Prashasta Seth, CEO & Fund Manager, IIFL Mutual Fund says, we see DII money as more stable as compared to the 'hot money' of most FII hedge funds
The Indian mutual fund industry crossed the Rs 20 lakh crore AUM milestone in August 2017 and that speaks of the increasing awareness and interest among the masses for financial assets. After demonetisation, the flow of domestic money into mutual funds through the SIP route was at its highest ever and we are seeing it rise every month. This is a healthy structural change. Investors are also moving away from physical assets and increasing their exposure to financial instruments, especially mutual funds. On our mutual fund platform, too, we have seen steady growth.
Managing return expectations
We have been recommending clients to have return expectations more in tune with the current market valuations and economic indicators. Clients should base their investments for the long term and also stagger their investments in a systematic manner. At the same time, we have continued to remain highly concentrated in our equity fund by focusing more on quality names amidst the high valuations seen in many mid-caps and small-caps.
We continue to focus on mostly large-cap companies, where we find valuations still reasonable as compared to most mid-caps and small-caps. These companies have steady earnings growth and are also relatively less volatile. We believe that with the index trading above 20x PE based on one-year forward earnings, there is little room for error for companies which are trading at extremely high valuations in the market. Thus, it is more important to protect the returns now than to generate large returns.
Rising industry assets
Raising new assets and getting regular flows into existing schemes in a rising market have their own challenges with regards to deployment of the corpus. Meeting the return expectations of a larger number of investors in a rising market is difficult and challenging. Nevertheless, we see these challenges as learning opportunities and also prefer playing it safe and being conservative rather than aggressive at expensive market levels. Preserving the client assets in an overvalued market is prudent and we strongly abide by this principle.
Growing clout of domestic funds vis-a-vis FIIs
This is a very healthy trend. We see the DII money as more stable as compared to the 'hot money' of most FII hedge funds. It wouldn't be wrong to assume that domestic mutual funds are getting more dominant gradually in the Indian markets.
Outlook for equity and debt
Expecting a sideways market, wherein we see more of time-based correction rather than any sharp sell-off, is more prudent at this point of time.
The underlying market sentiment for debt remains positive despite the dip in prices, as market players anticipate an interest rate cut from the RBI in the coming months, given the decline in domestic inflation.