'Inflows into equity MFs, SIPs may taper off further given uncertainty around jobs'

Businesses across sectors are facing a slowdown and uncertainty due to the effects of the pandemic. During periods of uncertainty, individuals prefer to increase savings and create liquidity to meet unforeseen expenses. Inflows into equity mutual funds and SIPs may taper off further in the current environment, Sameer Kaul, CEO & MD at TrustPlutus Wealth Managers (India) said in an interview to Moneycontrol's Sunil Shankar Matkar.

Edited excerpt:

Q: What are your thoughts on geopolitical tensions - US-China and also India-China? Will both really hit Indian economic growth or is it just a sentimental effect?

The emergence of geopolitical tensions did initially unnerve the markets. Geopolitical events can have an adverse effect on economic growth. However, the tensions are de-escalating and the current global liquidity supply should help India attract FIIs flows.

Having said that, there are, as Mr. Roubini says White Swan events that the market needs to confront in the coming months with a possible resurgence in the infections, the US presidential elections and continuing geopolitical issues revolving around China, United States, Iran, Russia and North Korea.

Q: Banking sector is expected to be hit by asset quality stress once the moratorium gets lifted from September onwards. But do you really think it is a big concern and as a result one should avoid the complete sector for investment? Also what are your thoughts on NBFC?

In a recent speech, the RBI governor, Shaktikanta Das, stated that the economic impact of the pandemic may result in higher non-performing assets (NPAs) and capital erosion of banks. He also emphasized on the importance of recapitalization of both public sector banks and private banks. The NBFC sector is also facing its own set of challenges such as low disbursements, low investor confidence, higher funding costs and an increase in NPAs. That said, BFSI is one of the key sectors in the economy and meaningful economic growth is difficult without the participation of the BFSI sector. Rather than avoid the sector, one should look at allocating to some high quality institutions as part of their investment portfolio.

Q: If a person at the age of 30 wants to build a portfolio of Rs 10 lakh, what should the proportion of investment in each segment which can balance the portfolio and what should he/she avoid while building a portfolio?

The asset allocation of a client depends on his/her risk tolerance and also on the time horizon of investment. For a long term time horizon, the portfolio should be diversified between Equity (Domestic and International equities), Debt (Long and Short Term Debt) and Gold. In the absence of a risk profile, given the information in the question that the investor age is 30 years, we could suggest an allocation of 60 percent to equities, 30 percent to debt and 10 percent to Gold. Investments in equities can be in the form of direct equities, mutual funds, PMS' while investments in Debt can be through Mutual funds or by directly purchasing bonds issued by corporates. Investments in Gold can be through Gold ETFs or Sovereign Gold Bonds (SGBs).

Q: Market rally was so sharp that benchmark indices shot up 50 percent from its March lows and the trend indicated that every dip has been being bought. Are you convinced with the rally given the rising COVID infections and expected weakness in the economy, or is the market pricing in something well in advance?

Markets are always forward-looking, rather than looking in the rear view mirror. The market's performance over the past six months has been testimony to this fact. The economy looked largely unaffected during the early days of COVID-19 in March, when the number of confirmed cases were also lower. But the equity market, corrected significantly during that period. The skepticism in the market regarding the economic slowdown might be a bitter reality but the market seems to have already factored in the worst and is optimistically looking for a recovery in growth. The market rally has also been aided by the ample liquidity which has been provided by central banks and governments globally through various stimulus measures.

Q: RBI policy meeting will be held in first week of August. What are your expectations from the policy and will the RBI cut rates further?

The MPC has cumulatively cut the policy repo rate by 115 basis points over last two meetings. We expect the MPC to cut rates by 25 basis points in the forthcoming monetary policy review. This will be done mainly to focus on economy growth revival post the effects of the pandemic.

Q: DIIs so far have been net sellers in July and MFs too. Do you expect the significant fall in inflows into equity funds in July and SIP to moderate further, why?

Businesses across sectors are facing a slowdown and uncertainty due to the effects of the pandemic. During periods of uncertainty, individuals prefer to increase savings and create liquidity to meet unforeseen event. Inflows into equity mutual funds and SIPs may taper off further in the current environment given the uncertainty around jobs and possible salary cuts across sectors.