hindustan times' mutual funds whiz-kids wisdom

7/29/2019 Hindustan Times' Mutual Funds Whiz-Kids Wisdom

1/24


2/24


3/24

MUTUAL FUND Whiz-Kids WisdomOCTOBER 2012

INDEX2 INTRODUCTION

4 MFs ARE VERY SIMPLE PRODUCTS, NOT COMPLEX INSTRUMENTS

MR. MILIND BARVE, MD, HDFC ASSET MANAGEMENT COMPANY

6 THIS IS A GOOD TIME TO INVEST, WE ARE VERY POSITIVE

MR. SUNDEEP SIKKA, CEO, RELIANCE CAPITAL ASSET MANAGEMENT

8 MARKETS REMAIN FAIRLY VALUED WITH AN UPWARD BIAS

MR. NIMESH SHAH, MD & CEO, ICICI PRUDENTIAL ASSET MANAGEMENT COMPAN

10 MFs AS PART OF RGESS ENDORSES AMCS CAPABILITIES

MR. A. BALASUBRAMANIAN, CEO, BIRLA SUN LIFE ASSET MANAGEMENT COMPA

12 EXPECT CAPEX TO PICK UP OVER THE NEXT 12-18 MONTHS

MR. S. NAGANATH, PRESIDENT & CIO, DSP BLACKROCK INVESTMENT MANAGERS

14 AVOID TIMING THE MARKETS, TARGET LONG TERM OBJECTIVES

MR. AKSHAY GUPTA, MD & CEO, PEERLESS FUND MANAGEMENT COMPANY

16 INTEREST RATES WILL DECLINE WITH BENIGN INFLATIONMR. DHAWAL DALAL, EVP & HEAD FIXED INCOME,

DSP BLACKROCK INVESTMENT MANAGERS

18 TAX BREAKS TO TARGETED SET OF INVESTORS WILL HELP MF INDUSMR. DEEPAK KUMAR CHATTERJEE, MD & CEO, SBI FUNDS MANAGEMENT

19 MIGRATE FROM NAV BASED INVESTING TO GOAL BASED INVESTINGMR. JAIDEEP BHATTACHARYA, MD, BARODA PIONEER ASSET MANAGEMENT COM

HT Mutual Funds Whiz-Kids Wisdom Team

Media Marketing:Ameet Dhanda, General Manager Media Marketing, HT Media LtdTony DSouza, Asst General Manager Media Marketing, HT Media LtdHardik Mehta, Dy. Manager Media Marketing, HT Media LtdResearch and Editorial: Sumeet Mehta, CEO, Paradigm AdvisorsDesigned & Printed at: HT Burda Media Ltd, Plot No. 8, Udyog Vihar Industrial Area, GreNoida, Gautam Budh Nagar, UTTAR PRADESH 201 306Published by: HT Media Ltd, Ground Floor, Mahalaxmi Engineering Estate, Next to KJ nani High School, Mahim (W), Mumbai, MAHARASHTRA 400 016


4/24

2 MUTUAL FUND Whiz-Kids Wisdom OCTOBER 2012

Mutual fund is no more a new buzz amongst

urban and educated investors. This vehicleof pooling investors capital for investing inprimary and secondary markets started withUnit Trust of India (UTI) in 1963. UTIs flagship

scheme US64 was the first mutual fund scheme in thecountry. In 1987, government allowed entry of public sectorin mutual funds industry by allowing public sector banksand financial institutions including insurance companiessetting up asset management companies. Entry of PSUsresulted in overall growth in the industry, with assets ofRs. 47,004 crores under management.

Liberalization and entry of private players was the buzzwordin 1993. With dramatic and significant reforms in economyin general and capital markets in particular, private sectormutual funds were allowed to set shops. Securities andExchanges Board of India (SEBI) was set up as the capitalmarkets regulator in 1993 and was accorded jurisdiction tooversee and regulate mutual funds. Within a decade, fundhouses increased to 33 and assets under management

jumped to Rs. 1,21,805 crores. After a decade of reforms,next wave of reforms came in 2003 with bifurcation ofUTI and more so allowing foreign fund houses to startoperations in India. Lead by rise in disposable income and

equity cult in urban India, mutual funds saw significantrise in its assets under management. Today, mutual fundsindustry has 44 funds managing around Rs. 7,50,000 croresof assets.

Today, after a decade of growth and challenges, industrystands on one more new trajectory. Industry has latelyseen challenging times due to weak investor sentimentsand uncertainty in equity markets. This called for a needto encourage industry to look beyond top 15 cities thatare contributing a bulk of corpus. Finance Minister hadannounced the scheme offering tax incentives to first

time investors in semi-urban and rural India investing inequities. When we met Mr. Jimmy Patel, CEO of QuantumMutual Fund, he opined: This is a much required initiativeto convert savings into productive investments leading toemployment generation and economic growth.

With representations from SEBI and AMFI, CentralGovernment has allowed investments in mutual fundseligible for this tax incentive. This is a welcome move for the

investors who lack in-depth understanding and expe

of investing in equities and need professionals to mtheir investments, and also for the industry that is strufor growth in its AUMs. At the same time, SEBI annoa series of measures to help the industry. Mr. Patus, This was a challenging task for SEBI, who hbalance its dual role of regulator and industry deveand we are extremely happy with SEBIs proposals, ashelp industry to grow and has improved transparenmeasures to ensure investors protection.

This was why we decided to come out with this sfeature wherein we compile views of CxOs of Mutual F

In the process we met more than 20 CEOs and seleset of few very interesting and different views, whicompiled here. The objective was to educate investoeconomy, markets, investing styles and preferenceCEOs views on SEBIs recent announcements.

Equity markets stand at equally interesting cross The Government was severely criticized for policy pacame out strongly with a slew of reforms. Investorindustry strongly and vehemently advocated for reMarkets moved up by more than 15% since reformsannounced, before softening a bit.

However, when we met more than 20 fund managefound very interesting perspectives on economy. all unanimously agreed on the need for fuel pricereduction in subsidy burden, and need to kick start cinvestments in corporate sector to enable economic gmany CEOs proposed the need to restart disinvestmaugment revenues and bring deficit under control. Inwas other area of concern for all.

