Interview with A Balasubramanian: ‘Domestic funds have become a big counter-force to FIIs’

In an interview to The Indian Express, Balasubramanian, who manages assets worth over Rs 205,000 crore, spoke about the fund industry, prospects, growth and investors strategy.

Written by George Mathew | Published:September 8, 2017 1:46 am
A Balasubramanian, Aditya Birla Sun Life Mutual Fund, Aditya Birla, Mutual Funds A Balasubramanian, CEO, Aditya Birla Sun Life Mutual Fund

Indian markets no longer dance to the tune of foreign investors. A Balasubramanian, CEO, Aditya Birla Sun Life Mutual Fund, says the domestic mutual fund industry, which witnessed huge inflows, has become a big counter-force to foreign institutional investors (FIIs) in the Indian market.

What’s the status of the mutual fund sector in terms of assets now?

Now it’s about Rs 20 lakh crore assets under management. Equity component is almost Rs 7 lakh crore. Equity as a component of the overall assets is almost 30-34 per cent. Within the debt, pure debt funds — other than liquid and money market funds — have been growing in size. Then Rs 4 lakh crore of liquid funds. This means the size of debt funds is Rs 9 lakh crore. It is also growing in the falling interest rate scenario. It’s going to stay at least for another two-three years period.

There has been a huge money flow into MF schemes. What are the factors driving investors to funds?

There are two-three reasons. One is the experience of investing in mutual funds. It has been satisfactory if you take the last one, two, three, five or ten years or beyond… whether it’s advisors who have been making their customers invest or investors who have been coming to make investments. If you look at the return experience, whether fixed income, liquid or equity, it has been far beyond satisfactory. Second is mutual funds and distributors have been creating awareness among investors. Third, money used to go into traditional investments such as real estate and gold earlier. Gold is actually flat. If you take real estate, prices are there but not realisable. If you had multiple houses, you could avail of income tax benefits. That’s also gone. For me there’s no incentive to buy real estate. People already have enough real estate exposure, now they diversify into other asset classes. That’s why money is coming into the mutual fund industry. The fourth reason is the optimism — on the economy picking up. The intention of investors is to generate wealth. Their intention is to come into equity for long-term. That aspiration is also there among investors now.

How much money flowed into the equity market in the last one year? Is there excess liquidity?

About Rs 1.20 lakh crore has come into the equity in the last one year… roughly about Rs 12,000 crore every month. Debt market also attracted around Rs 1.80 lakh crore. Post demonetisation and interest rate reduction, debt funds are seeing some inflows from retail investors. Bank deposit rate and small savings rate have dropped. Credit growth has slowed. Money is available after demonetisation but credit is not picking up. That’s why mutual funds business is coming into play.

Have MFs become dominant players in the market? Do you think too much money is chasing stocks?

Domestic mutual funds have become big players in the equity market. MF industry has become a big counter-force to foreign institutional investors in India. This trend is going to stay. We are still talking about 5.50 per cent MF penetration in the equity whereas in the US, it’s around 40 per cent. We have a long way to go. As far as stocks are concerned, the market is very smart. It rewards only those companies which are generating numbers. The market is still differentiating between good and bad. Good trades at a premium and bad at a discount.

Foreign investors turned sellers in August while domestic funds bought aggressively. Are FIIs pulling out?

For foreign investors, it all depends on allocation. For them there’s no India affinity. They will go to whichever market that makes money. India is one of several emerging market allocations for them. Second, Sebi has tightened regulatory norms for participatory notes (P-Notes). There was absolutely no chaos in the market. Thanks to Indian mutual funds, which are strong players, selling by FIIs had least impact on the market because of the strong counter-force that Indian market is getting.

What’s your assessment on the debt market? Will the growth continue?

The debt market will also continue to grow. If I put Rs 100 in equity, I think the debt investments will be two times of that. Every investor is putting only some portion of his savings in equity. Major savings go towards fixed deposit. The money going towards fixed deposits could potentially move into debt schemes of mutual funds.

Do you expect a big jump in assets under management (AUM)?

At the AMFI mutual fund summit, I presented a paper saying that mutual funds assets will be Rs 95 lakh crore by 2025. I expected Rs 20 lakh crore AUM only by 2020. We achieved it in 2017. This will be the fastest growing industry in India. There was 38 per cent growth last year.

What’s your overall view on the economy and markets?

From the economy point of view, we are in the right direction. I think the current account deficit is under control, fiscal deficit is under control, the currency is appreciating, commodity prices are stable, inflation is under control, but IIP (index for industrial production) numbers are struggling. Tax collections are improving and there’s more compliance. I think we are just before a rating upgrade. One notch upgrade for India is quite likely. Rating agencies globally can’t

ignore the fundamental structural changes India is bringing. Our belief is that the market will consolidate around the current levels. By 2019, private investments should be coming back.

What should be strategy of a retail investor? Where should he put his hard-earned money?

For every one rupee put in equity, investors should put an equal amount of Rs 1 or Rs 2 in the debt. Equity investment should long-term — five year plus. Then only you can make money. Salaried class employees should set aside 30 per cent of take home salary for SIP (systematic investment plan) schemes. Now as much as 90 per cent of the money is not spent in the right manner. Investment should be based on the age. If you’re 70 years old, bring down equity and increase debt investment. If you’re in the 20s, invest more in equity and reduce the debt. That’s the model you should apply. Every month 1.3 crore SIP counts are booked by investors. That multiplied by Rs 4,000 is the money which is coming into SIPs every month.

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