Indian markets have priced in uncertainty, valuations now more realistic: A Balasubramanian

"The new world initially was looking extremely uncertain, but I cannot say that uncertainty is still not there. Uncertainty is there, but the impact probably could be a bit might diluted. And second from India point of view, probably it is a great opportunity from India point of view," says A Balasubramanian, MD & CEO, ABSL AMC.

So, Santa Claus is known for giving. In stock markets you are known for giving tips. So, now that I have called you Santa Claus, give our viewers some money making ideas apart from SIPs and selling your mutual funds.
A Balasubramanian: The way I see is things will settle down. People have understood what kind of impact would come. And everyone has to revisit their business model. And at least US has opened up the whole thinking process across the world and now having understood, government now coming to the negotiation table.

And US also have now understood the way they have been doing a relaxation in the last two, three days, like making exemption for semiconductors and electronic goods and so on so forth.

These are something about realisation, that now they are getting to understand some more deeply in terms of where they have to dilute, where they have to continue, and how the economy has to be adjusted into the new model and so on so forth.

So, the new world initially was looking extremely uncertain, but I cannot say that uncertainty is still not there. Uncertainty is there, but the impact probably could be a bit might diluted. And second from India point of view, probably it is a great opportunity from India point of view.

The way the government has been handling quietly without making much noise and looking at more deeply in terms of how Indian model can get adjusted especially from the point of view.

My belief is it might turn out to be a big beneficiary, rather India could become a big beneficiary of the whole stuff that is my overall gut feeling since you mentioned about Santa Claus I thought let me give more or less spiritual and philosophical answer to start with.

But how much of the pain is behind us and already in the price because for India there was already a churn before all this tariff talk came about and we have already had quite a bit of fall from those October lows up until Feb.
A Balasubramanian: From India point of view one good thing that has happened, whatever the excess got created which is created by our own participations in the market by individuals, retails excess speculation has happened and price were going beyond their intrinsic valuations that one would apply for those companies that got corrected before and thanks to the regulatory changes that happened.

So, we started falling about a year back therefore, during the tariff time I would probably assume most of those uncertainties were there except tariff related issues where the global uncertainty sets in. But the way if you look at the valuations, we used to trade about 20 to 23 times PE multiples and that has now dropped about 19 times PE multiples, may be 18.5-19 times PE multiples and then earnings are also coming down.

Even from analyst expectation point of view, those earnings coming down has also already been predicted. It is not that people are still bullish on earnings and then expecting companies to outperform the analyst expectation that is also not there. On the contrary most of the downgrades happen from analyst point of view. In all probability the company either will start meeting the analyst expectations or marginally outperform the analyst expectation that might also begin.

Therefore, my own belief is it is already there in the price and the last two-three months even government expenses, expenditure especially towards infrastructure building already started seeing somewhat of gaining momentum and GST tax collection continues to remain somewhat robust.

If you look at it from multiple angles, it must be there in the price I would say and on top of it Reserve Bank of India kind of moving towards the easing of monetary policy and despite knowing the fact the international volatility, in the historic standard if you take whenever currency become volatile global market, Indian central banker generally do not touch the interest rates and this is the first time they are touching the interest rates knowing very well international uncertainties remains.

But as far as we are concerned, we have to focus on our growth and inclusive growth that India has been talking about that is something the Reserve Bank of India is also supporting them by way of cutting interest rates, taking steps towards improving the liquidity.

In fact, first time ever in the monetary policy regime since the time the new governor took charge, he has released close to about 5 lakh crore in the banking system which are actually historical liquidity has been pumped in which has never happened in the past, which essentially means understanding the relative impact that it could have, therefore proactive measures which has to come from regulator is something is being seen.

And we are already seeing the impact of that by way of transmission of rates at this point of time more on deposit rates coming down eventually lead to a transmission of interest rates even for the borrowers as well. So, all these things my view is good moving parts which ultimately start delivering the right impact as we move forward.

So, let us talk about SIPs because how you guys promote is sabse important plan. So, help us understand that in such market turmoil how are SIP investors have proved to be winners and what should be the strategy now since we see that the inflows are seen to be hitting new lows, there are some of the SIPs that people are just stopping at this point in time, but what has been your reading and what will be your advice.
A Balasubramanian: So, the reason we put the tag word of sabse important plan it is to just reinforce that how important SIP in the life of people, life of savers, and it is market agnostic, it is return agnostic, it is more goal driven, purpose driven, therefore SIP is something should be part of the everyone's portfolio at all point of times and you should not never timing your SIP investment that is message that we are giving.

But having said that the last few quarters we have been seeing a rise in SIP book, has been quite continuously it has been rising and we have touched the peak of about 26,000 crores.