This feature endeavors to compile select views of CEOs out of more than 20 CxOs we met up for the b

of our readers. We are sure this feature would hereaders appreciate the fact that managing investmea full time job that should be best left to professionaldo it 24X7.

Happy Reading!

HT Mutual Funds Whiz-Kids Wisdom

INTRODUCTION


5/24


6/24


Can you throw more light on recent announcements by SEBI

and what lead SEBI to decide on the same?Since May 2012, SEBI had engaged various industry players asset management companies, distributors, independentfinancial advisors, banks, registrars and transfer agents, andinvestor associations to evaluate comprehensive measures tohelp in growth of industry and benefit investors. The objectiveswere threefold. First was to recognize the fact that mutualfund products were sold in top 15 cities only and deliberate onways and means to increase penetration. Second was to helpinvestors stay invested for the long term. The third objectivewas to improve standards of disclosure. The recommendationswere evaluated and proposals were made by the MF Advisory

Committee and then considered by SEBI.

How do you see SEBIs recommendations on increasing

penetration of mutual funds in semi-urban India?

Over the last several months SEBI has stressed on theneed to expand reach of Mutual Funds. In addition, theFinance Minister has also said that steps need to be takento channelize savings into investment products like MutualFunds rather than gold. Given the background, SEBI hasnotified wide ranging reforms for the Mutual Fund sectorwhich would provide incentives to the fund houses to expand

reach beyond 15 cities. There is lack of penetration of MutualFunds in smaller cities and to improve this SEBI has allowedMutual Funds to charge additional expenses of up to 0.30%of daily assets subject to certain conditions. This SEBI moveis an extremely ingenuous move which is outcome driven.It is estimated that the total TER may not go up to 30 bpsbut may be in the range of 10-20 bps for most equity funds.The additional TER so charged will be utilized towardsdistribution expenses to expand reach in smaller cities.

Do you believe that SEBIs move to encourage retail inv

beyond top 15 cities to invest in mutual funds will be succe

Attracting investments in financial assets, be it banks, insand mutual funds, is a national challenge. In fact, les

40% of household savings got channelized in financial slast year. The reason is that the real interest rates havenegative over last 12-18 months. In such a situation, have preferred physical assets like gold and real estate. mainly because in an inflationary regime, asset prices wappreciate and hence physical assets will offer higher rwhen compared with financial assets. People will shifagain to financial assets once real interest rates are pos

It is pertinent to note that among financial assets; almosthousehold financial savings is in Bank FDs. This is becausare able to understand the product easily and find the pro

equally easy and quick. At the same time, majority of theinvestors in semi-urban India seem to be unaware abofact that even mutual fund schemes are equally simpeasy to understand and invest in. The recent SEBI rewill help improve awareness of Mutual Funds. Alonbetter distribution reach, higher product disclosure, siminvesting norms, regulation of distributors, allowance otransactions up to Rs. 20,000, etc SEBIs move to impenetration beyond top 15 cities should fructify in the lon

What is your advice to our readers on investing in c

market scenario? Which type of equity and debt sch

must our readers opt for?

My advice to investors would be to invest in diversified schemes and avoid thematic schemes. Investors who wtake a measured exposure to equity can invest in a bafund. For personal cash management, I would advice revestors to prefer liquid schemes over savings bank accounis because liquid funds offer returns of 8% plus with exthigh liquidity which is available with a savings bank accou

MFs ARE

VERY SIMPLE

PRODUCTS,

NOT COMPLEX

INSTRUMENTS

Mr. Milind Barve, MD, HDFC Asset Management Company


7/24


8/24


How do you see current market conditions and whether

Indian investors would return in equity markets?

The biggest positive is that everybody is negative. Somehow,there has been lot of negativity about how things have beenmoving in the economy. But any country that has gone throughsecular Bull Run is bound to go through such phases. Hence,there isnt much to worry. As far as we are concerned this is

a good time to invest as there wont be much downside fromhere. There may be headwinds in the near term but our longterm story is very much intact. We are very positive.

What are the challenges in attracting retail investors to

equities?

I believe there is lack of understanding amongst investors.They need to be educated. Opportunities are going to be therefor both existing as well as potential mutual fund investors.Majority of investors invest only for equities and about 80%of investors are from top 10 cities. The bigger opportunity

lies with investors who have never invested in mutual funds.From long term point of view, I think investing in equitiesis important. I would suggest investors have a completeportfolio. Like, an individual who has never invested in MFsbut has invested in equities may look at MF industry fromdebt or a gold point of view. It is all about having a balancedportfolio. We clearly believe a retail investor should keepinvesting regularly through SIPs rather than trying to timethe market.

What is you view on macro economy in wake of these recent

announcements and developments? Do you believe increased

inflation due to fuel price hike would affect growth?

The diesel price hike would add about 55 Bps to the inflationdirectly and have a similar indirect impact. Although inflationaryin the short term, the announcement along with other reformmeasures such as allowing FDI in sectors like Multi-BrandRetail, aviation and broad-cast services and disinvestmentplans are extremely good for the long-term. The initiativeswould help bring down the fiscal deficit marginally this

year, the announcements are directionally important fmarkets in terms of providing the much required confid

What is your take on corporate earnings growth a

you find prevailing valuations justified?

We expect the FY 13 Sensex EPS to be around 125therefore, based on the current index values, the index is t

at a PE of about 14.5, which is fairly reasonable consithe future growth prospects and long term historical avvaluations. We also expect the FY 14 earnings to have a pbias with the improving macroeconomic conditions.

What is Reliance Mutual Funds approach to invest

equities and shortlisting stocks?

While we keep a close track of the global developand broader market scenario, we lay a lot of emphaassessing individual stocks. Many times, fundamevaluation and opportunities presented by individual s

could be very different from the broader markets, help us create alpha, the additional returns that we geover the broader index. We have one of the largest teathe fund management & research side and we believeare opportunities that exist in large companies and eattractive opportunities in the midcap space.

What are the investment themes which are finding

tion of professional investors in current market sce

Which sectors do you like and why? Which sectors a

avoiding and why?

