People in India were quite perturbed looking at the Rs 5,000 crore sell figure by FIIs last evening and overall too in the last 15-18 months, a couple of billion dollars worth shares have been sold. Is it normal profit taking? Is it taper triggered?
When it comes to global markets and global economic recovery, there are four factors that we look at in any particular market. Number one factor is the speed or the rate at which capital investment transactions are happening from the government’s hands to the private sector banks. Clearly, in India, we are seeing this happening reasonably rapidly as compared to others.
Second is at what pace is the business confidence and the customer confidence coming back and I have no doubt in my mind that in India confidence is at all-time high.
The third is how fast is the focus of economic activity shifting from manufacturing to services. In India, that has not been a big concern because we are a services-led economy and services are back to their pre-pandemic levels.
Finally, one has to see how fast is the response to taming of the supply side inflationary pressures. Supply side inflationary pressure is not something that most policy makers like to address directly through a rate hike because that can cause stagflation issues. So how does it adjust? It adjusts by the demand going up and by economic activity coming back.
India is being seen as a country that is ahead of most other countries on all four counts in terms of the recovery and our expectation that we might see a double digit real GDP growth rate. We will not be surprised if that really happens. Besides, coming to tapering and those kinds of Fed events, we will see that very clearly Fed follows a disciplined approach. They have stated about the rate hike and before the tapering started, there was a lot of concern. But if we look at the quantum of tapering now, quite clearly this is not going to affect the liquidity as much as the expectation that the growth will absorb the liquidity.
As an FPI, Manulife should speak for themselves but our understanding is Manulife has a very clear view on India. India is firing on most cylinders. There is a tremendous amount of infrastructure investment that is happening. It has been long overdue but we are now finally seeing it actually taking place, giving rise to a lot of business confidence.
We are one of the countries where the environment in manufacturing could not be better than this. We have tremendous benefits coming in for the manufacturing space including low taxes and all kinds of incentives. The PLI incentive is one of a kind across the world. There is a lot of faith and a lot of futuristic bullishness about India. There is a profit taking; when you are sitting on 70%, why should you not take it?
You guys have very deep roots in the hinterland and smaller towns of India. We have seen that liquidity from these places is supporting the market a whole lot. Monthly SIPs at Rs 10,500 crore are edging higher despite a wobbly market. Do you get a sense from your dealers and channel partners that this is sustainable?
Absolutely. We as a house have a very deep reach. Even with the small business of the mutual fund that we are, we have really only Rs 8,000 crore in assets. We still get nearly 30% of our retail assets from B30 towns. The industry number is much lower than that. We reach out to more than 400 cities and most of our business is carried out through MFDs and they tell us that the choice of SIP is here to stay. It is not only coming from an active choice, it is also coming from the lack of other choices. After all, which other credible investment opportunity exists which has the opportunity to really make serious amounts of return over long periods of time?
So SIP books have been multiplying. Our own book has more than doubled in the last one year and that is saying something which is counting the pandemic. Clearly that is a force that is here for a long time to come and we are seeing that as a very sustainable force across the country.
A lot of innovation is also happening. There is activity on new offerings in your industry. You guys are also working on some good stuff or new stuff.
What is happening is likely to happen in markets like these, particularly in the larger markets where there are more sophisticated investors. A segment of them have a genuine concern about whether the markets are richly valued and how to reallocate their asset portfolio and in doing so, the balanced advantage fund which is an asset allocation product has found a lot of widespread popularity.
Many of our peers have come out with that kind of a product. We ourselves are offering a balanced advantage fund from December 9. The advantage with this fund is that one can go from zero to hundred either in debt or equity, depending on the market and the view of the fund managers. That takes the decision away from the investors into the hands of experts who are able to place the money in the right opportunity at the time.
In times like these, that is a welcome opportunity. But besides that, there is also an opportunity that we provided only a month ago in the real estate market which we believe over a period of time is going to be a very large market for India from a financial markets perspective.
We offered Asia-Pacific REITs again with the view to allow people to allocate their assets in a slightly different asset class from what they have known before so that they can place their bets in different markets. Clearly the Balanced Advantage Fund is something that we think is going to be a very large category given that some people are uncertain.
Balanced Advantage Fund is different from many others because there has been a spate of other BAF kind of funds also which have come out.
What we are going to do is I have noticed that many of the peers have offered a balanced advantage fund where the asset allocation decision which is the key, it was a success, is going to be made on some kind of quant model. Now we believe that we should use data base triggers but ultimately the discretion should lie with the fund manager so we are introducing a concept called multi-variant triggers and different variables that will go into that clearly obviously will be the PE or the valuation of the market, the earnings growth and then there is going to be the yields of debt and equity and finally we will have to look at liquidity because that has been in the recent past one of the most important movers of the market. So we will get these three-four variables and look at the data and the trends in it and then take a call. In that sense I guess we will be a little bit different from the others.
And what is your view on the market, do you see this correction deepen a little bit or do you see that… what is your market view, what is the feedback your investment team is giving you on markets?
So clearly I do not think that investors are wrong in taking profit. When you are sitting on top of 70-80%, in some cases 100% over the last year, year-and-a-half, you would be foolish not to take some profit and that is going to happen and therefore this correction is not coming from something is going to wrong in the market place and I should get out. This correction is probably coming from the need to take home some money and that is always a welcome thing to happen and so therefore and when you have cash in hand you are able to then make a smarter decision about where your next piece of money is going to go. So I think this is the kind of thing which the natural cycle of the market and we should allow it to happen. Will it go much deeper, will it go to like a very big number? I do not think so. I think people realised that they have to come back to this market and therefore to some extent they are coming back via NFOs and mutual funds. They are also coming back through IPOs you must have noticed. So it is not like the confidence in the market is not there. It is just that people are reallocating, rebalancing their personal portfolios including the institutions so that is the nature of the beast.
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