'Debt mutual funds are a good option now because interest rates are coming down.'
'Retail investors must put a majority portion of your money in short-term debt funds (1 to 3 years) and only a small portion in actively managed dynamic funds.'
Illustration: Dominic Xavier/Rediff.com
The mutual fund industry has been on a roll in the past couple of years.
With systematic investment plans -- SIPs -- adding Rs 5,000 crore (Rs 50 billion) per month, the industry is finally getting long-term money.
A Balasubramanian, CEO, Birla SunLife Mutual Fund, believes the rising number of SIPs indicates that investors are beginning to mature.
He tells Joydeep Ghosh and Priya Nair that earnings are likely to see an improvement in the June quarter and the equity market is expected to do well this financial year.
Is the mutual fund industry expected to show good profits in FY17?
With the industry generating average returns of around 25 per cent and rise in folios, the overall profitability of the industry should improve.
Net sales has been close to Rs 1 lakh crore for the full year.
Till February, we have added close to 7 million folios.
Within this, the share of B15 towns would be about 50 per cent.
The big growth was in SIPs.
The SIP book size is 1.32 lakh crore folios for the industry.
The monthly inflows are almost Rs 5,000 crore. Every month it has been growing.
SIPs have been growing anywhere between 17 to 18 per cent minimum an average per month.
Despite demonetisation, the equity market did not feel the heat too much.
The bond market rallied quite a lot, but then it felt the heat after the policy in December because the RBI (Reserve Bank of India) did not cut rates.
There was a reversal of almost 70 to 80 basis points.
If the rate cut had happened, debt funds would have received close to Rs 3 lakh crore inflow.
When do you expect corporate earnings to catch up with the rise in the equity markets?
We will see pick up in earnings from the June quarter.
There could be two to three reasons. One is that interest rates will remain stable. There is an increase in volumes and top lines are improving.
The informal economy is also becoming formal, post-demonetisaiton.
Will GST implementation cause any interim problem for earnings?
In my view, GST will be a non-event for markets or earnings because so much preparation has gone to ensure its success.
Therefore, GST could potentially become one of the big successes for India.
The government is fully prepared with the system and only the rates have to be fixed now.
Over the last one year, states have been asking companies to register. The number of training programmes that government is planning to undertake is phenomenal.
The CBDT (Central Board of Direct Taxes) and central excise have been given the task of educating people across the country on how to register themselves for GST. And, of course, the technology has been put to play.
There will be some initial fear factors and some disruption for one quarter. I don't see it extending beyond that.
Though the government has suggested 5/12/18/28 per cent tax slabs, most of the taxes will be close to the existing rates. It will be revenue neutral.
So I feel GST will be a non-event. Maybe I am being too optimistic.
How do we move forward in resolving banking sector NPAs?
The last few years, we have seen some solutions continuously. For instance, the asset reconstruction companies.
Now borrowers, at least, come for discussion and have proper dialogue with bankers to see how restructuring can happen.
It is a big change in the credit culture in the last few years.
Now the credit culture is that: Yes, I have taken money, but the business is not doing well. So along with the lender, I have to find a solution.
Also, around the same time there was so much default in the metal sector. Today it is a thing of the past.
Power is another sector where investment is coming from the banking sector and today, there has been some improvement in the sector.
What kind of funds should retail investors look at currently?
Debt mutual funds are a good option now because interest rates are coming down.
Retail investors must put a majority portion of your money in short-term debt funds (one to three years) and only a small portion in actively managed dynamic funds.
A sector fund, as long it is a diversified sector fund, is alright.
For instance, our banking and financial services fund, though it is a sectoral fund, is a diversified sector fund.
Banks lend to different kinds of people, including government. So it is not a typical sector fund where only road or power is the exposure.
Are there any global factors to worry about?
The question is whether we will get into a reflation kind of scenario. There are fears of how commodity prices will move.
One school of thought is that once the Aramco IPO is over, oil prices will fall.
One good thing is that the US and Japan's growth seems to be certain.
Europe seems to be on a growth path as well.
Therefore, there is high probability that the global economy in the current financial year will surprise in the positive side.
If that happens, the Emerging Markets will become one of the most important components in the global scenario and see inflows.
What is your focus for the current financial year?
We are focused on increasing market share. One factor that is helping is the Amfi's (Association of Mutual Funds of India) advertising campaign encouraging people to invest in MFs.
We are now creating a category of MF for investment.
Today in investors' minds the category that exists when it comes to financial savings is only banks.
This campaign will make MF a category of investment for investors.
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