Sector valuations have been rather skewed and disin the last few years due to extreme risk avamongst investors. While some stocks in selsectors are trading much higher than their historic some stocks in other sectors are trading well belowintrinsic values, providing us with exciting opportufor investments. We are keeping a close track ovarious sectors and making appropriate inveschoices in our different funds.

THIS IS A

GOOD TIME TO

INVEST, WE ARE

VERY POSITIVE Mr. Sundeep Sikka, CEO, Reliance Capital Asset Management


9/24


10/24


Amidst volatile, directionless, and uncertain markets, do

you see retail investors returning back to equity markets?

Volatility in equity markets has become the new normal. Ina range bound market, volatility provides opportunity as hasbeen the case over the last few years and investors ratherthan being deterred by volatility should look at capitalizingon it. There are various investment avenues that can beleveraged to effectively capitalize on volatility. For instance,investing in mutual fund through a systematic approachhelps to capitalize on volatility and is ideal than direct

investments into equity markets or investing in prothat benefit out of volatility.

We believe that with the increasing awareness and refforts at spreading cognizance of investing by fund hlike us, coupled with performance delivery will evenresult in increasing investor participation.

What are the challenges faced by Mutual Fund indu

current scenario?

The most important challenge has come from the ecoand markets itself. Over the last 5 years weak maand domestic and global factors have continued to iinvestor sentiment. With mutual funds being re

performers, this has also had an impact on ininterest in the category. With the latest reforms annoby the government, economic fundamentals have sto improve and we expect investor sentiment to imas well. However, there needs to be continuation of raction and execution.

Finally the biggest challenge is to get more and moreinvestors into mutual funds. ICICI Prudential hasfocusing on this and has been actively working in thof category awareness.

What do you think is required to succeed in the mfund space? With introduction of RGESS, do you e

retail investors would return to stock markets v

route?

Mutual Funds today are one of the best investment avfor retail investors. Initiatives like RGESS are thea step in the right direction and will surely help incpenetration of mutual funds. Additionally there is a n

MARKETS REMAIN

FAIRLY VALUED WITHAN UPWARD BIAS

Mr. Nimesh Shah, MD & CEO, ICICI Prudential Asset Management Company


11/24


create more and more awareness of the potential of mutualfunds by category awareness and investor education.

How do you view current valuations and what are your

expectations of corporate earnings growth over next two

years?

On the Indian equity market front, sentiments have been

significantly boosted by progressive government action.This is clearly reflecting in the recent market rally.Markets continue to be fairly valued with an upside bias.In our opinion, the Indian market even today factors onlydisinvestment. If the government is able to facilitate furtherconsolidation of the fiscal deficit through means otherthan that of disinvestment, through means like efficienttaxation, initiatives towards stepping up the investmentcycle etc, it can significantly add to the upside potentialof the market. If disinvestment were to be the only vehicleto raise money, while the market may be buoyant, the factthat so much paper is being issued will keep an upward lid

on the markets.

Corporate earnings will be muted in the near term and isa function of the economy and is a bit backward looking.July and August were two months where economic datawas below average. Monsoons while having picked upwere also slightly delayed than last year. A combination ofthese reasons directionally indicates that earnings will besubdued. However, the earning season is not as importantas the reform prospects of the government in the next6 months to 1 year which will be the key determinant ofmarket direction and sentiment.

Would warnings and concerns raised by international

rating agencies impact inbound investments especially

FII investments? How do you see risk capital seeking Indian

paper and outlook of inbound flows amidst Euro Zone crisis?

Where does it fare vis--vis other emerging markets?

With the latest flurry of reforms taken up by thegovernment, the risk of any downgrade has beenmitigated. With regards to FII flows, FIIs are not ahomogeneous group on investors. They look at relativeattractiveness of markets, basis which they decide on

geographic allocation of investments. In our opinion FIIflows is coming out of the fact that most global economiesexcept countries like India, Thailand, Philippines andIndonesia are suffering from a credit crisis. Withreference to India, India is a structural growth story withfavorable demographics, strong domestic consumptionand strong balance sheets across banks/ corporates. AsIndian economy is not leveraged there is no risk of creditbubble to impair long term growth potential as against

Europe and other emerging economies like CTherefore, India will continue to grow in the long In an environment where liquidity is being created Central banks globally, an emerging market withcredit bubble like India is benefitted.

Which sectors do you like in current scenario and w

We have been investing in pharma since 2007 becainherent defensiveness of this sector. We have alsolooking cyclically at upstream oil and telecom sbecause both these sectors are attractively valuedwe are overweight select midcaps that are availaattractive valuations.

Which sectors would you avoid and why?

We are currently underweight sectors like consstaples given that they are trading at record high valua

If you have to advise retail investors to buy mutuaunits, which debt and equity products would you su

in current market conditions?

It is difficult to predict market direction, however, vowill clearly be the order of the day i.e. market wbe unidirectional. Globally, economies are going tha debt de-leveraging cycle. In such a scenario, eqseldom provide unidirectional multi bagger reTherefore with volatility emerging as the new noinvestors should look towards capitalizing on this through flexi cap dynamic funds. Also even in sce

where markets are at fair value, there exists pockvaluation attractiveness which can help add value investors portfolio. Value funds can help identify pockets of valuation attractiveness.

The other crucial factor is following asset allothrough investing in debt mutual funds. While continues to be an important asset class reqcontinues participation by retail investors, debt mfund also holds tremendous potential. However, eveseveral years of introduction and innovation, investfixed income mutual fund products is largely a bast

institutional investors in India. Retail investor particiin this asset class through mutual funds is neggiven its potential. Post governments measures onconsolidation, there is expectation that RBI may sugovernments effort through monetary action. FRBI is likely to conduct OMOs to ease liquidity. measures will be positive for long duration fundoffers a reasonable opportunity to enter Gilt and Infunds in current situation.


12/24


It is understood that despite rate cuts, investments would

not pick up as banks would start de-leveraging to bring

down their credit deposit ratio. Hence, belief of reduction

in interest rates would boost economic growth is uncertain.

What is your take on this?

