Don't expect markets to correct sharply: Axis Mutual Fund's Chandresh Nigam

Bigger fund sizes are making fund houses more conscious of liquidity and capacity management, says the CEO

Domestic investors have become meaningful participants in the Indian equity market, said Chandresh Nigam, chief executive officer, Axis Mutual Fund. In an interview with Ashley Coutinho, he said generating alpha would be a bit more difficult unless investment processes gather pace. Edited excerpts:
 
The total size of the mutual fund (MF) industry is at Rs 22 trillion, with equity assets of over Rs 8 trillion. What changes do you foresee as the industry grows in size?
 
The large size will fundamentally alter many things. To highlight a few, domestic investors are now meaningful compared to foreign investors in the equity market and company managements have started recognising that. Same is the trend in the debt market where companies have become aware of MFs as a significant segment that needs to be tapped. This is improving the ability of investment teams in the industry to research and invest across a broader universe. On the other hand, bigger fund sizes are making fund houses more conscious of liquidity and capacity management. Generating alpha will be a bit more difficult unless investment processes are robust.

 

Market regulator Sebi has introduced norms for categorisation of schemes. Is it a step in the right direction?
 
If you think from an investor’s perspective, the number of schemes that exist can seem genuinely intimidating and most of these may not really be relevant for long-term retail investors. Consolidation is definitely a step in the right direction. It will make it easier for investors to understand the objectives of any scheme and to compare it with its appropriate peer group. Asset management companies (AMCs) will have to get more disciplined in the way they manage funds as they can no longer rely on multiple funds in a single segment to take them through different market conditions.

 
Axis MF has assets of about Rs 700 billion. The largest fund house has more than twice the assets you have. How do you plan to grow in the coming year?
 
Today, we have everything in place to be able to challenge the biggest players — whether it is a full and sharply defined product basket, strong performance across our funds, as well as the brand and reach across the breadth of the country. Our key objective this year is to make sure that we start getting our rightful market share in terms of incremental gross sales. If we can do that, over time we can match the big players in terms of assets size as well. We will do everything that it takes to achieve this aspiration and we are investing significantly to improve our distribution franchise. Product innovation will continue to be a cornerstone of our growth as well. We have entered the portfolio management service space as well as alternative investment funds over the last year. We are looking to enter the real estate space in the coming quarter.

 
What is your outlook for the market for the year ahead?
 
Equity markets have begun 2018 with a higher level of volatility than in 2017. It is not a surprise given the gains in 2017. We remain positive with a longer horizon and don’t expect the market to correct too sharply given the earnings trajectory. Bond markets have been hit hard in the last 12 months in terms of the government security sell-off. I think the market may have overshot a bit, although we believe that it makes more sense from a risk-return perspective to allocate money to medium-term corporate bonds rather than gilts at this stage.

 
What is your view on mid- and small-caps as investment bets?
 
We have been cautious on mid- and small-caps over the last 12-18 months. While we have seen some small correction, the reality is that we hope to get some more before we become really excited. Having said that, improving economic and earnings outlook is generally a positive backdrop for mid-cap stocks.
 
What are your expectations from the upcoming earnings season?
 
The economy seems be turning around in the last four-five months. Earnings have started to reflect that. We expect the trend to get further solidified in the coming 12 months.

 
Which sectors are you betting on?
 
Structurally, India is a bottom-up market. Which means more than getting the sector call right, as an investor you need to get your stock selection right. We remain quite positive in general on retail-oriented financials (both banks and non-banking financial companies), auto and consumers as the core of our portfolio. One big theme in the coming year will be the turnaround in the rural economy and consumption. Revival in income growth and the government’s rural initiatives will play out as the elections near. On public sector banks, rather than looking for valuation, we are looking for some significant overhaul and strengthening of internal processes.