JM Financial Asset Management Private Limited, the Asset Management Company of JM Financial Mutual Fund is sponsored by JM Financial Limited. JM Financial Asset Management started operations in December 1994 with a launch of three funds-JM Liquid Fund (now JM Income Fund), JM Equity Fund and JM Balanced Fund. JM Financial Mutual Fund offers a bouquet of funds that caters to the diverse needs of both its institutional and individual investors. Recently, JM Financial Asset Management Pvt. Ltd. divested 8% stake to two global Institutional Investors, i.e 4% to Valiant Mauritius Partners FDI Limited and 4% to Blue Ridge Affiliates (namely BRLP Mauritius Holdings II and BROMLP Mauritius Holdings II respectively) thereby infusing Rs 638.6mn. Prior to this, the AMC’s paid up equity capital was Rs 540mn. These prominent hedge funds understand the asset management business globally and have brought with them a significant value-addition from a global markets' perspective.
Mr. Bhanu Katoch, Chief Executive Officer, JM Financial Mutual Fund, is a B.Com, PGDM (Marketing & Sales), MBA, and has around 12 years of experience in the Telecom & Financial Services industries. He started his career with BPL US West Cellular Ltd. Subsequently, he has worked with various organisations in the financial sector like Pioneer ITI AMC, Alliance Capital AMC, Tata AIG Life Insurance Company, ABN AMRO AMC and Lotus India AMC.Speaking with Yash Ved of India Infoline, Bhanu Katoch says, "Year 2011 to 2016 will be the golden era for the Indian economy and the stock markets."
What is your reaction to the budget?
The finance minister presented an expansionary budget with a clear focus on growth revival. The revised fiscal deficit for FY 2009-10 (6.8% as compared to RE of 6.00% in FY 2008-09) came as a shock to the market. The higher fiscal deficit spooked both the bond and the currency markets. In a knee jerk reaction yields on government bonds rose across the curve. Market has overacted to the relatively higher gross borrowing programme. I think a lot was expected out of the budget. My expectation was more on the direction side rather than any specific roadmap. Although budget was low key and there would be worries on the fiscal front, what comes across as comforting is that the revenue estimates presented in the budget are quite conservative.
What is your reaction to SEBI’s move to do away with entry load? What are you hearing from your distributors?
What is your reaction to SEBI’s move to do away with entry load? What are you hearing from your distributors?
Industry will adjust to whatever changes are made. In the short term though, there will be some difficulty. This business will become more capital intensive. In the long term, distributors will grow based on the quality of their advice.
What is your AUM?
Our Assets Under Management is Rs80bn. Out of this, Rs25bn is in equity.
Where do you see inflation and interest rates going ahead?
Three factors to keep in mind which will influence inflation forecasts :
a) Monsoons, which were earlier weak but in the past week has improved significantly. Overall, rainfall is still at 36% below normal;
b) Government borrowing programme of Rs4 trn and
c) Global commodity prices including oil (we have seen a price fuel hike of 10% few weeks back). We believe Headline inflation is expected to remain in the negative territory for a few more months and then should move up from there to reach a level of around 6% at the end of March 2010
Interest rates will also be influenced largely by the governments borrowing program and the credit pick-up in the economy in the second half. We expect interest rates to remain benign for the next 3-6 months. The government borrowing program will result in yields moving up further from here to around 7.5%. However, excess liquidity in the system and the credit growth pressures will prevent headline interest rates in the economy from moving up in the short term atleast. We expect interest rates to remain steady in this fiscal.
Interest rates will also be influenced largely by the governments borrowing program and the credit pick-up in the economy in the second half. We expect interest rates to remain benign for the next 3-6 months. The government borrowing program will result in yields moving up further from here to around 7.5%. However, excess liquidity in the system and the credit growth pressures will prevent headline interest rates in the economy from moving up in the short term atleast. We expect interest rates to remain steady in this fiscal.
What is your view on the stock market?
Indian economy has shown strong resilience amidst the global turbulence and is likely to show a robust growth of 6.5 to 7.0%. As a result, India and few of the other Asian economies are likely to be the destinations of choice for growth investors across the globe. Risk aversion has reduced and liquidity is now quite robust. India as a growth economy is likely to attract significant capital over the next 2 years through the FDI/FII route. After a massive rally in the previous quarter, the market which was looking for a reason to correct got the same in the form of a low key budget. Although there would be worries on the fiscal front, what comes across as comforting is that the revenue estimates presented in the budget are quite conservative. Deficient monsoon would be an important worry particularly for companies that are dependent on domestic consumer demand. However, in the context of the GDP growth itself, the maximum worst case impact is estimated to be about 1 percent. One can look at this correction as a technical correction in a structural bull market. It is expected that Sensex EPS is likely to grow to Rs 900 in FY10 and Rs 1050 in FY11 v/s Rs 830 in FY09. As this year progresses, we will continue to see systematic upgrades in EPS estimates as the outlook improves. Thus it is anticipated that Sensex may touch a level of 16800 in the next 6 to 9 months period at which the markets would trade at around 16 PE which has been the historic mean for the Indian stock markets.
