The inflow in equity mutual funds fell for two months in a row before bouncing back in September. In an interview with MintGenie, Akhil Chaturvedi, chief business officer of Motilal Oswal Asset Management Company, speaks about the apprehensions that prevailed among investors during the months of July and August.
He advises investors to evaluate a fund house based on the ‘pedigree’ instead of only the past performance. He also advises that investors should invest in a scheme that has already undergone a couple of years of rough patch.
He also shares his view on the worries over global recession, and also on the key reasons for investing in active schemes.
In the latest AMFI data, the inflow to equity funds rose significantly to ₹14,099 crore. What would you say about the reversal of previous trend where equity inflow witnessed a fall?
It would be not appropriate to see a trend in just two-month dip in inflows. The negative ‘opinions and apprehensions’ was overwhelming during July and Aug which impacted flows.
However, investors took note of Indian equity markets holding up relatively better compared to global equity markets and this led to flow picking up again in September. We have averaged about 15,000 crores of net inflow in 2022 on the back of Rs. 8,000 crore average last year. We should continue to between 10,000 to 12,000 crores on an average going forward.
Before investing in a mutual fund, what should investors evaluate besides the returns delivered in the previous years?
Pedigree of the asset management company is foremost more than past performance. Since the investment is for long term, investors need to first assure themselves about the integrity aspect, promoters’ skin in the name game i.e., how much they are invested in the schemes, overall investment philosophy and last but not the least fitment of the product proposition in their portfolio and investment objective.
When the historical returns of a mutual fund scheme are impressive and investors end up investing with a hope that the future returns will be equally good, and this may (or may not) happen. What would be your advice to the investors in such a scenario?
Personally, I would rather invest in a scheme which has already seen couple of years of rough patch and showing signs of turnaround. This way investors are assured that the next change in cycle would be in their favour.
However, schemes which are in traction and are performing well also have a tendency to build on the momentum until it doesn’t. Best strategy would be to combine allocation in both such schemes for optimum combination of participation in ongoing alpha as well as long term alpha potential.
There are talks of forthcoming recession while UK's economy shrank by 0.3 percent in August. What is your take on the global markets' future outlook?
The IMF has already revised down ward’s the world GDP forecast for 2023 by 0.20% to 2.70%. It cited war, inflation and higher interest rates for the same. Aside from 2020 Covid Year, as per the IMF, it is the weakest growth since 2001. Now, it depends upon how long and to what extent Fed and major central banks persist with their anti-inflationary rate hike drive.
The chances of global economy slipping into recessionary range will not be in doubt if the central banks continue to maintain hawkish stance on inflation with further rate hikes into next year. In terms of global markets, a lot has been priced in and markets are expected to react positively to any let up in negative news.
Should investors continue to invest in the index funds and other passive funds to make the most of price corrections, or is this the time to be more selective about investments?
Passive products are good for beta exposure and getting market returns. Actively managed funds are a must in the investor’s portfolio for alpha generation and long-term wealth creation. With increasing retail participation, breadth of Indian equity markets is increasing.
This is a ripe ground for alpha generation. Economy and markets are now more integrated globally and driven by macro trends which play a large role in return generation. Selectivity, hence, would be crucial for deft portfolio management for risk mitigation as well as tapping of to capitalise on opportunities.