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Thursday, April 22, 2021

Waqar Naqvi: ‘Higher returns in equities induce confidence … believe fund flows may return’

A rise in the yields generally tends to affect the NAV of debt funds negatively depending on the type of fund and maturity profile of the securities, says Waqar Naqvi.

Written by George Mathew
Mumbai | Updated: March 1, 2021 4:06:53 am
Waqar Naqvi

Taurus Mutual Fund CEO WAQAR NAQVI spoke to GEORGE MATHEW about a host of issues like rising bond yields, mutual fund flows and stock markets. Edited excerpts:

Bond yields are on the rise across the world. Will there be any impact on debt and equity funds?

A rise in the yields generally tends to affect the NAV of debt funds negatively depending on the type of fund and maturity profile of the securities. Normally, a small and temporary pressure on yields may not result in much impact. A large and structural change in yield may result in secondary impact on equities with higher interest rates and borrowing costs. This, in turn, may impact earnings and valuations. However, on equities, the impact may be muted with the anticipated global recovery visible in quite a few sectors and the rebound in domestic demand. The bold Finance Bill tabled by the central government may also provide a fillip to the stock markets in tough times.

Considering high government borrowings and rise in yields, do you see interest rates going up this year?

Logically they should. However, given that the growth (rebound) is in nascent stage and that the RBI Governor has provided guidance for adequate liquidity and a pro-growth policy, a major rise in interest rates this year looks unlikely.

Do you think investors should be wary of investing in stocks directly or through mutual funds in the current scenario?

Savvy investors who are equipped to track stocks may try a combination of direct stocks and mutual funds. However, for normal retail investors, I believe that benefits offered by mutual funds like expert portfolio management, diversification, low-cost, convenience, wide options to choose from, better regulation and transparency far outweigh the risks of direct stock investing. Investors investing in mutual funds should invest irrespective of the markets through SIP since no one can predict the market with perfection.

Equity funds have seen net outflows in the last couple of months? Are investors exiting from equity funds?

Yes, a set of investors are apparently partially exiting the markets looking at the sharp rally in the markets, which is a normal phenomenon since the savvy investors do want to cash in part of their profits. Chances are that most of these investors having tasted the profits from the mutual funds may re-invest in due course after studying the markets further.

So, the view that we gather from general retail investors is that there may not be sharp corrections as seen in March 2020 in the near-to-medium term in view of the changing fundamentals and that the probability of equities offering higher returns than most other asset classes in the next 2-3 years apparently induces confidence. Hence, we believe that flows may return if we see a 5-10 per cent correction in the markets.

Despite high valuations, stock markets hit new peaks recently. What’s happening in the market?

The rally in the stock markets was due to a combination of factors, like the unprecedented monetary and fiscal stimulus leading to sharp surge in global liquidity which led to some of the surplus cash overseas finding its way to India, low interest rates, development on vaccines and better than expected recovery in corporate earnings. The recent outperformance of Indian equities can be attributed to weak dollar index, which also led to a sharp flow of liquidity to emerging markets and an expansionary Budget which positively surprised investors. Valuations are high. However, it appears that market believes that these are trough earnings and that earnings may surprise positively over the next few years which may justify the rich valuations.

How has the Covid pandemic impacted the MF industry?

Not exactly, given the fact that the mutual fund industry is a tech savvy industry and also utilises third party agencies for registrar and transfer services, custodian and fund accounting services. So, the mutual fund industry was geared up to work from home and adapted to it quickly. Sebi also helped by announcing pragmatic steps. Further, with the stock markets doing well, the MF industry is always happy. Yes, online transactions have been boosted further with the NSE and the BSE providing a platform for online sales of MFs and wallets like PayTM etc allowed by Sebi to sell MFs.

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