We must also appreciate the fact that lot of new investors have been coming into the SIP way of investing in mutual fund and that something has become real, but having said that in the last one year whoever has come, they probably would not have enough experience therefore, generally we have always seen the trend historically whenever the market turns volatile and people have come on the basis of certain assumptions that I will make money on a continuous basis and those if those expectations are being met, then naturally you will see the outflows happens, but that is not something significant.

As a proportion of the inflows versus outflows if we take, the large component of the SIP registration still comes on the gross number level.

Whatever we will see the cancellation which is probably I call it about 30-40% generally can get cancel, we have equal number of people also coming on the other side.

So, therefore, we have to look at the gross number which is generally the trend of investors. The gross numbers registrations continues to be on the rise therefore, SIP cancellation is actually the function of the market, but it also does not take much time to come back because SIP is something people have now understood the power of saving.
In fact, those who have remained invested through the entire period of volatility, they would have got the significant benefit of the SIP you have investing in the mutual fund space.

But one way of looking at this SIP number is the number of new unit holders or number of new applications. One way is that look at the total kitty and third is looking at the number of gross cancellations. So, from benchmarking standpoint, last three months markets were bad. A lot of two-three-year SIPs have gone negative. What is the right way of looking at SIPs, the net number, the gross number, the gross cancellations, new additions?
A Balasubramanian: The way I always look at is the best way to measure the level of participation is the gross number, which is the gross number about 26,000 crores number which comes in. Net inflows after say cancellation, etc, would be in the range of about 15,000 to 18,000 crores.

And, of course, that does not disclose the net number because we always look at the gross number. The gross volume actually represents level of interest that come from investors. It also represents the level of understanding that people have got in building the SIP from longer-term point of view.

So, that way I always look at it. Second, we have to look at that how many number of new investors also keeps coming in, you will have a new participants in. Today, we have about 5.2 crores unique customer base, 5.29 crores roughly unique customers single PAN numbers.

Do you have an investment advisor who tracks SIPs for you?
A Balasubramanian: I do it myself. Of course, I invest 100% of my money in my own mutual fund. So, it is never an issue for me. And we have a good digital tracker for investors who track their portfolios. I do not look at the portfolios, I only look at the total investment that I have made. But having said that the 45 folios will be counted as one as a single PAN number. We have about 5.29 or 5.3 crores unique customer that we have. Now the same number just about three years back, it was just about 2 crores. It keeps growing. I think what is most important for any mutual fund industry is, that is why I keep saying all the time that the landscape completely got changed from a saver’s point of view to invest in mutual funds now by way of SIP now become the reality.

Still it is a small number.
A Balasubramanian: It is a small number yes.

Still very under penetrated. 1.4 billion is India's population. You take out the extreme ends which is 20% in the top, 20% percent in the bottom, you still have like a 90 crore Indians who potentially can be directly and indirectly come into it. You divide that by or let us look at number of households, 40 crore households. It can still reach up to about 20-25 crore households.
A Balasubramanian: Correct.

So, can I say that and this is a number we take a lot of pride in, all of us take a lot of pride in that in this last three months when the markets were in a tizzy the SIP collections were robust. Barring this number which may mathematically be at a four-month low, that is maths, but in general the number now comfortably seems to be in north of 20,000 on a monthly basis at gross level.
A Balasubramanian: Yes.

So Indian SIP investor has not panicked in this turmoil.
A Balasubramanian: Absolutely, no. Even the lump sum investors would have panicked not because of not being comfortable with the mutual fund.

In last three months have you got more outflows or inflows across categories.
A Balasubramanian: There is inflows.

All categories?
A Balasubramanian: Yes, in all categories.

Even small and midcap?
A Balasubramanian: We have seen inflows coming in largecap, flexicap, multi-asset allocation fund. We have also seen inflows coming in the hybrid funds. Hybrid funds have been getting a lot of inflows. Even fixed income funds. Some of the fixed income funds on the basis of expectation of a rate cut and a lot of people have started coming into the fixed income funds.

My own believe is as we move forward even the liquid fund will start getting inflows given the fact that the rate in savings bank account rates are being now cut to about 2.5% to 3% and liquid funds would generate about 6% to 7% on an average roughly where investing in about 90 days money market instruments.

I will also see participation coming in even in the liquid fund as part of their parking of their money in the mutual funds. Therefore, if you look at in the equity space, we are seeing across all categories including small and midcap, though the noise levels on small and midcap could be more not favourable kind of thing, not negative I would say, not favourable, but still flows in small and midcap also start coming in given the fact that one asset allocation plays a role and SIPs come for a longer term, it is for a perpetual and that is something we have understood.

And people also understood, investors can actually choose the hybrid funds. Hybrid fund also has seen decent amount of growth. It is coming across the category I would say.