What is your view on the rupee?
Post the budget the rupee had seen negative sentiment as there was a disappointment over the lack of anticipated measures that would have boosted FDI inflows, including the raising of FDI limits and divestment of state-owned financial institutions. The FDI flows are a key component of the balance of payments and have played an important role in offsetting portfolio outflows, as well as funding the current account deficit, which is now re-widening on rising commodity prices. Besides this, the higher fiscal deficit implies increased pricing of sovereign risk in the medium-term, while the larger than expected fiscal funding requirement implies greater risk to be priced in the short-term. Thus, we expect rupee to weaken gradually and move in the range of 48-51 in the current fiscal. Over the long term however Rupee will only strengthen against the dollar.
Which are the sectors you are bullish?
We are bullish on Infrastructure, Financial Services and commodity sectors. We think infrastructure will be one of the key beneficiaries of government's thrust on this sector and expect investments to accelerate in this sector. This will benefit a large no of companies associated with this sector - either directly or indirectly. In fact we believe infra is a long term sustainable story in Indian context. Technology can also do very well with signs of US recovery.
What is your view on the commodity markets?
Commodity markets will be driven primarily by expectations of a revival in demand from US and Europe and a continuation of growth in Asia including China and India. The current rally seen in past three months in some base metals like copper and oil was primarily driven by these expectations. However, the base demand continues to be low in US and Europe as economic recovery remains elusive. The only drivers for commodity demand has been Asia where China and India's growth rates have kept the outlook slightly positive. We believe that commodity prices could remain range bound for a quarter or so before showing an uptrend on the back of better economic growth forecast. Commodity markets will also be positively influenced to some extent by the excess liquidity that has got created in the world due to the large stimulus packages announced by various countries. The combination of revival in demand and liquidity should keep commodity prices higher over the next 12-18 months.
What is your view on the bond market?
The estimated gross market borrowing for the financial year 2009-10 is pegged at Rs4.51 trillion as against the market expectations of Rs4.00-4.10 trillion. The revised fiscal deficit for FY10 came as a shock to the markets. Higher fiscal deficit clearly spooked the bond and currency markets.
RBI has been actively and efficiently managing the borrowing programme since the start of the financial year and will continue to do so. Although both RBI and Finance Ministry have clearly ruled out the option of private placement of government bonds. Therefore we believe that RBI will continue to support the yields by buying back securities in the open market and simultaneously intervening in the secondary market.
We expect RBI to respond and ease rates by another 25 basis points in the impending policy to support the Governments objective of growth and support the large borrowing programme. Although this may the last round of monetary easing Abundant liquidity (Avg LAF reverse repo amount 1.25 trillion), lower inflation and overall macro economic environment will continue to support the yields. There are no immediate concern on sovereign ratings downgrade, as the proposed budget deficit of 6.8% of the gross domestic product is within the international rating agency expectations and already accounted for in the present rating of India (source: post budget statement by International rating agency S &P).
RBI has been actively and efficiently managing the borrowing programme since the start of the financial year and will continue to do so. Although both RBI and Finance Ministry have clearly ruled out the option of private placement of government bonds. Therefore we believe that RBI will continue to support the yields by buying back securities in the open market and simultaneously intervening in the secondary market.
We expect RBI to respond and ease rates by another 25 basis points in the impending policy to support the Governments objective of growth and support the large borrowing programme. Although this may the last round of monetary easing Abundant liquidity (Avg LAF reverse repo amount 1.25 trillion), lower inflation and overall macro economic environment will continue to support the yields. There are no immediate concern on sovereign ratings downgrade, as the proposed budget deficit of 6.8% of the gross domestic product is within the international rating agency expectations and already accounted for in the present rating of India (source: post budget statement by International rating agency S &P).
What is your advice to retail investors?
The two big emotions that play hard on Investment decisions are fear and greed. An extreme of either proves to be equally devastating. The fear of losing your money triggers panic selling at one hand, whereas the fear of missing out induces mindless buying on the other. Hence, it becomes important for Individuals to have a balanced and more informed approach in the long term, an approach that is free of emotions.
