 "I firmly refuse to do business which isn't profitable: Nandkumar Surti")
Nandkumar Surti, chief executive officer of JPMorgan AMC, talks to Chandan Kishore Kant about the markets and the economy. Edited excerpts:
Do you see more players exiting the MF business from India?
There will be some more pain points. The new net worth requirement (of at least Rs 50 crore) is going to create some discomfort. I still maintain the industry will see consolidation over the next two to three years. You will see a few names exiting the market.
At the right price? Yes. But going by the historical standard of seven-eight per cent valuation, I would not. I will be more comfortable at about four per cent. But, again, when you acquire, you tend to also lose a lot of assets. I would rather continue to have organic growth and be profitable and not go for inorganic growth and lose assets. I firmly refuse to do any business which is not profitable. Why would I pay from my pocket to do business?
Are you (in the sector) over-optimistic with the Modi-led government?
I would not say so. I think we are showing the right kind of optimism. You are optimistic when somebody does not have a track record. The current government in its previous regime has been pro-growth. The current government is focused. While they are talking about growth, they are going to concentrate on creation of jobs. Every sound byte we hear from this government is with the right amount of commitment and a certain amount of track record, either from the previous NDA government or from the state the Prime Minister comes. That gives you the confidence.
We are not saying to put a lot of money into equities but one cannot shun equities. The behaviour of domestic investors in keeping on exiting investments is something we are looking to change. We think it is not an asset class which one should be avoiding any more.
The past few years have seen inflows into equity MFs drying. Are you hopeful it will revive?
The overall assets under management (AUM) have grown over the past 18 months. It has been consolidating around Rs 7.5 lakh crore and recently moved to over Rs 9.5 lakh crore. But that has predominantly been towards the fixed income side. Equity assets’ percentage was close to 29 per cent of overall assets, which is now around 21 per cent. I think this number should start reversing. Whether it makes a comeback to the same 29 per cent or not remains to be seen. But we do expect that incremental flows will be in favour of equity assets.
When would retail investors knock the door?
The retail money should start coming from now, over the next one year or so. Though indices are at an all-time high, we are not unduly worried. Investors coming in at this time will still have positive experience over the next three to five years.
How is JPMorgan AMC placed to benefit from this fast-changing scenario?
We have invested substantially over the past two years in the way we essentially engage with advisors to send a better quality of advice to end-investors. We are also looking at expansion. At present, we have seven branches. We are in internal discussion to add two or three more locations over the next six to 12 months. And, then, add another two-three.
Investors who have been stuck with their investments in equities for the past four-five years are quick to redeem. How would they make money?
Though redemptions have picked up, so are the gross inflows into equities. Incrementally, we should start seeing better inflows from here on. Investors should respect the power of compounding. You stayed invested in the markets for four-five years and during that period, you saw returns of six to nine9 per cent, a relatively low return from equities, while the fixed income market gave nine to 10 per cent of returns. But the short span in which this market has run up has propelled the four-five year return to 14-15 per cent compounded annually.
I appreciate investors’ point of view that there were no returns in the past few years but then, the majority of that is covered in a very short period of time. That is how equity markets function. You need to go into the right kind of asset diversification. Move into schemes which meet your ultimate financial objectives. That’s how financial planning is to be done.
Will FIIs (foreign institutional investors) continue to flood Indian equities?
It will continue in a sustained manner. They already have pumped in so much money in the past five years; they are bound to continue. There will be periods when they will take some profits but I would not read too much into it.
Do you see more players exiting the MF business from India?
There will be some more pain points. The new net worth requirement (of at least Rs 50 crore) is going to create some discomfort. I still maintain the industry will see consolidation over the next two to three years. You will see a few names exiting the market.
More From This Section
Would you use the opportunity for acquisitions?
At the right price? Yes. But going by the historical standard of seven-eight per cent valuation, I would not. I will be more comfortable at about four per cent. But, again, when you acquire, you tend to also lose a lot of assets. I would rather continue to have organic growth and be profitable and not go for inorganic growth and lose assets. I firmly refuse to do any business which is not profitable. Why would I pay from my pocket to do business?
Are you (in the sector) over-optimistic with the Modi-led government?
I would not say so. I think we are showing the right kind of optimism. You are optimistic when somebody does not have a track record. The current government in its previous regime has been pro-growth. The current government is focused. While they are talking about growth, they are going to concentrate on creation of jobs. Every sound byte we hear from this government is with the right amount of commitment and a certain amount of track record, either from the previous NDA government or from the state the Prime Minister comes. That gives you the confidence.
We are not saying to put a lot of money into equities but one cannot shun equities. The behaviour of domestic investors in keeping on exiting investments is something we are looking to change. We think it is not an asset class which one should be avoiding any more.
The past few years have seen inflows into equity MFs drying. Are you hopeful it will revive?
The overall assets under management (AUM) have grown over the past 18 months. It has been consolidating around Rs 7.5 lakh crore and recently moved to over Rs 9.5 lakh crore. But that has predominantly been towards the fixed income side. Equity assets’ percentage was close to 29 per cent of overall assets, which is now around 21 per cent. I think this number should start reversing. Whether it makes a comeback to the same 29 per cent or not remains to be seen. But we do expect that incremental flows will be in favour of equity assets.
When would retail investors knock the door?
The retail money should start coming from now, over the next one year or so. Though indices are at an all-time high, we are not unduly worried. Investors coming in at this time will still have positive experience over the next three to five years.
How is JPMorgan AMC placed to benefit from this fast-changing scenario?
We have invested substantially over the past two years in the way we essentially engage with advisors to send a better quality of advice to end-investors. We are also looking at expansion. At present, we have seven branches. We are in internal discussion to add two or three more locations over the next six to 12 months. And, then, add another two-three.
Investors who have been stuck with their investments in equities for the past four-five years are quick to redeem. How would they make money?
Though redemptions have picked up, so are the gross inflows into equities. Incrementally, we should start seeing better inflows from here on. Investors should respect the power of compounding. You stayed invested in the markets for four-five years and during that period, you saw returns of six to nine9 per cent, a relatively low return from equities, while the fixed income market gave nine to 10 per cent of returns. But the short span in which this market has run up has propelled the four-five year return to 14-15 per cent compounded annually.
I appreciate investors’ point of view that there were no returns in the past few years but then, the majority of that is covered in a very short period of time. That is how equity markets function. You need to go into the right kind of asset diversification. Move into schemes which meet your ultimate financial objectives. That’s how financial planning is to be done.
Will FIIs (foreign institutional investors) continue to flood Indian equities?
It will continue in a sustained manner. They already have pumped in so much money in the past five years; they are bound to continue. There will be periods when they will take some profits but I would not read too much into it.