The stock market is scaling new heights at regular intervals. Even seasoned investors are a bit nervous about it. How do you view the situation?
The Indian stock market is reflecting the overall buoyancy in the Indian economy and the corporate scorecard. This has also been getting sufficient backing from overseas investors and policy makers. Optimism is being witnessed across sectors like banking, consumer and automobiles along with general investments in various infrastructure projects. My overall view on the market is positive, given this vibrancy. At the same time, the market could go through a period of consolidation rather than a correction. Therefore, one must look at the market linking it to the various moving parts of the economy. A continuously gaining market poses some challenges to mutual fund investors who worry about the valuations and the efficacy of their SIP investments. What would you like to tell them?
Valuations become a factor to look at when the market moves higher. However, if one looks at the Indian market not on a year-to-year basis but on a more longer-term basis, then we have seen the market scale new peaks after ups and downs. Similarly, corporate performance also keeps pace with the change in economic growth. Therefore, SIPs should also be built like that. SIP should never be built based on market fluctuations. SIP is a tool that has been created agnostic with market fluctuations and helps investors to make investment at regular intervals and focus on building a longer-term portfolio. Therefore, longer-term investors should not pay too much attention to valuations and other related factors for which we’ll never have an answer. They should just stick to SIP investing for the long term.
Many investors are still betting heavily on the mid-cap and small cap schemes. However, mutual fund advisors have been cautioning them. They say valuations have peaked in these segments. What is your assessment?
As mentioned earlier, the valuation question will always remain, be it a small, mid or large cap. It is important to keep looking at each segment of the market on a relative valuation basis. Sometimes large caps become overvalued, while small- and mid-caps are undervalued, and vice versa could also happen. Ultimately if one constructs the portfolio, you’ll have exposure to the large cap names, you’ll have exposure to flexi cap, you’ll have exposure to small and mid-cap. Therefore, these investments into small and mid-cap should be considered part of the overall allocation that investors must follow.
At the same time, if you start chasing the return, if you suddenly think a certain segment of the market is doing very well, such as small- and mid-cap, you will always end up putting a large pool of your money in that segment. Chasing always comes with the higher commitment that you want to give for the segment. As long as one doesn’t apply that principle and focus only on the asset allocation model. And then one should not think about a small mid cap, whether it is overvalued or undervalued. With the cycle, markets always go through on catching up our performance vis-a-vis one another, every time you’ll see this scenario. But if we can give a time of period of 10-year cycle or 15-year cycle, then mid and small cap companies generally tend to perform better than the market and that’s what should be kept in mind. At the same time, asset location should be kept in mind to even take exposure to all the three segments of the market, or maybe multiple market cap using the asset allocation model.
Debt mutual fund investors have been waiting for RBI to start cutting interest rates. However, after the recent CPI numbers, it seems that they will have to wait for longer. Do you think that the rates will start coming down soon or will it only happen next year?
The RBI in its latest monetary policy meeting stated rates would remain where they are, and we also believe they will remain “higher for longer”. That is until such time, we see inflation numbers settling down at lower levels both in India as well as the global market. There will not be any situation where RBI will be able to cut the rates in a hurry, given the fact that inflation worry remains, growth worry remains from the global market point of view, and these two being at the forefront of taking decisions for monetary policy, we would probably see rates remaining where they are today. From RBI point of view, they’ll keep looking at these moving parts and then make appropriate decisions, which in our view could probably be in the year 2024 and not in 2023 to get a sense of the direction.
The largest equity fund of your fund house has been underperforming its benchmark for the last few years. It posted better returns than the benchmark only in 2021. What is happening and what have you done to correct the trend? Incidentally, the scheme will also complete 21 years this month.
Aditya Birla Sun Life Frontline Equity Fund is one of the flagship funds of Aditya Birla Sun Life Mutual Fund. I am happy to say not only has the fund completed 21 years of consistent performance but also created one of the best investor experiences in the large cap space. A fund’s performance vs the index is a function of the exposure to sectors and stocks. Sometimes fund managers also go through the constraints of not being able to own beyond 10% as is stipulated by the regulator. ABSL Frontline Equity Fund has delivered sufficiently better returns to investors over the last 1-, 3-, 5- and 10-year period. An investor should not be swayed by the period of underperformance as every fund manager goes through a period of cyclicality. Instead, it is more important to see how well the fund manager can realise the change in trend and take the necessary action to bring back the performance on track.
Several prominent fund houses like yours seem to be struggling to regain their form after Covid crisis. At least that is the perception many investors and intermediaries have. What is your take on this?
Aditya Birla Sun Life Mutual Fund as a fund house had a great period between 2014 and 2020 with the growth being better than the industry (equity/debt/SIP). Along with other large fund houses, we too have seen a period of consolidation post covid. However, given the long years of experience and deep commitment towards building the business adds to our strength. As a fund house, we are committed towards being one of the largest asset managers in the country and as thought leaders always work in the best interest of investors and distributors. A challenging period always provides valuable learning insights to an organisation to do the necessary course correction.
Many fund houses are launching passive both index and ETF funds lately, however, ABSL seems to be treading very carefully. ABSL mutual fund has launched only a handful of them, a liquid ETF and a few target maturity plans. So, what is your strategy on this?
Aditya Birla Sun Life Mutual Fund has a full bouquet of passive offerings ranging from index funds to fund of funds to exchange traded funds. I am happy to share that our ETF assets under management have grown multifold to over Rs 6,000 crore from Rs 1,500 crore during the last one year. The key contributor being ABSL Nifty Bank ETF, the AUM for which has exceeded Rs 3,000 crore. In the last one year, we have launched the ABSL Nifty 200 Momentum 30 ETF, ABSL Nifty 200 Quality 30 ETF and ABSL Crisil Liquid Overnight ETF.
In fact, we also added more than five lakh investors in the ETF basket by keeping our presence alive in the online platform. The focus going forward would be on building the size of existing funds rather than continuing to launch new funds.
Do you think the passive strategy is to make major inroads into the market? What is your approach to this theory?
We strongly believe in the coexistence of both active and passive funds. We do not believe one will be superior to the other. Active funds will tend to perform better during certain times while passive funds will perform better during a certain period. Therefore, passives should be looked upon as an additional investment avenue instead of comparing it with active funds. The construction of a portfolio should ideally be a mix of both – active and passive funds. ABSL MF is committed to providing a holistic solution to investors taking into account various investment options available to investors.
Mutual fund investors are increasingly betting on sector or thematic funds. For example, many investors were betting on IT funds. What is your assessment of the trend and what is your advice to such investors?
We as a fund house have got a large pool of thematic funds. ABSL MF has proactively launched various thematic funds such as Aditya Birla Sun Life India GenNext Fund (launched in 2005), Aditya Birla Sun Life Manufacturing Equity Fund (launched in 2015), Aditya Birla Sun Life Digital India Fund (launched in 2000), Aditya Birla Sun Life Infrastructure Fund (launched in 2006), Aditya Birla Sun Life PSU Equity Fund (launched in 2019), etc. catering to various segments of the market.
I expect the concept of thematic investing to continue going forward as well. In fact, bundling these products can give an equally good sense of representation of the overall buoyancy in the markets. From an investor standpoint, my advice would be to look at it as a basket instead of a single product over and above the actively managed large, flexi, small and midcap space. Before investing, one should keep in mind that thematic funds will always go through cyclicality. As long as the theme stays relevant across all periods of time except the volatility associated with it, I believe there will be a case for thematic investing.
