The year 2018, may be one of pause for Indian equities, says Chandresh K Nigam, CEO, Axis Mutual Fund in a candid chat with FE. Excerpts from the interview:
Recent volatility in the markets have made investors wary. What’s your take?
Markets are a reflection of what is happening in the economy and globally. Today, in India the macro is looking much better than before. Besides, over the next 4-5 years, you can expect around 7-7.5% growth, 11-12% nominal growth, and 12-15% corporate sector growth, despite the swings. And if that is so, the markets are going to do well medium-to-long term, of that there is no doubt.
If we look back, whether it was the global financial crisis or the tech bust, if you take a reasonably longer term horizon, equities have always made money because companies have grown. What’s more, if you look at the markets at the present juncture, we don’t see the markets coming off very significantly, because in the past when we have seen corrections from the current valuation ranges of 20-25 PE, we have seen earnings also fall sharply leading to a double whammy. But this year, according to most analysts, earnings growth is likely to accelerate. In fact, earnings growth is expected to be the highest in the past six-seven years. So we expect that to give support to the market.
What about liquidity?
Liquidity has been following a certain trajectory, but if it moves to a lower trajectory, it will create volatility. And volatility can make short term returns look bad. Volatility in inflows will track the markets. How deep the valleys and troughs are something we’ll have to wait and watch.
Can the benchmarks end the year with negative returns? A lot will depend on the money flow. With bond yields and interest rates going up there will be competition for money. But, on balance, I would think it will still be low volatility because I think money will still come in. Foreigners have been selling. How much worse can it be? If they start coming back, the market will get support.
So I think, 2018 will be a year of consolidation, you can end with a short rally or a little down. But if you are invested in the market, I don’t think you should worry about short term corrections. Even if any economic or political event spooks the market in the near term, as an equity investor that should not influence your investments given the positive longer term trajectory.
Do you think flows into SIPs will get impacted?
The SIP inflows only get impacted after about two years. This is the experience of the last downturn — the impact of 2011 was seen only in 2013 and 2014. Unless we see a sharp 40% cut, I don’t think we’ll see any impact. In fact, what we’ve been seeing is that whenever there is a small decline, there is a surge of inflows. Last month we saw high inflows.
How much do new channels — digital etc — contribute to inflows?
My sense is that except for the very young professional who doesn’t want someone to come and explain to him, the rest of the market is intermediated today. That’s not to say a shift may not happen. On the digital transactions front, about 30% of our investors use this mode.
Do you see consolidation in the industry?
If the industry goes through a down-turn, the ones who aren’t able to build scale may look at an exit. A lot will depend on what the owners think. Whether we will buy will depend on whether somebody reasonable is willing to sell.
What is your business target?
We are a late entrant but have now completed eight years. We have demonstrated our capability in products and managing money. So all the ingredients for us to be a very large player are there. In terms of relevance for new business, we would like to be among the top five. And if you want to put a number to it, I think assets under management of about `200,000 crore in three-five years is something we’ll shoot for.