In the recent past, the Government has recognized the need topush rate of investment in building infrastructure to revive theeconomic growth. The recent slowdown reflects in the banksdeclining credit deposit ratio. While the Government has to dotheir bit to ignite the investment demand in the country, any

serious steps in this direction need to be supported by moderateinterest rate regime. Lower interest regime can be achievedthrough various RBI measures as well as banks ability to reducelending rate through reduction in cost of their deposit. We believecombination of both could become the reality.

What is your view on the currently prevailing debt market scenario?

We as a Fund House have been maintaining a strong case for

lower interest rate regime through reduction of repo rate as CRR. As it is, the current slowdown in the economy whhit the bottom of close to 5% will stay between 5.50%-a considerable period of time. We believe that the inflattrend in India may finally get moderated supported commodity prices leading to reduction manufacturing inWhile fiscal reduction is the key for a rate cut, there havvarious steps taken on the part of the Government to expenditure through subsidies reduction. This augurs wlowering interest rate in the next few quarters.

What is your investment strategy for debt your debt sch

Consequent to the previous point, we believe debt fundduration focus will deliver good return. As a Fund Hwe have been holding our view until a few months tinvested for a 2-3 year duration. Having now seen a dshort term rates resulting in steepening of curve, we bin building high duration across some of debt schemeare meant for higher duration.

MFs AS PART OF

RGESS ENDORSES

AMCs CAPABILITIES

Mr. A. Balasubramanian, CEO, Birla Sun Life Asset Management Company


13/24


Which are the investment themes which will work in this

market scenario?

We believe equity market valuations have been pushed tothe lowest on the back of lower growth in the economy.However, the recent measures to revive growth, supportedby an expectation of interest rate reduction, makes a casefor building equity as an investment theme. Having said

this, fixed income duration products will also give betterexperience to Investors. Therefore, a right combination ofboth the asset classes may work very well for investors.

If you have to advise retail investors to buy mutual fund

units, which debt and equity products would you suggest


In the debt category, investors have to look at funds thatare actively managed in duration. This essentially meansfunds that are in the short term bond funds and incomefunds category. This is largely driven by interest rate view

as we move forward. In the case of equity, retail investorswould be better off choosing funds that are largely large capfocused in the diversified equity category.

How do you view SEBI allowing fund houses paying higher

expense ratios for catering to investors in smaller cities?

Will this deter retail investors in smaller cities with lesser

penetration to invest in MFs?

The recent changes in the SEBI guideline are helping theindustry to grow more and penetrate into Tier II cities. Aclear focus is emerging - to expand distribution channels

as well as investor awareness across these cities. Thisobviously, will come with marginal increase in cost however;the long term benefit of accruing investors through rightparticipation of mutual schemes will negate the marginalincrease in cost. Ultimately, this investment to meet investorneeds helps towards the long term goal of the mutual fundindustry. Therefore, marginal cost increase should not actas a detriment.

What are the challenges for the industry in increasing its

penetration beyond top 15 cities and towns? What is the kind of

opportunity do you see in raising capital from smaller cities?

We believe that the wealth effect in the country is immenseand it needs to be tapped through the right channels andmediums. This is where the focus to build distributionchannels and creating investor awareness is coming backin a big way. Therefore, the task is to channelize potentialinvestment advisors to distribute mutual fund products andmake them build a long term business model that helpsserve investors with need.

What would your representations to committee to fr

national mutual fund policy be?

The Mutual Fund industry has been playing aimportant role in the Capital market space. Even aftdecades of existence, the industry manages only Rs.2,00,000 crores in equity and Rs.5,00,000 crodebt. Given the high potential of Indian investors sa

there is a very strong case for the industry to havwhich is equivalent to that of the Banks. In the Usize of the Mutual Fund industry is bigger than thatbanking industry. In the recent past, there has beestrong support to promote mutual fund products toinvestors and various steps are being considered tothis. Any policy which gets national recognition ththe Parliament Act or any other means, will projenecessary importance of this industry which servnation in building a strong capital market and servlong term needs of Indian savers.

Do you believe tax benefits under Rajiv Gandhi Savings Scheme will help the MF industry?

As I see it, allowing mutual fund schemes to be part Rajiv Gandhi Scheme is an endorsement of the abMutual Fund Managers in managing retail moneyterm performance of equity mutual funds, especithe diversified category is very encouraging. Therthe endorsement from the Ministry of Finance in incMutual Fund schemes as part of the Rajiv Gandhi schemes is a step in the right direction, Also as it ultimhelps tax payers to save more tax than they currently

I am sure investors/tax payers will avail this facility financial year itself (i.e. before 31st March 2012)

Mutual funds can be a greater force to enforce corp

governance. Except for stray instances like Satyam

institutional investors unearthed the scam, we h

seen active involvement of mutual funds in this s

Can you share your views on how MFs can contrib

effective oversight of corporate governance?

Mutual Fund Portfolio Managers have been expretheir views on Corporate Governance through proxy v

Every investment made in various companies throumutual fund schemes are monitored, not only forperformance but even for various initiatives that willong term bearing in creation of share holders Wherever it is felt against the best interest of sholders, Mutual Fund managers do convey their rethrough Proxy voting. I am sure this will go a long ensuring that the interests of share holders are taketo a larger extent.


14/24


What is your view on corporate earnings and ear

growth for next year? What is your view of valuatio

Indian markets vis--vis other emerging markets?

We expect corporates to post an earnings growth of a15% p.a. over the next 23 years. Markets are currently taround 15 times 1 year forward earnings. Historically m

have traded in a Price Earnings band of 1020 times eaover last 20 years. Right now markets are trading at athe median PE. So if markets are volatile amidst uncerthe P/E multiple of the market may decline to 1213 or alternatively rise to around 1718 times, if senturns positive. There is room for PE expansion on theof accelerated GDP growth. Indias growth rate relaother larger emerging markets is still attractive and thunderpin strong investor interest in the medium to long

Which are the investment themes which will work

market scenario?

