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Smart Surfing In A Turbulent Market

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Smart Surfing In A Turbulent Market
Yagnesh Kansara - 03 July 2019

Nimesh Shah | MD and CEO, ICICI Prudential AMC

 

The mutual fund sector has been going through a somewhat rough patch since some time. Also, the ongoing credit crisis has been looming large since end of 2018. Nimesh Shah, MD and CEO, ICICI Prudential AMC, in an interview with Yagnesh Kansara delves a little deeper into the scenario.

 

Currently what phase the MF sector is going through? How long will it take it to revive?

Currently, there is a widespread misconception that the whole debt mutual funds is under stress. In terms of numbers, the troubled debt papers form only 1.3per cent of total mutual fund industry’s fixed income assets, which is around `13.38 lakh crore. Just like volatility is an integral part of equity investments, same is the case when it comes to credit investments. However, the point to understand here is that concerns pertaining to debt papers are largely confined to specific schemes within a select fund. The current crisis remains an isolated event and does not pose any systemic risk.

Owing to these developments and continuous reportage on the same, today investors are aware of the importance of diversification in terms of exposure to names within a portfolio. A diversified portfolio ensures that even if an investment were to be adversely impacted, the overall scheme level liquidity does not come under stress. The other aspect, which investors are waking up to is the quality of risk management practises followed by a fund house. As a result of this understanding, there has been an investor flight to better managed funds within the industry.

We believe that the industry will emerge stronger and the investor wiser, once the NBFC crisis is completely resolved.

 

Economy is slowing down, corporate earnings are not up to the mark, oil is edging up; in this scenario how do you see equity markets performing and its resultant impact on equity MFs?

Post elections, our outlook on equities has improved, as it has been observed that whenever election outcome is favourable, equity asset class tends to perform well. However, in the long term, markets seek direction from macro-economic indicators, which highlight the overall health of the economy. Global factors such as US-China trade issues, volatility in oil prices on the back of Iran-US tensions along with local factors like absence of private capex rebound, upcoming budget can all cause markets to turn volatile in the short run. In such a market scenario, the ideal approach for an investor, from an investment perspective is to go for asset allocation schemes.

In terms of corporate earnings, we believe the worst is behind. A rebound in corporate bank earnings is likely as the worst has been already factored in, given the NPA resolutions is underway.

 

Do you think MFs will continue to be resilient against FPIs going ahead too?

We believe the inflows via SIPs have been largely robust and will continue to grow. As of May 2019, it has grown to Rs8,183 crore. In general, SIP money tends to be sticky in nature, and is largely immune to change in market sentiment unless an adverse development was to take place.

 

How did ICICI-Pru AMC manage to stay away from the debt market controversy?

As a fund house, we were always cautious about dangers associated with credit risk funds. Therefore, we set up an in-house independent risk management team entrusted with overseeing credit evaluation and approval processes. This team is independent of the investment team and the decision to onboard a credit is taken after due diligence, carried out in accordance with debt investment policy.

We have always maintained that credit rating is one of the inputs and not the sole determinant in investment decision-making. This discipline has helped us sale through turbulent times.

yagnesh@outlookindia.com

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