Good domestic pools being set up: Lotus AMC

Ajay Bagga, CEO of Lotus Asset Management, said mutual fund industry has grown 48% as of March, according to the AMFI figures. Good news is that there is very little redemption and net inflows are coming in mutual funds.

Also insurance numbers will be much bigger because the last quarter is the biggest quarter for insurance and that money will start getting deployed over the next quarter or so. So overall there are good domestic pools being set up, although the NFO market has gone soft.

Excerpts from CNBC-TV18's exclusive interview with Ajay Bagga:

Q: Just to start off with the domestic liquidity situation and how things are panning out there, this was supposed to be a big month for insurance collections, lot of mutual fund money, haven’t seen a whole lot of that in the market, have you?

A: If you look at YoY growth, mutual funds of what the AMFI (Association of Mutual Funds in India) figures that released yesterday, suggested it’s a 48% growth in the industry from about Rs 3.56 lakh crore to Rs 5.27 lakh crore as of this March. For insurance, the last IRDA (Insurance Regulatory And Development Authority) numbers of February-end are pointing to a 101% YoY growth in first time premium. So there are domestic pools of money being created both in mutual funds and insurance companies and it’s a matter of time before they start coming in.

If you look at the last three months in the mutual funds, we had net inflows in equity funds of about Rs 16,000 crore in January, went down to about Rs 4,500 crore in February and March numbers are still to come out. But our estimates are roughly in the range of Rs 6,000-6,500 crore net inflows. So the good news is: very little redemption and net inflows coming in mutual funds, insurance numbers will be much bigger because the last quarter is the biggest quarter for insurance and that money will start getting deployed over the next quarter or so. So overall good domestic pools being set up.  

Q: There may not be redemption pressures; the money is not coming into the market which could be the other scary thing which is that mutual fund managers expect that markets to move lower, what do you think?

A: We don’t do asset allocation for the customers, we are fully invested, and we keep the normal 5-7% of cash, but whenever new raisings are done, fund managers don’t really rush in and try to deploy it in the first month, it takes 3-4 months for the money to come in. Our third point is that there is a trend shift in the last couple of months; we will have to see whether it persists. Money is coming into existing schemes rather than NFOs. And NFOs have been quite damp, there has not been that much money coming in. But we have seen good collections in the tax funds, nearly Rs 3,000 crore coming in the tax funds last month itself, which is a seasonal move and we are seeing more money coming into existing schemes with track records. We will have to wait and watch if that becomes a trend, but like the IPO market, the NFO market has definitely gone a bit soft.

Q: What are your expectations for the rest of the year, do you think we can consolidate in this range and then try and move up or do you think the whole year will make us grind?

A: Everybody has lowered their returns expectations which is a good thing for the market as a whole. We have talked to many investors and distributors, the volumes are low across the market and across various segments. We are expecting debt funds to see a lot of inflows, equity funds will have to have a good story, either a good performance through the corrections or you will have to have more innovative funds. We are looking forward to REITs coming in, more innovative funds, especially international funds like the mining funds are doing well and a couple more are being announced shortly. We shall see some innovative funds coming in driving growth, but overall we are keeping our forecast for our industry to grow about 30% this year as well, in terms of AUMs.

Q: What are you hearing about some of the commodity specific funds and even what’s happening with these gold exchange traded funds? Is interest high in commodity specific products?

A: People are entering commodities through the bourses, but the mutual funds, only 5 ETFs in gold, at present are regulatory allowed. About Rs 750 crore in that and returns have been about 37%. The one mining fund that is there has given a good 49% return, absolutely in the last six months that it has been in existence. So people are sitting up and watching these funds, but still the participation has been low, ETFs have not really caught the fancy because the customer who is on the bourses is normally an active trader, while the mutual fund customer normally wouldn’t have that active an interest in having a DEMAT account than active brokerage account. So that intersection is still missing. Until we get 20-30 different kinds of commodity ETFs listed and we give better product solutions to customers, I suspect the volumes will stay low like this. Keep that in perspective that Indians buy USD 14 billion of gold a year, even at these enhanced prices this year the forecast is about USD 14 billion and still you are looking at a Rs 700 crore ETF ticking not too much.

Q: A lot of NFO money was used in theme funds over the last 6 months - infrastructure funds, power sector funds. These sectors haven’t done very well, has some of the sheen come off?

A: The funds have suffered in line with the underlying stocks, but what we are telling investors as an industry is these themes normally take a long time and capital goods, infrastructure, remains a very strong theme, not only for India but for emerging markets, if not globally. So we are fairly confident, we have not seen redemption in these funds even though the NAVs might be off 20-25%.

The reason being, people have come in with a 3-5 year lock-in perspective into these kind of funds largely and they are willing to wait out when they are seeing EPS CAGR of 25-30% in these kind of stocks. The good thing has been that it’s not that whole lot of a money. Unlike 2000-01 when we would raise Rs 500 crore in an IT fund, it was on a 30,000 equity AUM industry, all of a sudden you had so much money in IT. This time around its not that whole lot of money.  

Disclosure:

My fund would have positions across sectors discussed today

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