There are three themes that largely drive economic growfirst is consumption. India has a huge domestic market. Apopulation and rising rural demand for consumer goods,back of higher disposable income, drives higher consumIndias consumer demand shall continue to remain strongmedium term and hence would boost growth. The secondis investments. Infrastructure and corporate capex spepicking up and increase in inbound investments would trtrickle down impact on all downstream sectors. We witna significant rise in capital spending up to 2008. Therinvestment spending slowed down in the aftermath

financial crisis. We expect capex spending to pick up agathe next 12-18 months, on the back of an improved outlothe economy. The third driver of growth is exports. Whileare some growth challenges in certain export oriented soverall, we think the growth momentum will be maintain

What is your investment strategy for 6 -12 month ho

We remain optimistic over a 6-12 month investment h

EXPECT CAPEX TO

PICK UP OVER THE

NEXT 12-18 MONTHS

Mr. S. Naganath, President & CIO, DSP BlackRock Investment Managers


15/24


since we expect the growth momentum to pick up, interestrates to decline and the currency to strengthen during thistime horizon.

How do you see the markets in wake of broad global and

local macro environment and recent slew of reforms in

India? GDP has shown a sequential growth. What are your

views on GDP growth going forward?

The US economy appears to be steadily progressing interms of its growth momentum. However, the Eurozonecrisis is a cause for concern. Till policy makers arrive at adecision, markets would see heightened levels of volatility.Of course, the long term implications of increased liquidityon inflation have to be analysed.

With regard to the Indian economy, we expect a GDP growthof 5.5 to 6.5% in FY13 and 6.5-7.0% GDP growth in FY14.Indias growth rate will be relatively higher when comparedwith other large emerging or developed economies. We see

inflation as a concern on the back of the recent fuel pricehike. We expect inflation to be around 7% over the nextcouple of years.

What are the stock selection parameters and stock

screening methodology that you have adopted in your

fund?

Our prime focus is on evaluating long term trends in returnon equity. Our stock selection process is a bottom upapproach supported by a top down research of the economyand various sectors.

Many companies are sitting on huge cash. We have heard

concerns of slowing growth in many companies sitting

with huge cash. Now Infosys has started inorganic growth.

What is you view on valuations of companies sitting with

huge cash balances?

We believe that companies know what is best for them. Ourfocus as a fund house is to identify good businesses withequally good management, and then trust the managementto explore various options for spearheading growth, eitherorganically or inorganically. However, we constantly review

the trend in Return on Equity.

How do you see risk capital seeking Indian equities?

Investors will find Indian equities attractive given therelatively higher economic growth rate in India comparedto other larger emerging markets, the strong trend inconsumption demand and the wide choice of companies toinvest in across different sectors.

Deferring GAAR to AY 2017-18 has improved senti

in the market. Do you believe inflows will increase in

of this deferment? Is this move healthy for the mark

economy over a longer term?

We expect investor interest and portfolio inflows to rstrong over the medium to long term.

How do you see global scenario impacting FII flows

Relatively higher economic growth rate in India is likattract more FII flows over the medium to long term.

What is your view on outlook of crude oil in short

In medium term of 6 12 months, what is your ta

crude prices?

Crude would continue to remain stable unless we sspike in oil prices due to geopolitics.

What is your take on rupee in short term?

We expect the rupee to remain stable in the range of RRs. 56 against the US Dollar, in the near term

What are the key triggers for rupee for the near-ter

Softer oil prices and better market sentiment could lrupee appreciation in the near term.

How do you see global commodities performing in ne

3 years? What is your take on global commodities st

Global commodities will be stable to positive over th2-3 years as softer demand is somewhat offset byappreciation due to global quantitative easing policie

Which sectors would you find attractive in this mar

Also, please advise which sectors should investors

to remain underweight.

We are overweight on defensive sectors like FMCG, pand IT. The revenue of FMCG companies would contigrow on the back of sustainable consumer spendin

confidence. Pharma companies have performed wewe believe that they would continue to perform wellforward. IT would be a steady performer.

As for other sectors, we believe that capital goods andstructure companies may show greater growth momnext fiscal year. Banks look interesting over the mediumdue to growth prospects, even as the near term sentimthe sector is subdued due to a slowdown in credit offtak


16/24


What is your view on economic scenario globally and how

events in EuroZone, US, and China will impact emerging mar-

kets in general and India in particular?

We are currently witnessing very tepid growth in developedeconomies. Lower consumption and growth in the developedworld will adversely impact export oriented emergingeconomies over the medium to long-term.

In line with expectations, another round of Quantitative Easinghas been adopted by FED to revive the slowing US economy.Positive steps announced by ECB and backed by Germansupport have brought in the much needed confidence in theEuro zone. That said, fears persist about the extra sovereignleverage and hence bail-outs required. In addition, China is

slowing down and thus their central bank has taken monetarymeasures to boost the economy. With monetary infusionoccurring simultaneously at global level, risk-on strategy isprevalent.

This strong global liquidity is definitely helping emerging econo-mies including India. Equity markets have rallied since monetaryeasing has been announced. Foreign flows (FII) have put brakeson the sliding currency, which benefits the nation on the fiscalfront. Lower global growth could also negate the rising com-modity prices and thus benefit India in form of lower inflation.

Rupee has sharply reacted to announcements of allowing FDIand strengthened compared to US Dollar. How do you see ru-

pee moving in short to medium term and what are the trig-

gers for the same?

Strong foreign flows or even commitment of the same shouldgive good support to the rupee. The forex market runs a loton sentiment. Renewed hopes of reforms taking place shouldencourage investments and thus improve overall macros. All

this should lead to strong currency in the short to mterm. Over the long run, rupee will be dictated by gloprices and trade deficit.

What is your view on valuations of Indian markets and

does Indian markets valuations stand compared to

emerging market peers?

At current levels, market valuations are just below 14 tima forward basis. Thus, valuations are reasonable but not Indian market valuations have always got premium overof the other emerging markets; mainly on account of return ratios and more wide-spread domestic strengtheconomy. Even presently, it is quoting at a premium to mthe other emerging markets.

Do you see FII inflows increasing and whether glob

capital will get attracted to Indian paper?

Share of global flows for India is still on the lower endspectrum. Though close to US$ 18 bn (over INR 900 bn)foreign flows have come to Indian equities in this calendastrong global liquidity can bring in more flows. If the spreforms continues without any roll backs, FIIs can investmore money.

What is your investment strategy in the market cond

What is Peerless MFs approach to investing in equitiewhat are those critical aspects which you would want to

an investment opportunity to take exposure?

