Indian markets have started looking attractive; fresh inflows are being witnessed from foreign institutional investors (FIIs) and markets are rallying upwards. Mahesh Patil, equity co-head, Birla Sun Life Mutual Fund, while speaking Chirag Madia of The Financial Express, says that once the election results come out on May 16, a clear picture will emerge. He also says that the Indian Mutual Fund (MF) industry is on the path of a gradual recovery post the redemption pressure during October-November last year. Excerpts:
•What are the factors which are leading the domestic market in the current scenario?
Indian markets are following global markets and the liquidity problems that we faced during the last year are slowly getting over. Apart from that, we are growing at a rate of over 5-6% and till now quarterly earnings have also been better than expected.
I think that overall, the condition is improving and that’s the reason we are witnessing and upward rally in domestic markets. I don’t think that there might be much negative news from the quarter’s results which are currently on. There are very low chances that Indian equity bourses will again touch the lows witnessed during the October-November last year. Markets are likely to remain in the range of 8,500-12,000 for the next few weeks.
•Despite the upward rally in Indian markets, there is sense of fear in the mind of investors as a huge amount of profit booking is taking place and investors are waiting for political uncertainties to ease...
Yes, there might be some pauses in the market as general elections results are awaited. We can also say that till before the election results, markets are likely to remain under pressure and there will be clear picture of where we are heading; it will emerge only after the results are declared on May 16. If the Congress-led UPA or BJP-led NDA comes to power, there are chances that markets will run ahead. If the third front takes office, then markets are likely to see some downward corrections.
•Recently, the RBI, in its monetary policy, cut the repo and reverse repo rates by 25 basis points. Do you think this will have any major impact on the markets?
I think the central bank has taken the right step by slashing the repo and reverse repo rates; there are chances that interest rates will start coming down from here. However, it is essential to point out that it may not have a huge impact on the markets. The markets will wait till results of the elections are announced.
•FIIs are entering the market yet again. Do you see increased inflows from them after the election results are announced?
I think that risk appetite is increasing slowly and FIIs are coming in as they feel that this is the only market that has some future growth prospect. With interest rates going down, they feel this is the right time to invest in the market as well. Apart from that, FIIs are also doing a good amount of profit booking. So, once we have clear picture on political front, we will witness more inflows from FIIs.
•After the tremendous redemption pressure seen by various fund houses last year, the MF industry’s AUM is improving. Despite that, investors are shying away from investing in MF schemes…
The MF industry, in line with the equity indices, has shown some smart recovery.
Gradually, people have realised that we are coming out of the financial crisis. People are waiting for the right time to invest in MFs, and I think this is the right time.
•More and more mutual fund houses are increasing their exposure to large-cap stocks. What are the reasons for this?
Various factors are playing in the minds of fund managers, like corporate governance and most importantly, the liquidity issue. These factors are good in large-cap stocks compared to small-cap stocks. Apart from that, mid-cop stocks have also given some fabulous returns in the past.
•During January and February this year, we witnessed several fund houses holding cash. But, in the last month, they have started deploying the cash in the market. Also, despite, an upward rally in the markets, fund houses are not offering new equity schemes. When do you see new equity schemes flowing in the markets?
Markets have improved in the last one month. So, fund houses think that this is the right time to invest. Now onwards, there might not be much correction in the markets and we feel that, investing at this time might give good returns to investors.
We haven’t seen much inflow in equity schemes, compared to debt schemes. But, I think that we will start witnessing new equity schemes being launched by various fund houses in the coming days. We too are coming out with an equity combined with debt scheme very soon.
