We have grown fastest in the industry since Nov 2017
CEO, Reliance Nippon Life AMC
Hugely successful industry first AMC IPO, fastest growth in industry since Nov 2017, good fund performance, recognition as a Great Place to Work – its been quite a fulfilling year for Sundeep and Team Reliance. On the current worries around market volatility, Sundeep shares a very interesting statistic: Sensex had witnessed 31 instances of corrections which have been more than 10% in the last 10 years. That is an average of three 10%+ corrections every year. And yet, wealth creation has been handsome over time. Keep the faith, this too shall pass, is the simple message he asks distributors to convey to new investors who have come in recently.
WF: The optimism witnessed at the beginning of this calendar year is now giving way to caution as we get into the new fiscal year, with many concerns being expressed on global trade wars, on deteriorating Indian macros and on uncertainties over Indian elections. What is your outlook on equity and debt markets over the next 12-18 months?
Sundeep: The calendar year of 2017 had been exceptional for equities- almost 30% returns, mostly secular through the year, with very little volatility. The optimism continued into January of this year as well, before changing course. As you pointed out, a multitude of concerns – both global and domestic – have been weighing on the markets.
In our view, markets had been optimistic of earnings recovery, after 8-10 years of subdued earnings growth where the average earnings growth was only about 4%, much lower than nominal GDP growth. This optimism resulted in PE expansion. Going forward, we are likely to witness fairly good earnings growth. There are a couple of reasons why we believe this to happen.. First, a part of the short-term impact of demonetization and GST is behind us. Second, global growth has picked up and earnings of most Nifty companies are linked to world growth rather than that of India. For Nifty companies, 40-50% of their earnings come from outside India in sectors such as energy, metals, IT and pharma. Therfore, a synchronized global growth should help. Third, in India we will have political spending in the run up to the elections. Elections act as stimulus for the economy and we see improvement in demand of cement, steel, electricity, etc. And last, we have had sector-specific issues in sectors like pharma, telecom, etc., which may report quantum increase in earnings. So overall, earnings growth can be in a higher double digit range. Even if PE contracts a bit, reverting to long term averages, a low double-digit return should be possible in equities over 12-18 months.
As far as fixed income markets are concerned, it’s been a year of two halves. From extreme optimism which prevailed till mid-year, the markets had swung to the other extreme in the second half. Our Fixed Income Team had been emphasizing on the co-relation between the uptick in the yield movement and adverse demand-supply situation. Thankfully, this was addressed with the Government announcing the borrowing calendar, where they have kept a moderated first half. Apart from fundamentally improving the demand supply, it has also sent a strong message that the Government is confident of meeting its fiscal deficit targets. Along with these developments, the dovish tone in the Monetary Policy and revision of inflation outlook downward, amongst other factors, make us believe that we are in a for a prolonged pause in interest rates with possible rate action in H2 FY 2019. Carry will be the biggest driver for returns in the current interest rate regime.
WF: A key industry concern now is the nervousness among lakhs of new equity fund investors who are perhaps witnessing their first significant market correction, and the first occasion when their 1 year SIP returns are turning negative. What message would you want distributors to give to these investors at this juncture?
Sundeep: Our team has analysed some back-tested results for a new product proposition. Surprisingly, equity markets had been more volatile than we had imagined. One of the interesting data points is that Sensex had witnessed 31 instances of corrections which have been more than 10% in the last 10 years. That is an average of three 10%+ corrections every year.
So, the message is simple. Equity as an asset class has given superior returns in the past. It has also delivered 16% compounded returns, since its inception. However, volatility is inherent in equity investing. Investors should accept the same, stay put during such times, and possibly invest incrementally in order to make the most of equities.
WF: How has fiscal 2017-18 been for Reliance Nippon Life MF? What have been the big hits and misses of the year?
Sundeep: It has been a fantastic year for us. We successfully completed our IPO, becoming the first Asset Management Company to get listed. The IPO was oversubscribed within minutes, and was eventually subscribed 81 times. I would like to take this opportunity to once again thank all our partners for associating with us, and playing a critical role in our journey.
There have been several other key developments in the year, as well. We have expanded our presence by adding 110 new locations spread across the country, primarily in the B30 locations. This is a significant step taken towards enhancing our strength in the Real Bharat. Our retail share, post demonetization has already seen an upswing. It is a significant achievement to have grown the fastest in the industry since November’17. Our focus towards developing ETFs has resulted in a 17% market share in the category. We have the highest number of folios in the industry.
Our international presence has also gained strength. The partnership with Nippon Life is helping us leverage their expertise in the international markets. We have been expanding our International Distribution footprint, and also sizing up our product suite. Last year, we had launched 4 AIFs, including 3 equity AIFs.
We have had Manish Gunwani joining us as CIO – Equity. Most of our fund performance had been good through the year. We increased our market share in key product categories – large cap, balanced and credit opportunities, to name a few. We had significant traction in SIP sales.
Overall, a good year.
The icing on the cake is that we have been recognized among ‘India’s Top 15 Best Workplaces in BFSI-2018’ by Great Place to Work.
WF: What are your plans as you step into the new fiscal? What more and new can we expect from your fund house?
Sundeep: With the scheme categorization in place, we have an opportunity to launch a few new products. You will hear from us on the same, very soon. A dynamic asset allocation product is on the cards. We are also preparing ourselves to launch commodity products, once necessary Regulatory approvals are in place.
The focus for this year will also be to continue working towards SIP and STP as a proposition. ETFs will continue to be amongst our strategic offerings.
On the digital side, we are gearing up to launch a host of digital solutions, which will help our partners reach far and wide, most effectively, and facilitate investments in a matter of few clicks. Looking forward to an exciting year.
WF: What are the big industry initiatives and market developments that you see gaining traction in the new fiscal and how should distributors leverage them to build stronger businesses and serve investors better?
Sundeep: Awareness about Mutual Funds has increased several-fold in the recent times. Thanks to the AMFI’s Mutual Funds ‘sahi hai’ campaign, and several other micro initiatives, Mutual Fund has become a household phenomenon. On boarding of Mutual Funds also has been made very easy now, with the introduction of e-KYC. Awareness, acceptability and reach – everything is in place now. The question is how well do we leverage the same.
The answer lies in using Technology. Distribution is the core to our business and so, Reliance Mutual Fund aims to empower Independent Financial Advisors(IFAs) to leverage technology. We are seeing a spurt in digital transactions already. Today, nearly 1/4th of all our transactions come through the digital mode i.e., our website, mobile application, transaction through SMS, etc. And we see, this trend growing much larger in the days to come. Distributors should transition from only, or largely, physical mode of reaching out / servicing their investors to ‘phygital’ or digital modes.
WF: With SEBI signalling a clear intention to segregate advice and distribution, how do you see intermediation models developing in the HNI and retail segments going forward?
Sundeep: The mutual fund industry is at the cusp of its growth; distributors and advisors have been actively contributing to the success. However, there is an immense scope for the penetration to increase. The current penetration of Indian Mutual fund industry is around 5%. As the industry grows and the investors move towards financial maturity, there will have to be a strategy to address the needs of diverse segments of investors differently. One size fits all approach may not work going forward and this will require the coexistence of advice and distribution.
The digital platforms will also play a critical role by enhancing the scale of reach of the industry. Technology is paving its way into the lives of the Indian consumers and mutual funds will have to ride the wave of digitization.
Also, I believe that we need to de-mystify the Mutual fund industry for the retail investor. Solution based approach will be the best way to introduce simplicity and convenience in the current process.
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