Chandresh Nigam, MD & CEO, Axis Mutual Fund believes while FIIs may provide some jerks in the short term, fundamentals will impact long term investments
The last two years have been sort of break-out years for our industry. After hovering in the periphery of investors' consciousness for a couple of decades, we have finally become mainstream. This is obviously an extremely healthy structural development. Of course, market performance will remain key in driving sentiment and flows, but the use of regular investing and asset allocation - to name just two big trends - tells me that we should be more resilient to market volatility going forward. At Axis, we have used the last few years to create what we believe is a fantastic asset management platform, with strong products and performance and a clearly differentiated investment strategy.
Managing return expectations
We constantly emphasise the long-term nature of investing in all our communications. Investors should not be looking for instant gratification while putting money into equity or bond markets. Of course, we also need to work with our distributors who often have a better ability to have these conversations with their investors. Lastly, we have tried to ensure that our product design focuses on sustainable themes and not tactical short-term ideas.
Risk management cannot be switched on or off based on the level of the market. It has to be an inherent part of the investment process. Axis has always taken pride in the strength of our internal risk management and we have made risk consciousness an integral part of investing. The entire focus is on sustainability of performance and we typically eschew tactical trades that may have potential to make money in the short term but which are not backed by strong fundamentals.
Growing clout of domestic funds vis-a-vis FIIs
Mutual funds have always been more relevant in the case of small and mid-cap stocks as compared to FIIs. However, we have to appreciate that the biggest impact is always on the marginal investor. In this context, let me point out, some of the FII flows come from hedge funds and such hot money has the ability to sharply increase/reverse allocation in response to global events. And I think in the large-cap/benchmark sense, we will remain at risk of such events and such investors in the short term. In the long term, it is the fundamentals and not flow of funds that will rule.
Outlook for equity and debt
We remain convinced about the long term opportunity that exists. We are very excited by the pipeline of high-quality IPOs that are allowing new stocks, new themes and new sectors to get listed on the equity market. As far as the bond market is concerned, we are seeing a structural shift essentially leading to disintermediation of banks. More and more corporate issuers are choosing to raise money through bonds in addition to bank lines. Once again, this is adding strength and resilience to our financial markets and improving the efficiency and growth potential of our economy.