Owing to greater investor awareness,mutual funds will continue to sell even though intermediaries might try to push insurance products,says ICICI Prudential Asset Management Company's deputy managing director Nilesh Shah,in an interview with Suneeti Ahuja. What is your take on the latest Sebi ruling on no entry load? So far,Sebi's communication has only mentioned that there will be no entry load. The fine print is not out yet. We will wait for Sebi to release the details before commenting. In the absence of a fixed commission,do you fear that agents might push insurance products for their higher commissions? Life insurance and mutual funds serve different investor needs. While mutual funds fulfil the investment need,life insurance acts as a safety net. Unit-linked insurance plans (Ulips) do have some similarity with mutual funds. But the way they have been sold is very different compared with mutual funds. And while agents might be driven by higher commissions,investors are fully aware of what needs are met by insurance and by investment products. What is the significance of Sebi allowing anchor investors in IPOs? Whenever an issue gets over-subscribed,it becomes difficult to build a large position. Recognition as anchor investors will allow us to build large positions by getting firm allotment. The IPO too will get the stamp of approval from institutional investors with the latter willing to commit money for the long term. What are your expectations from this years Budget? We need a roadmap in the budget regarding how we will return to fiscal responsibility. Income could be generated through sources like divestment,3G auction,better tax compliance,or improving the productivity of spending. For retail investors,a tax incentive for investment in infrastructure funds would be welcome. Such a tax will help mutual funds mobilise more funds. It will create a virtuous circle whereby household savings get converted into equities for infrastructure. Investors are currently bullish on infrastructure and banking. What is your opinion? In the near term,the infrastructure sector looks a little expensive because PE (price to earning) ratios have expanded. The need to build infrastructure is clear. The government will have to take the lead in pushing infrastructure development. So you have visibility for power,steel and construction companies because a lot of money will be spent on infrastructure. Banking is a proxy for the economy. If the economy is doing well,this sector does well. Non-performing assets decline. Banks' ability to borrow cheaply on deposits and lend at higher rates increases. Generally in developing markets the banking sector provides returns that are a multiple of the growth rate of the economy. We are bullish on banking. Since valuations are stretched in infrastructure,should investors wait for a correction? No,don't try to time the market. Leave that to fund managers. Invest regularly for the long term and don't behave like a trader. Do your asset allocation and do not be overweight on any one sector,and you will generate good returns from your portfolio. The Sensex has risen by over 70 per cent in the last three months. But mutual funds seem to have missed the rally as most were sitting on cash. We were fully invested at the 8,200 level and also at the 12,000 level. However,we underperformed by almost 15 per cent. That's because we bought puts. On May 18,when the election results surprised everybody,the markets went up by 20 per cent. And the put right gave us 4-5 per cent return. In the end you have to judge whether we took a rational decision on that day. How many people had predicted a decisive government? Many times,although you are rational and logical,you can still go wrong in the short term. But I have yet to see a rational fund manager underperforming the market over a longer period. We want people to give us their money for our skills rather than for our luck. Where do you see the markets headed from here? There are both speed breakers and game changers ahead. The positive side game changer is the growth opportunity available to India. The world is de-growing: Japan will de-grow by -5 to -10 per cent,and US and Europe in the range of 0 to -5 per cent. If when the world is in reverse gear India is accelerating at 7-8 per cent,that is a big positive. The major world economies are sitting on zero per cent interest rates. They will look for opportunities where they can make returns. The world is convinced that India and China will be the growth drivers going forward. We have better growth opportunity by virtue of our demography,infrastructure requirement,and economic size. Capital can continue coming into our economy if we can provide better investment opportunities and returns. If we get more capital and use it productively,our growth rate will improve. This will generate more employment,more demand,and hence more capital inflow,leading to a virtuous cycle. And what are the negatives? One is the monsoon,which is delayed and is lower than normal. The global economy is another. But these speed breakers can cause some degree of turbulence,not change the course of action. Besides,we are running a fiscal deficit of 12 per cent (including all budget items). We need to bring it within manageable limits. Another game changer is QIP money. A lot of Indian promoters would like to raise money. But quality of paper and its pricing are issues. If we spend capital on non-quality projects,it scares investors. It's time to bring quality money into quality projects. •
