long terms could have been interpreted by different investors as five years or 10 years or more. However, this appears to be one time when three years or less would be a good enough time to generate good returns, depending of course on certain factors. Yet, undoubtedly it is a good time to invest in equity funds.