Both the equity and debt markets look attractive at the moment and should do well in the near future, says Leo Puri, MD, UTI AMC. In an interview with Chirag Madia, Puri says he expects the Budget to give ELSS a boost.
The equity market did very well in 2014. Will 2015 belong to the debt market, given that interest rates are likely to fall?
I think both equity and debt markets look attractive right now and should do well over the next few months. We expect the investment cycle to bring in renewed optimism and be a catalyst for continuous flows. We can expect ‘mid-teens’ returns over the next 3-5 years.
The global scenario is punctuated by bouts of extreme volatility, some of which we might see in the current period itself, given what is happening in Europe. Here in India, we have had a stream of events — first the elections and, now, the Budget; so, I think we need to tighten our seat belts.
What factors could derail the India growth story?
The most obvious risk is the failure to keep the growth and reforms promises. Another is unforeseen reactions to the US Fed rate hike.
Fortunately, the RBI has recognised and taken a conservative view on this issue. They are right to focus on currency stability and managing rates accordingly. The QE programme in Europe and its repercussions is another key risk.
What are your expectations from the Budget for the MF sector?
Like other sectors, we too have our set of micro agenda, which includes removal of capital gains on scheme mergers and inter-scheme transfers. It’s always helpful to see equity-linked saving schemes (ELSS) given a little boost. Overall, the regulatory environment has been quite balanced for the MF industry and I don’t think it’s a good idea to create distortions between different parts of the financial system.
Insurance, pension and mutual fund should, as far as possible, be regulated on a common platform with a common philosophy. We have also talked about Mutual Fund Linked Term Retirement Plan, which could bring in long-term money.
Are we seeing consolidation in the MF space, or are big players getting bigger?
If we look at ownership and governance of AMCs, the large ones are either owned by corporates or banks. While it’s appropriate to promote this business, I don’t think it’s a good structure for the long term. I don’t see banks or corporates as long-term natural owners of the AMC business.
Since AMCs allocate capital and play a role in corporate governance, it is best for them to be independent and free from potential conflicts of interest.
Secondly, looking at entry and exits, global funds and very small funds have found it difficult to operate in this market. Global players take the view that our market is retail-oriented with limited institutional clients and, therefore, very distribution-driven, and for them, it could appear a little dysfunctional.
Even for very small fund houses, this is a business that needs investment for customer acquisition and distribution and they find that difficult. Size should not be the only criteria, as performance is the key in the asset management business. But it’s up to them to develop a strategy where they can position their performance and, then, build a niche business.
At UTI AMC, what kind of role are you planning to play as far as corporate governance is concerned?
In the past, we have probably been passive, like others, more than we should have been. So, we do want to get more engaged with the management and understand what they are doing, and if we don’t like it, we should be free to vote against it.