Our basic strategy is to identify sectors and themeexhibit steady and linear growth potential and are coreeconomic growth. Market movements in recent times artowards large caps and we believe that is likely to continsome more time. We have a blend of top-down and bo

AVOID TIMING

THE MARKETS,

TARGETLONG TERM

OBJECTIVESMr. Akshay Gupta, MD & CEO, Peerless Fund Management Company


17/24


up approach; pick stocks that generate good growth and areavailable at reasonable valuations. Business Cycles neutrality,market leadership, low leverage, unwavering business model,high returns on equity and reasonable valuations are some ofthe important criteria that we look at while identifying our picks.

What is your take on global commodities like oil, precious,

ferrous and non ferrous metals? How do you see global com-

modity stocks as investment option in this market?

Global slowdown will lower the demand for global commoditiesover the next few years. In the near term, quantitative easingfrom US and rupee depreciation has led to rise in commodityprices including precious metals. Gold has been risingbecause of genuine consumption demand, interest fromvarious central banks as an alternative currency and increasedliquidity. However, the rise in crude and metals does not seemsustainable unless we see higher global growth.

RBI has sounded out that it may opt for rate cuts by Oct or

Nov. Do you believe that in this inflationary regime, it wouldbe possible for RBI to cut rates? What is your take on interest

rates in short to medium term and key triggers for any

significant changes in interest rates?

Monsoons have picked up smartly and the fear one had onaccount of high food inflation has receded for now. Core inflationhowever continues to be above the comfort level and is notshowing any signs of softening out. Fuel prices and currencymovement will play a crucial role going forward as to what theoverall numbers will look like. Softening of core inflation on asustainable basis should be the first trigger for the central bank

to cut key rates.

Base rate effect will come in handy from December2012. Also the government has started to do its bit on thesupply side, which the RBI has been signaling for the pastfew quarters. Hence, we expect rates to soften over the6-9 months by 50-100 bps.

How do you see debt markets reacting to 25 bps CRR cut and

what is your strategy on investing in debt papers?

The CRR cut was on expected lines since cutting repo rates

was not something RBI would have done until inflation camecloser to its comfort levels. This CRR cut would infuse about Rs.17,000 Cr into the system. The net effect of this cut was to seethe yield curve steepening. The short end of the curve saw yieldmoving down and the medium term to long term yields movingup. Our strategy for money market funds was to maintain lowduration and invest in short maturity assets. In our long dura-tion funds we have increased duration as we expect RBI to cutrates in the next 6 months.

How do you see rate sensitive sectors like banking and real

in wake of these announcements and expected developme

A cut in CRR by 25bps roughly brings in additional INR 17,in the system. This is definitely good for the banking sAlso, going forward more banks are likely to cut their drates; thereby improving their NIMs. One can expect fstrengthening of credit growth over the medium term

lower lending rates. Combine this with key infrastrureform process, one can safely say that banks look reasbetter than what they were 1 month back.

We understand that banks would have to de-levera

improve their credit-deposit ratio. Do you see this aff

their advances growth?

With the reforms process gaining momentum, invesactivity picks up and this directly helps credit growth. Hoat a larger level, one needs to see a decent growth in thedeposits since RBI has come out with guidelines on

deposits and CD issuances.

Which are the sectors you find attractive for next 3 6 mont

why? Which sector would you avoid for next 3 6 months an

Rate sensitive sectors and Investment themes (Infrastruhave under-performed in this market. In anticipation of fprogress in reforms and softening of rates; these sectoexpected to do well in the near term. In addition, domestsumption related sectors like FMCG, Cement, Pharmaetc will continue to do well. Specific IT companies thagained market share will outperform.

Global economies would continue to show signs of weaknehence one can avoid commodity sectors like Oil, Metals andrelated sectors. Policy affected sectors like Real-Estate and Tcan also be temporarily avoided till further clarity emerges.

What is your advice to retail investors on investing

market? If you have to suggest one debt fund product a

equity product to retail investor, which would that be?

Retail investors should avoid the trap of timing the markthus SIP/STP in a diversified equity scheme with an ob

to generate good returns over the long term should appropriate product for retail investors.

One debt fund that we suggest would be Short Term InFund. With RBI set to cut rates during the next two quawe feel that yields in the bond market should tend lowany fund with a mix of medium to high duration bonds anquality short term liquid papers would post the biggeadjusted gains when any rate cut materializes.


18/24


Fixed income investment options help you manage your investment portfolio by adding a strong foundation for times when mdoing well and equally for times when the financial environment may be uncertain. Presenting DSP BlackRock Income OpFund, a fixed income investment option which constantly seeks opportunities to optimize portfolio yield and minimise vdynamically managing allocation to different fixed income assets such as money market instruments, G-Secs & corporate

GDP has shown a sequential growth. What are your vie

GDP growth going forward?

The economy has been slowing down recently. After growan average rate of around 7.5% between 2004 and 2009, thof growth has declined to around 5.5% in the last two quaMarket participants attribute this slowdown to a combiof factors such as subdued global growth as well as decconsumption demand and slower investment spendingbelieve that if the government speeds up the pace of reformif the global growth scenario remains conducive, then we bIndias GDP growth would begin to accelerate in the medium

How do you foresee inflation going forward?

Wholesale inflation for August stands at around 7.5%. The fuel price hike will have a direct impact of around 65 to 70points on headline inflation and additional 25 30 basis due to the trickle down impact. All in all, we expect the rrevision in fuel prices to add around 100 basis points resulinflation at around 8.5% in the near-term. Although, we binflation has peaked out in the near term, we are closely folthe trajectory of core inflation (non-food manufacturing) stands at around 5.6%. While crude oil, gold and metal

do react to global demand & supply, we are seeing commprices soften and the rupee strengthening, which bodefor inflation in the near-term. However, we dont see heinflation softening below 7% at least till March 2013.

What is your take on rupee in short term? What are th

triggers for rupee for near-term?

