People in India were very upset after seeing the sales figure of Rs 5,000 crore by FIIs last evening and overall in the last 15-18 months, a few billion dollars worth of shares have been sold. Is this normal take profit? Is this a taper trigger?
When it comes to global markets and the global economic recovery, there are four factors that we look for in a particular market. The number one factor is the speed or rate at which capital investment transactions in private sector banks from the hands of the government are taking place. Obviously, in India we are seeing this happening much faster than others.
Second is the speed at which business confidence and customer confidence is coming back and there is no doubt in my mind that trust is at an all-time high in India.
The third is how fast the focus of economic activity is shifting from manufacturing to services. In India, this has not been a major concern as we are a services led economy and services have returned to their pre-pandemic levels.
Finally, one has to see how fast the response is to overcome supply-side inflationary pressures. Supply side inflationary pressures are not something that most policy makers prefer to address directly through rate hikes as this could lead to stagflation. So how does it adjust? This is adjusted by the rise in demand and the return of economic activity.
India is being seen as a country that is ahead of other countries in all four respects in terms of improvement and we expect that we can see real GDP growth in double digits. We wouldn’t be surprised if this is indeed the case. Also, coming to the tapering and those kinds of Fed events, we’ll see the Fed follows a very clearly disciplined approach. He has said about the hike in rates and there was a lot of concern before the taping started. But if we look at the amount of tapering right now, it obviously won’t affect liquidity as much as we expect growth to absorb liquidity.
As an FPI, Manulife should speak for itself but our understanding is that Manulife has a very clear view on India. India is firing mostly on cylinders. There is huge investment in infrastructure. It is long overdue but now we are finally seeing it actually happen, creating a lot of business confidence.
We are one of those countries where the manufacturing environment could not be better than this. We have tremendous benefits for the manufacturing sector including lower taxes and all kinds of incentives. The PLI incentive is one of a kind across the world. There is too much belief and too much futuristic bullishness about India. making profits; Why shouldn’t you take it when you’re sitting at 70%?
Your roots are very deep in the hinterland and small towns of India. We have seen that liquidity from these places is giving full support to the market. Despite the volatility in the market, the monthly SIP of Rs 10,500 crore is picking up. Do you get a sense from your dealers and channel partners that it is sustainable?
Absolutely. We have a very deep reach as a home. Even with the small business of mutual funds, we actually have assets of only Rs 8,000 crore. We still get about 30% of our retail assets from B30 cities. The number of industries is much less than that. We reach out to more than 400 cities and most of our business is done through MFDs and they tell us that there is SIP option to stay here. It is not only coming from an active option, it is also coming from the lack of other options. After all, what other credible investment opportunity exists that has the opportunity to make a really serious amount of return over the long term?
Hence SIP books are increasing manifold. Our own book has more than doubled in the past year and is saying something that is making the pandemic count. Clearly this is a force that has been here for a long time to come and we are seeing it as a very enduring force across the country.
A lot of innovation is happening too. There is activity going on in your industry on new offerings. You guys are also working on some cool things or new things.
What is happening is likely to happen in such markets, especially in larger markets with more sophisticated investors. One of them has genuine concern about whether the markets are overvalued and how to reallocate their asset portfolio and in doing so, balanced profit funds which are an asset allocation product have gained immense popularity. .
Many of our partners have come up with such products. We ourselves are offering a Balanced Advantage Fund with effect from 9th December. The advantage with this fund is that one can go from zero to hundred in either debt or equity, depending on the market and the approach of the fund managers. This moves the decision away from investors into the hands of experts who are able to invest money at the right opportunity in time.
It is a welcome opportunity at such times. But apart from that, there is also an opportunity that we provided only a month ago in the real estate market, which we believe is going to be a huge market for India from a financial markets perspective over time.
We re-offered Asia-Pacific REITs to allow people to allocate their property to a slightly different asset class than previously known property so that they can place their bets in different markets. Obviously Balanced Advantage Funds is something that we think is going to be a very big category, because some people are unsure.
Balanced Advantage Funds differ from many others as other BAF types of funds have also emerged.
What we are going to do, I have seen many peers offer a balanced profit fund where the asset allocation decision which is important, it was a success, is being done on some sort of quant model. We now believe that we should be using data base triggers, but ultimately the discretion should be with the fund manager, so we are introducing a concept called multi-variant triggers and discrete variables that explicitly measure PE or valuation. evaluation will take place. There is going to be market, earnings growth and then debt and equity yields and finally we have to look at liquidity as it has been one of the most important movers of the market in recent times. So we will get these three-four variables and look at the data and trends in it and then make a decision. In that sense I think we will be a little different from others.
And what’s your view of the market, do you see this correction deepening a little bit or do you see… what’s your market outlook, what’s your investment team giving you on the markets?
So clearly I don’t think investors are wrong in taking profit. When you’re sitting at the top of 70-80%, in some cases 100% compared to last year, a year and a half, you would be foolish to not take some profit and it’s going to happen and so it’s a correction nothing wrong in the market Happening and I must get out. This improvement is probably coming from the need to take some money home and that is always a welcome thing and so and when you have the cash you are able to make a better decision about where your next money is going To start walking. So I think this is something that is the natural cycle of the market and we should allow it to happen. Will it go too deep, will it like very large numbers? I don’t think so. I think people realized that they have to come back in this market and hence to some extent they are coming back through NFOs and mutual funds. They are also making a comeback through IPO, which you must have noticed. So it’s not that the market doesn’t have faith. It’s just that people are rebalancing their individual departments, including institutions, so that is the nature of the beast.