The recent policy announcements, robust overseas inflows and easing inflationary concerns auger well for Indian equities, believes Deepak Chatterjee, MD & CEO, SBI Funds Management. Chatterjee is hoping that KYC norms will be simplified and RGESS tax benefits extended to a larger class of taxpayers in the upcoming Union Budget. He tells Ashley Coutinho that the fund house is exploring opportunities in managing alternative investment funds (AIFs) and infrastructure debt funds. Excerpts:

What is your outlook for the equity market in the year ahead?

The newsflow from developed economies remains largely supportive for equities even as overseas inflows remain strong. The recent policy announcements ? the partial de-control in diesel prices, hike in passenger railway fares, deferment of revised GAAR and the hike in import duty on gold ? have been supportive. The government has also accelerated its disinvestment process to achieve budget targets. There are other positives too.

Inflationary pressures seem to have peaked out for the time being. Valuations look reasonable and consensus earnings estimates for the broad market stand increased by 0.9% for FY13 and FY14 over the month. The Street now estimates earnings growth of 10% and 16% for FY13 and FY14, respectively. The Union Budget would be a key event to watch out for. Given the sharp rally in global equity markets, there could be corrections impacting our markets as well. However, we expect the environment of positive reflexivity to continue.

Your expectations from the upcoming Budget?

We expect simplification of KYC norms and an extension of RGESS tax benefits to a larger class of taxpayers, apart from making it a recurrent scheme. We also expect some announcement on encouraging investors to invest long term in equity MFs in line with the 401K plans in the US, with a tax-break entitlement.

Your view on interest rates?

Recent readings on the core and the WPI headline inflation have surprised on the downside. The RBI has revised the fiscal year-end inflation estimate to 6.8% from 7.5%. The RBI has also lowered its 2013 growth estimate from 5.8% to 5.3%. A negative output gap and peaking of headline inflation has resulted in the monetary stance shifting towards addressing growth concerns. The RBI reduced the repo rate and CRR by 25 bps during its last policy meet. Incremental monetary policy actions are likely be influenced by the continued progress on the fiscal consolidation and CAD trend.

The RBI has absorbed around 25% of the gross supply of G-Secs till end of December 2012. We expect systemic liquidity to come under renewed stress in the coming months, requiring further open-market operations. We anticipate fiscal consolidation efforts to continue. Moderation in inflation, fiscal discipline and growth concerns could facilitate a minimum additional 50 bps rate cuts over CY13.

Debt categories gave returns of 9-10.5% in 2012. Which categories will do well this year?

It is difficult to specify which funds will do well. We feel investors should invest in equity funds for the long term and use the SIP mode for investments. On the debt side, the movement in yields on short end of the curve will benefit short-term funds and medium-term funds. There is scope for long-term gains through duration products, looking at a gradual easing of rates.

SBI MF has completed 25 years. What is the road ahead?

We aim to be among the top 3 fund houses in terms of AUM (assets under management) by 2017. We will also explore new opportunities in other investment management capabilities like AIF and infrastructure debt fund. We will continue to develop attractive investment products and are committed to enhancing investor experience by investing in technology initiatives and investor education.

Your advice to investors?

Investment is a discipline. Wealth is created over the long term and long-term investing typically evens out the volatility from markets. India is a growing economy and India will continue to grow faster than most of the countries in the world. So, we feel that investors should invest in the capital market and benefit from this growth story.