The rupee has strengthened by around 8% since Septem2012 due to recent spate of announcements by the govern

INTEREST RATES

WILL DECLINE WITH

BENIGN INFLATION

Mr. Dhawal Dalal, EVP & Head Fixed Income,

DSP BlackRock Investment Managers


19/24


on reforms. We have seen rupee move up from around 56to one US Dollar to around 53.5. Going forward we expectthe rupee to trade in the band of 51 54 against the USDollar. However, if we see significant inflows as a result ofreforms or improvement in economic conditions, then therupee may even strengthen to around 50.

What is your view on the prevailing debt market scenario?

What is you outlook on 10 year yield in 3 6 months?

The RBI has been reluctant to reduce interest rates forquite some time due to heightened inflationary pressuresdespite weak economic growth. On various occasions,the RBI has announced that its comfort zone for inflationis around 5%. However, we believe that the RBI has beeneasing by stealth i.e. by adding to the systemic liquidity. Allthese liquidity enhancement measures have resulted in thesoftening of interest rates at the short-end of the curve. Forexample, 3M bank CD yields which were hovering at around10.5% p.a. in March 2012 have fallen to around 8.5% p.a. by

September 2012.

Going forward, we expect the RBI to further improvesystemic liquidity that may result in further softeningof interest rates. Moreover, banks are experiencing aslowdown in credit off-take recently and therefore havehuge cash balances which are invested in governmentbonds. All these measures are likely to have a positiveimpact on the term-structure of interest rates, and weexpect the benchmark 10 Year yield to trade between 7.75%to 8% in the next 3 to 6 months.

Please explain what you mean by RBI easing liquidity bystealth? How does it happen?

The RBI undertook open market operations (OMO) whichalone infused around Rs. 80,000 crore in the system sinceApril 1, 2012. Recent CRR cut of 25 basis points was a positivemove, which infused another Rs. 17,000 crore in the system.The RBI had also increased banks refinancing facility limitson exports. Overall, the RBI has increased systemic liquidityby around Rs. 1.3 trillion. Going forward, the RBI has plans to

infuse additional liquidity of Rs 1 trillion by buying goverbonds and further liberalizing refinancing limits.

What are the risks you see in the market?

We are keenly observing various macro variables. We da few concerns in the prevailing market environmenconcern is the deteriorating credit rating environment

we are likely to witness more credit rating downgradeupgrades. A credit rating downgrade of a borrower genhighlights various risks which may hamper the borrability to meet his obligations and may likely result increase in its borrowing costs. Our second concertighter relative credit spreads. Credit spread is the extrdemanded by market participants over government Current spreads for AAA rated assets are comparnarrower from their 3-year average. Even the yield cuAAA rated corporate bonds is relatively flat. This meansan investor looks at investing in longer tenure papers, get a coupon rate only marginally higher than the shorte

securities. This means that there is little incentive for invto buy longer-tenor bonds. Recent reform initiatives government may result in a lower fiscal deficit in the fut

What are those critical triggers for RBI to go ahead

rate cut?

The RBI needs to see an improvement on three First: government measures to achieve reduce deficit, second: inflation moderating. Third: govermeasures to accelerate growth. Positive momentum oor all factors could lead to rate cuts. We expect the

announce rate cuts in the first quarter of calendar yea

Which debt schemes would you advice to investors?

Every investor has a different investment horizon anprofile that needs consideration before recommendischeme or product. I would suggest that investorsconsider liquid and liquid plus schemes for shorter tFor longer term, investors can consider Fixed MPlans and Monthly Income Plans.


20/24






We have to look at this in the overall context. Today oneof the main reasons for low penetration of MFs is poordistribution of and awareness about MF products. Witha small change in over all expenses, we now have thepotential to reach out to small towns and make a strong gofor the smallest of small investors with a view to bringingto them the benefits of capital markets.

If you compare with an upfront load of 2.25% paid earlierby investors, a very small 0.3% increase in expense ratioto increase penetration is reasonable justification. Also thenew regulation provides investors the option to invest direct

at lower cost with effect from Jan 2013.

What would your representations to committee framing

National Mutual Fund Policy be?

Firstly, we will be very pleased to see such an initiative takeshape. While, a lot has been done in recent regulatory changesto boost our industry, we would like to see major changesbeing made in the way investors save for their retirement.We would like to see a plan similar to 401 K plan in the USwhich encourages compulsory long term investments. A MFpolicy will also give the general direction of policy initiatives

over a period of time - some kind of a future vision of wherethis industry should be in, say, ten years time.

What is your view on the currently prevailing debt market

scenario?

We believe that over the last few months, the RBI actionshave ensured that the system liquidity deficit stays within thecomfort zone, creating an enabling environment for a gradual

downward movement in market interest rates. TopCredit spreads in the bond market have tightened signifin the recent past. Government bond yields have remrelatively stable around 8.15% recently. The market lisituation could incrementally tighten going forward on a

of seasonal factors such as festive season withdrawasecond half credit growth. We anticipate the RBI to coOMOs in the second half consistent with the monetary of pro actively managing liquidity within the system.

What is your investment strategy for investing in

income securities in your debt schemes?

The debt schemes have been adopting a cautious vicredit exposures considering the prevailing macro ecoconditions. However we have been quite aggressive reginterest rate strategies. Our income and short term sch

have benefited from the recent downward movemmarket interest rates, especially on the corporatespace. We anticipate at least 50bps policy rate reductionext 6 months. This would result in benefit arising froanticipated downward movement in policy rates.

If you have to advise retail investors to buy mutua

units, which debt and equity products would you su


Retail investors with long term investment horizon do well to continue to invest in equity funds with good

record and those with short term horizon can contipark their short term surplus funds in income / ultraterm schemes and optimize their portfolio to benefithe prevailing high interest rate scenario. The ultraschemes are typically suited for parking unutilizemoney, and the investments can be for as low as threewithout any exit load, or for as long as one wants. investors should also look at FMPs of different matas they are tax efficient.

