It's been the WhatsApp moment for the Indian asset management industry and HSBC Mutual Fund has grown faster than the industry. Years of education and efforts by all fund houses led to a sharp increase in the number of SIPs. This was a huge cultural shift and bodes well for the long term.
Managing return expectations
Our consistent message to our channel partners is that asset allocation is the critical starting point. Investors need to be asked about their goals, their tenor and the risk that they are willing to accept to achieve that goal. Selection of an investment product or a mutual fund follows this process. If this is religiously followed with some level of periodicity, return expectations from an asset class are automatically factored in.
Risk controls
When it comes to equity investing, we always advise investors, through their distributors and advisors, that they should stay invested for at least a three year period. In the short term, there will be periods of volatility but every data point as of now indicates the power of compounding and the attractiveness of equities as an asset class.
Rising industry assets
Rising AUM is a good thing but at times it could create challenges for fund managers in a market like ours. India has more than 6,000 listed companies but the universe of attractive stocks does not go beyond 500 or so. Even for these stocks, liquidity can be a constraint, particularly in the mid-cap universe. We expect things to improve over the next few years, with more companies getting listed in the Indian equity market.
Growing clout of domestic funds vis-a-vis FIIs
As an Indian, I am keen that we attract all pools of capital, both domestic and foreign. Flows from SIPs, EPFO, NPS and ULIPs today constitute a very significant amount. Unlike foreign flows, this pool is stickier and long term. But in the end, it is the attractiveness of the Indian economy which will pull investments. As long as we have stellar GDP growth, capital- both domestic and foreign, will be attracted.
Outlook for equity and debt
Whilst valuations, at an absolute level, are higher than historical metrics, they are fair in the context of lower nominal interest rates and therefore, they aren't expensive either. We, therefore, recommend that investors stay invested in the markets as the positives over the medium to long term far outweigh any of the negatives.
From a debt-market perspective, we are closer to the end of a rate-cutting cycle. However, we may still expect a solitary cut due to a slower pace of economic growth we are witnessing currently. Investment in good quality credits is better as the pricing of low quality credits is under pressure. Thus, investors focusing on debt allocation may benefit through short duration funds.
This article was originally published on December 04, 2017.
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