"There is huge potential to build innovative products"

"There is huge potential to build innovative products"

Swarup Mohanty CEO, Mirae Asset Management India (P)

With the finance industry having done a tremendous job of educating investors on the importance of systematic investing, the collective interest in the equity and debt markets has certainly been rising which, according to Swarup Mohanty, CEO, Mirae Asset Management India (P), is creating a favourable environment for new investment products 

The equity markets are trading at an all-time high with stretched valuation. How should a retail investor approach these markets now?

Equity markets generally are indicators of earning growth expectations and clearly at the current level the markets are expecting corporate earnings’ growth to increase meaningfully. The Bloomberg estimate indicates 22 per cent earnings’ CAGR in the period FY 2020 to 2024. The Nifty index is currently trading at 17.5 of the FY 2024 earnings and seems reasonable in the context of earning growth expectations. However, after the recent strong rally one can expect moderate returns in the interim and over the medium term the returns should be reasonable.

Time and again we have seen it is futile to time the market and so I would advise retail investors to stay invested based on their risk profile and target asset allocation. Investors can consult their financial advisor for guiding them for their investments. One of the best tried and tested way of making volatility work in your favour is to stagger your investments through either SIP or STP. Investors should invest in equities in a disciplined manner.

What is your take on the broader market that has more than doubled in the last 18 months? Do you think there will be correction anytime soon?

As indicated earlier, the markets are clearly expecting strong earnings’ growth and are also seeing different earnings against the backdrop of an improved vaccination phase. However, of late we are seeing pockets of concerns regarding the third wave of the Delta variant which could be a short-term dampener if the situation escalates. Nevertheless, we seem to be in a much better shape to tackle the situation than we were last year. Like I mentioned earlier, it is futile to time the markets and I would advise retail investors to stay invested based on their risk profile and target asset allocation. If and when the markets correct, investors could look at it as an opportunity to increase their equity based of course on their risk profile and target asset allocation.

The monthly AMFI data for the month of August shows a huge jump in inflows in hybrid funds. Do you see it as an exception due to one fund garnering more than Rs 14,000 crore or is there a change in the trend?

Investors should choose an investment category based on their risk profile, investment time horizon and return expectations. The outlook on both equity and debt markets remains positive with a 2-3 year timeframe and hybrid funds are providing investors good return potential with a medium-term to long-term timeframe. We have seen in the past how aggressive hybrid funds which have 75-80 per cent equity allocation have delivered returns almost similar to equity funds which have 100 per cent equity allocation over long period of 5-7 or even 10 years at much lower standard deviation.

In an environment where interest rates have become soft, equity savings are emerging a good category for conservative investors with a three-year timeframe. We are very positive on both these categories of hybrid funds. I wouldn’t read much in the change in monthly flows of any category as they could be impacted by NFOs and the performance of a few funds. We are seeing positive flows in our hybrid funds for the past three years, even during the time when that category was losing money.

A few months back your fund house signalled a push towards passively managed funds. What prompted you to take such a decision?

The Indian mutual fund market is at an interesting position when I look at it from a global mutual fund market perspective. We have our product basket of active funds, both equity and debt, which continue to build a good track record. That is the core of our business and will continue to remain so. At the same time, currently there is this tremendous opportunity and potential of building meaningful products on the passive side in India. It is a very interesting situation as both can co-exist meaningfully which is probably unique only to India at this time across the globe. The demography of the country is changing rapidly and so will the needs or investment habits of Indians in the coming time.

Our job as an asset manager is be to be in a position to provide strong products to investors across asset classes, both on the active and passive side. Let us face the fact that post categorisation of products, the number as well as the scope of products now stand defined. There is huge potential to build innovative products catering to different risk profiles on the passive side. We have demonstrated that with our recent offerings of ESG, FANG + ETF, Financial Services ETF and the current S and P 500 Top 50 funds, all being firsts in the Indian mutual fund industry. Hence, we want to take this opportunity to establish ourselves as an overall asset manager in near future with equal strengths across the various aspects of fund management.

Recently a broking firm has come out with a note saying India will be included in global bond indices in early 2022. What will be its implication to a retail investor investing in debt funds?

The inclusion of India’s debt instruments in global indices would attract higher foreign flows as many overseas funds are mandated to track global indices and therefore would increase allocation to India in alignment with the benchmark. According to a Morgan Stanley report, it would lure USD 40 billion of inflows to the country’s debt market in the next two years. Inclusion of India in the global debt fund index will push India’s balance of payments into a structural surplus zone, indirectly creating an environment for lower cost of capital and ultimately be positive for growth. The lower cost of capital will improve company profits and will be positive for the equity markets while the lowering of cost will make the debt funds a lot more attractive in the current market scenario.

How do you see the elevated inflation globally and which category of funds is best suited to shelter an investor’s wealth from rising inflation?

We understand that the current elevated global inflation primarily led by the supply bottleneck and demand drivers of inflation – weighted and credit – are still weak. Further, we already are seeing the moderations wherever similar packing is getting released. Hybrid funds are suitable at this juncture. The biggest advantage of a hybrid mutual fund is that it allows investors to balance risk and return. The equity portion will earn better returns and the debt part will earn steady returns at lower risk. Equity saving fund is a very good investment category with a 2-3 year timeframe to deliver 1-2 per cent returns more than traditional fixed income options and inflation.

The SIP book is near Rs 10,000 crore. How do you see this going ahead especially if the market corrects?

The industry has done a tremendous job of educating investors on the importance of systematic investing. Investors have understood that market corrections help in rupee cost averaging and improving the returns in the long term when the market recovers. Due to this collective education by the fund houses and financial advisors, in spite of market volatility and corrections last year the SIP stoppages were minimal and flows have continued to grow. Investors have understood that investing systematically over a long period of time is the best way to create wealth. Considering that the retail penetration of mutual funds is still very low, the SIP book for the industry will grow significantly over time.

In the current market what should be an ideal asset allocation for a moderate risk-taking investor?

Given the current market conditions, 50 per cent allocation to equities, 30 per cent to debt, 10 per cent to gold and 10 per cent to international equities can be a good option. But the preferred way of investing is that investors should consult their financial advisor and create an appropriate asset allocation mix based on their risk profile, investment time horizon and return expectations.

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