TAX BREAKS TO

TARGETED SET

OF INVESTORS

WILL HELP MF

INDUSTRYMr. Deepak Kumar Chatterjee, MD & CEO, SBI Funds Management


21/24






Reaching out to investors in Tier III and Tier IV towns is noteasy. When you compare mutual fund industry that has not

more than 40 odd thousand distributors with insuranceindustry which has more than 20 lakh agents, you will find thatmutual fund industry does not have adequate penetration.We need more advisors and intermediaries to reach outto investors. There is a need for investor education andofcourse a distribution network to service investors. Whileinvestors may complain about higher cost and compare itwith immediate to short term returns, we have to focus onlong term objectives for which we have started investing inmutual funds. Shift in investment objective from NAV basedinvesting to goal based investing is the need of the hour.

What are the challenges for the industry in increasingits penetration beyond top 15 cities and towns? What is

the kind of opportunity do you see in raising capital from

smaller cities?

Mutual funds rank 7th in the list of investment optionsutilized by investors in Bharat. While rural India hastremendous propensity to save, it is not converted intoinvestments leading to employment. Industry needs to work

with NGOs on various investor education and awarinitiatives in rural India to orient them on benefits of mfunds as an investment alternative. This is where indugeneral and we at Baroda Pioneer are working on innoproducts which would work well in Tier III town

beyond. One of our initiatives is designing treasury profor SMEs. There are many such innovative products can be created for investors in specific category. Thiof innovation will help mutual funds to penetrate in Ttowns and beyond and thus grow.

Can you please elaborate more on your treasury pr

for SMEs?

SMEs in industrial clusters like Jalandhar, Tirupuvarious other similar Tier III towns and beyond do noaccess to skillsets in managing their treasury opera

Here, we are working on structuring specific treproducts which would suit their requirements. Thchallenging task wherein we have to start with inresearch in business cycles and then structuring a pwhich suits the requirements of the SMEs of a partsector in a particular industrial cluster.

SEBI has reintroduced entry load. Will this move

investors to invest in existing schemes?

Why does a mutual fund investor come to a mutualDoes he come for cost or for returns? Does a 30 basis

matter or he will look for return which is much highein a bank? My understanding is the investors in mutuacome for returns. So if we look at consumer behaviohe comes to a mutual fund the primary reason is he higher return than from comparable asset classealternative investment avenues. In a country like India interest rates are higher we always have choice. Mutualare fighting for space across various investment optioinvestor does not come to save cost but to get higher re

MIGRATE FROM

NAV BASED

INVESTING TO

GOAL BASED

INVESTING

Mr. Jaideep Bhattacharya, MD,

Baroda Pioneer Asset Management Company


22/24


Addition of exit load to fund AUM is a great move in encouraging

long term investors and reducing portfolio churning. How

do you see this from a fund managers perspective and how

challenging it is if a fund has more churning vis--vis a fund

which has less churning? How does the investment strategy

change if a fund has lesser churning?

From a fund management perspective you need stability of

the portfolio whether you are on the debt side or equity side.If you believe that 20-25% of portfolio is going to move aroundthen you have limited options to buy. Second is putting thecustomer at the core and to see what is good for the customer.If an investor is investing in equities he must invest with a 3-5years horizon. If an investor does not have that kind of longterm horizon, he must avoid equities. Instead for less than 3years tenure, investor must prefer debt or hybrid products.At the point of sale we need to have a expectation matchbetween what a fund house can deliver and what an investorexpects. So my view is the best person to do it is the advisor.I am of a firm view that advisor needs to keep the investors

needs and objectives in mind. His role is to believe in creatinglong-term value. I believe it is good move and churning forthe sake of churning is not good for any stake holders be itfund houses, advisors, and investors.

What is your view on the currently prevailing debt market

scenario?

Recently, the corporate bond yields have rallied due tobetter liquidity condition and expectation of rate cut fromRBI after strong fiscal consolidation measures taken byGovernment. We expect RBI to take rate action in second

half of financial year and may cut rates by 50bps to supportgrowth if inflation moderates from current level. After thefiscal consolidation measures taken by the government, RBImay go for a 25bps rate cut in the October policy. However,the inflation remains a concern for RBI. The inflationreading was at 7.81% in September after the diesel pricehike. The recent cool off in global crude oil price along withrupee appreciation may reduce inflation in future. As theultra-short term papers have come down therefore, we seevalue in medium to long term maturity papers. We expectthe 10 year GOI to trade in the range of 8% to 8.25% in nearterm and should move down in medium term as inflation

moderates and RBI takes rate action. However, highersupply, high fiscal deficit and persistent inflation remainconcern for the bond market. Lower domestic and globalgrowth, any rate action by RBI along with OMO should act aspositive trigger for Bond market.

What is your investment strategy for debt products?

In the income funds, we are increasing our tenure as we

expect rates to soften in next 6 to 12 months. Rerates have rallied in short term papers; therefore, wmore value in medium to long term paper. The longgovernment bonds also look attractive as the spregilts to corporate have come down.

What is the advisable allocation for fixed inco

investors portfolio?

We are advising clients to invest in short to long term ifunds depending on risk appetite and tenure of investWe expect these funds to outperform normal carry prlike Liquid and Treasury in next 6 to 12 months.

What is your opinion on current valuations?

To some extent, the current rally in equity marketoptimism-driven rally aided by flows. At current I feel that market is fairly valued. I feel that apartthe optimism from government action, improvem

corporate earnings will help market in future. Improvin margins due to lower commodity prices, lower inrate scenario, and government actions to kickinvestment activity will lead to a possibility of betteexpected earnings, going forward. This will help to imvaluation further in future.

What is your investment strategy for equities over n

12 month horizon?

The recent rally in equity market is an optimism-rally aided by flows. The sustainability of these flow

the near term would depend upon global developSo we have to keep a close watch on European sitand global data flows, which are quite dynamichanging frequently. In addition, domestic policnews flow also would be a key to sentiment. Domeconomy seems to be bottoming out. Any progrekey reforms will remove bottlenecks in infrastruand lead to fiscal consolidation. Hence we need to and stick with companies that will benefits from rereforms and RBI action.

Which equity products should the investors opt

current market scenario?

In the current market scenario, the investor should through SIP route equity diversified schemes for longobjectives. For conservative investors, Balanced FundMIP schemes are better options. This is because invwill get the benefit from falling interest rate scenaFixed Income portion coupled with upside comingbuoyant equity markets.


23/24


24/24

hindustan times' mutual funds whiz-kids wisdom

Documents