The inflows into the mutual fund (MF) industry were as volatile as the equity market itself last year. The sudden pull out from the debt schemes have affected fund houses. The Budget has cast a ray of hope. A Balasubramanian, Managing Director & CEO, Aditya Birla Sun Life AMC, shares his views on the way forward. Excerpts:
How do you see the Budget?
It was more credible, as the numbers presented did not throw up any negative surprises. It shows a clear focus on increasing capital expenditure which will drive the future growth. Focus on farm economy will lift rural economy. The steps taken to rationalise taxes for individuals and high taxpayers is in the right direction and will boost consumption, which is the need of the hour for the next round of growth. Mutual funds (MFs) would benefit from the change in taxation on insurance companies and change in capital gains limit to buy real estate would augur well for debt funds.
What kind of growth do you see for the MFs in this year?
The industry currently has assets of ₹40-lakh crore across 3.5 crore unique clients. I expect further market penetration across different parts of the country as the sector continues to garner consumer and equity flows. Given the interest rate scenario and attractive risk-reward, fixed income as an asset class is likely to see significant investor interest.
Will equity inflows remain strong?
Equity funds will continue to attract steady inflow. We expect equities to continue to be the asset class of choice for wealth creation. In the last one year, equity markets remained somewhat flat, but when stacked up against other comparable instruments, equity schemes have provided much better returns. Equity flows will largely be driven by future potential of return, which generally is higher than traditional instruments.
Do you expect debt fund flows to be impacted due to further rise in interest rate?
I expect interest rates to reach their peak this year. The terminal rates will settle at 6.5 per cent. It is expected that fixed income flows will increase since portfolio yield today also remains elevated with rates hovering around 7 per cent for one-five years. This essentially means that any portfolio in the fixed income schemes will carry these levels. The risk and reward are more favourable today than in the last two years. I would assume fixed income schemes would see more flows in the current financial year through asset allocation funds.
Will equity markets remain bullish despite the looming global uncertainty?
India is in a relatively better position with a more domestic-demand driven economy combined with political stability, increased government spending supported by high tax collections and an uptick in private capex boosting investment, going ahead. Positive levers in the form of strong will to drive the pace of reforms, China+1 strategy, domestic manufacturing and digital push should see India become the third largest economy by 2030. Indian manufacturing companies are operating at 70 per cent capacity utilisation. Therefore, private capex will not be that far off. Additionally, India has seen a significant increase in credit growth.
Will corporate earnings be impacted by weak demand amid rising interest rate?
Corporate India continues to be in good health with deleveraged balance sheets and pick up in rural economy. The current uncertainty in equities momentum may not sustain for long. We do not see a major downside risk to corporate earnings growth. Despite challenging times, most Indian corporates have been able to increase their productivity and profitability, leading to improvement in ROEs versus pre-Covid levels and well above the last 10-year average. With many sectors performing better than even the pre-Covid period, corporate profits to GDP showing a turnaround, India seems well positioned to enter a new profit cycle.
Are MFs finding it difficult to attract fresh talent given SEBI’s skin-in-the-game norms?
The regulation was introduced to maintain uniformity across the industry. Our fund managers have invested in our schemes as a mark of commitment. The question before any organisation is how to strike the right balance between hiring and retaining seasoned professionals and attracting young people who are looking to build their careers in fund management. Talent in the MF industry always remains a challenge given the fact that it needs highly skilled and intellectual people as part of the investment team and other allied activities. However, one should always view the opportunity in MFs as a chance for them to reflect their potential, build a strong portfolio, and subsequently benefit the investors.
Do you believe investing in multi asset would be more prudent, going forward?
The MF industry offers funds across asset classes including equities, debt, gold and other commodities or a combination of these. All four asset classes have their own dynamics for generating returns and mitigating downside risk. Multiple asset classes do not react to the same factors in a similar way, and are not correlated. Investors can make most of this diversification. A multi-asset approach helps in navigating a volatile market.