In the past one year, equity markets have bounced back from its lows. This is good news for top asset management companies including HDFC Asset Management Company (AMC) which have a higher base of equity assets. Some of them are expected to report bumper profits of close to Rs 150 crore for the financial year ?10. The challenges though are of increased competition from new entrants and tougher Sebi regulations. Against this backdrop, Chirag Madia and Muthukumar K caught up with Milind Barve, MD of HDFC AMC on his market expectations and gameplan for his company. Excerpts of the interview:
What are your views on equity markets? How has the mutual fund industry coped with the ups and downs?
In the last few months, we have witnessed a turnaround in the equity markets. Interestingly, in the last few months, our funds have faced relatively lesser redemption as investors in SIP are looking at a minimum of 3-year investment horizon and are not worried about where the markets are headed (over the short term). We have been selling systematic investment plan (SIP) in the last four years and all of them are retail investors, who have a long-term view.
Equity markets have bounced back sharply since last year. Will the current financial year see huge profits for asset management companies?
This year should be a good year for asset management companies.
There is lopsided growth in assets of the mutual fund industry. Most of the assets today comprise debt assets…
Not only in India, but globally, institutional investors park their money in debt or fixed income schemes; so we are not an exception. If the systemic liquidity dries up, we will witness redemptions on the debt side. Institutional money is not influenced by the efforts of the asset management company. Otherwise, the crisis of October 2008 wouldn?t have happened.
If large corporates or institutional investors want to take out the money for acquisition or to pay advance tax, we don?t have control over that. It is actually not mutual funds that are chasing the institutional money, but the institutions that are chasing MF products.
If in reverse repo, banks get over 3.25%, while they get 4.25% from investing in mutual fund, then it is a no brainier that banks? treasuries will invest in mutual funds. If banks had a surplus of over 1.6 lakh crore, it is not the fault of the mutual fund industry. However as a fund house our bread and butter are fees emanating from equity and hybrid products.
Are mutual funds consciously building the retail business?
All the money coming in the equity or hybrid schemes are purely retail money. We have a marketing team of over 275 people dedicated towards retail distribution while another 15-20 people are in the institutional segment. Our mix talks about our focus (which is retail) which is no different for most mutual funds. We have over 200 contact points across the country; if we wanted to focus on institutional business, we could have done it with 8-10 branches in top metros. Besides, we are now going to the tier-II and tier-III cities and opening small offices manned by two to three people. We are very passionate about the retail business.
Competition is hotting up as new players are entering the mutual fund business…
If we look at parameters like economy growth and saving rate, I believe India is a terrific market to start a mutual fund business. However, the entry of more players will impact the competitive landscape. Today, the top 10 players dominate the industry?being profitable and owning majority of market share.
Recently, market regulator Securities and Exchange Board of India (Sebi) changed mutual fund regulations. What?s your take?
The regulator?s move to invest after NFO closes will bring justice to all the investors. Also, I believe bringing down the time period of new fund offer (NFO) will not be a problem for the mutual fund industry. Marketing can be done before the fund launches.
But don?t you think in the last six months or so, the regulator has taken some harsh measures in the mutual fund industry?
I don?t think so, rather the regulator has put the things in order.
How do you look at 2010 and what?s your advice for investors?
Over the long term, equity has an edge over debt. But if someone wants to invest over a short time frame, he or she should look at liquid funds as interest rates are likely to go up in the shorter term. But if we look at the compounded annual growth rate (CAGR) over period of 2-3 years, equity has given better returns. The key for investing in equities is to stay invested.
Any NFOs in the pipeline?
We are working on a gold fund- of-fund scheme, as we don?t have any schemes catering to the gold market.
It?s been long since Real Estate Mutual Funds (REMF) were allowed to be launched. What?s the update ?
The guidelines are very much in place, there are some challenges in valuing a real estate property. It will take some more time to sort it out.