There is an array of opportunities in the sectors of banking, insurance, auto, healthcare while they have done well in the past too, believes Anil Ghelani, head, passive funds of DSP Mutual Fund.
During an email interview with MintGenie, Mr Ghelani also expressed his opinion on the growing penetration of passive funds in India. ETFs and Index Funds which comprise 13 percent of size, will see the proportion increase to 25 percent by 2025. He also emphasises on the importance of trust and comfort that investors need to build with a mutual fund house before a brand can be built as he plays down the possibility of any significant impact of new fund houses in the sector.
About the state of financial markets in India, Ghelani asserts that India has the strongest macro fundamentals when compared with other emerging market peers. While highlighting the importance of index funds, he says that small investors should invest in them since they are easy to understand and bear lower cost.
Which are the sectors for which you are optimistic about in the near-and-medium term future?
Since the past few months, the key focus has been to look at good medium to long term opportunities in businesses which are dependent on local demand and consumption, rather than those which are linked to global growth. There have been great opportunities in banking, insurance, automobiles and healthcare. These sectors have done well, and in my view, in the near term should continue a strong performance. Additionally, I would like to discuss two big themes which are likely to unfold ahead.
The first theme is of input price compression, with declining prices of commodities and energy. This would benefit sectors like capital goods, especially companies involved in manufacturing of cement and tiles. The second theme is a wage spiral resulting in increasing disposable incomes. This would have a positive impact on spending power during the upcoming festive season and would benefit discretionary consumption especially consumer durables.
Why, according to you, a number of passive fund schemes have been rolled out by a number of AMCs instead of their active counterparts in the recent past?
In line with global trends, even in India we have seen a good growth in passive funds. From the total Mutual Fund industry of about Rs. 39 lakh crore, ETFs and Index Funds are now about Rs. 5 lakh crore or 13% of size. However, this is still a very low penetration. In my view, together with growth in the overall industry, we will see this proportion increase to 25% by 2025.
Observing these changing trends and potential growth, almost all AMCs now want to be a part of this growing segment. However, till a few years ago, only a few AMCs had got a focus on passive funds. On the other hand, most of the AMCs already had the entire range of all active funds possible. So now, as we see more number of players entering, the number of new passive funds being launched is much larger. There is also a much bigger scope of innovation and product differentiation across themes, sectors and factors. Hence in my view, we will continue to see this trend of new launches in passive funds in the near future.
Lately, several PMS providers and wealth management companies have entered the mutual fund space -- with the latest one being Helios Capital. Do you think this will have an adverse, or positive, impact on the established players such as DSP?
This is very different from many other industries since investors need to have trust and comfort on the brand with whom they will be investing as it would be a very long term association. The DSP Group is a 160-year-old Indian financial giant and the family behind DSP has been very influential in the growth and professionalization of capital markets and the money management business in India.
In my view, there would not be any material adverse impact to established players such as DSP and more entrants should rather be seen as the sign of a booming industry which is significantly under penetrated and has a scope for multi decade growth.
You are CFA Charter Holder and were the Vice Chairman of CFA Society India. Can you tell us about the significance of fund managers holding CFA Charter? There are several, on the other hand, who are management graduates holding MBAs. Do you think being a CFA Charter holder gives the much-needed rigour to become a successful fund manager?
In my view the CFA Program is the Gold Standard in investment management and research analysis. During 2003 when I moved to investment management industry, I felt the need for enhanced knowledge enhancement of investments and the CFA Program provided me advanced investment analysis and real-world portfolio management skills. I have great regard for all educational programs including MBA as they teach its core subject matter very well, but one notable difference in the CFA Program is the focus on Ethics as a very important subject across all 3 levels.
Even after getting the CFA Charter, we have an ongoing requirement and annual declaration of following the Code of Ethics laid down by the CFA Institute. So when I evaluating two candidates to join my team, all else being equal, if one has the CFA Charter, it gives me a sense that candidate could bring deeper knowledge built on a stronger foundation of ethics.
Amid the Ukraine war, spike in inflation and the worries over recession in the Western world, Indian markets seem uncertain. What is your reading of the macro-economic factors and their immediate impact on the financial markets?
India is appearing to be a steady ship in choppy waters. We are seeing India showing domestic resilience amidst external headwinds. When we compare with Emerging Market peers, India has the strongest macro fundamentals - increasing growth, lower currency volatility and falling inflation.
The only worry is from high trade and consequent current account deficit. However, with commodity and energy prices easing, some of the external pressure is likely to come off as well. Hence it appears that for now, we are navigating the external challenges well but such risks can not be completely ruled out.
What advice would you give to retail investors? Should they continue with their SIPs or should they wait until the markets become more stable moving forward?
I always start with reminding investors that the most important financial goals for us are usually common – for most of us they are aligned to the happiness of our family, better life for children, starting or expanding a business/profession.
Some of us often get preoccupied with the wrong priorities - like increasing returns at all costs or trying to time the market. Hence my suggestion to retail investors during volatile markets is always to think of “corrections as a celebration” and continue their SIPs. During a correction, the same amount of SIP investment, gives you more number of units. Instead of stopping SIPs or waiting for a stable time to start, we should be consistent with our SIPs even during volatility.
What category of mutual funds would you recommend to the small investors?
If you are a small investor, busy with your job or business with very little time and interest to spend on tracking markets, then I would recommend to keep it simple and invest in easy to understand, and low cost, Index Funds. Investors can have a good mix of equity as well as debt index funds and make a well-balanced portfolio aligned to their goals.