The concept of mutual fund (MF) investing and how systematic investment plans (SIPs) works has become much more clear to retail investors probably in the last 5 years, but if somebody would have invested in Reliance Growth Fund back in the year when it was launched is already sitting on huge wealth created over a period of time.
“Reliance Growth Fund started in the October 1995 has grown 105x in the last 22 years. We have outperformed the Nifty by almost 10x. A crore invested in Nifty would have become Rs 10crores and a crore invested in Reliance Growth Fund would have become Rs100 crores,” Sunil Singhania, CIO - Equity – Investment, Reliance Mutual Fund said in an interview with CNBC-TV18.
Commenting on Nifty hitting record high of 10,000 – Singhania said that we are certainly not at a euphoric top, but some bit of correction cannot be ruled out considering the fact, the Indian market is trading slightly above fair valuations. But, the corrections will be short and swift.
“When we meet investors domestically or globally, there is one common thread – everyone feels that their own respective markets even for global investors are expensive and they are waiting on sidelines for a correction to happen,” he said.
He further added that this time we are expecting some structural changes to happen. “We believe there is structural low for oil and that would mean that the $70-80 billion saving for India is there for India for years to come – which is somewhere close to trillion dollars.
The impact of GST is a structural positive as it will lead to more tax efficiency and less corruption and increase in manufacturing led by Make in India campaign are some of the structural changes that we expect to happen.
“The benefit of all the structural changes will be felt in years and years to come. So, in that respect, we feel that this bull run is slightly different from different bull run seen in the past,” said Singhania.
Below is the verbatim transcript of the interview.
Q: Before I ask you about what next and how to read this market, your first experience – when you started equities, what was the Nifty then and what has been your historical moment?
A: I started my career in equity markets on the day the NSE set up shop, which is November 3, 1994. So the Nifty was 1,000 and over the last 22 years, the Nifty has touched 10,000, which is 10 times. A good feeling is the fact that Reliance Growth Fund started in October 1995.
Q: So one year after Nifty got launched, you started Reliance Growth Fund. If I am not wrong it has hugely outperformed, can you take us through the journey?
A: From 10, it is now over 1,000, in fact 1,050, so it is 105 times in these 22 years. A combination of obviously the economy doing well, a good team, I started managing the fund only in 2003 so the fund managers before that also had a role to play. However, we have outperformed the Nifty by almost 10x.
So a crore of rupees invested in Nifty would have become Rs 10 crore and a crore of rupees invested in Reliance Growth Fund would have become Rs 100 crore.
Q: You have seen so many ups and down, so many historical moments in your career in the last 25 years, at this time a lot of people keep telling us that this time it is different. Is this time different and if it is different, what do you think is different?
A: I think it is a very clichéd thing whether it is a film or whether it is equity market that this time it is different. There are definitely some differences, one is it is not a euphoric top. When we meet investors whether domestically or even globally, there is one common thread, everyone feels that their own respective markets even for global investments are expensive and they are waiting on the side-lines for a correction to happen. So our view is that maybe a correction might happen because we are definitely slightly above fair value, but those corrections are going to be short and swift purely for the reason that there are more buyers on a fall rather than there are sellers at a rise.
Also, this time we are looking at some structural changes. Oil for example, we believe that there is a structural low for oil and that would mean that the USD 70-80 billion saving for India from lower oil price is a reality for years to come. We are all analysts, if you do a DC of that, the value is almost a trillion dollars as of today.
Similarly, the impact of GST is a structural issue, a structural positive. The impact of more efficiency, more tax compliance, less corruption, increasing Make in India whether it is defence or electronics or XYZ. So I think a lot of these things are structural and the benefit of that would be felt for years and years to come. So in that respect, maybe this is a little different period.
Q: The other big structural change which a lot of people are talking about is the shift from physical assets to financial assets. You yourself have done a lot of hard-work in the last 15-20 years educating the investors to put money through mutual funds and through systematic investment plans (SIPs). Now are you getting a sense that the Indian audience has got matured, the investors have got matured and they are looking for long-term systematic investments through mutual funds?
A: One good thing is that investors have realised that 1] it is investing in the right instrument rather than at the right time. 2] Ups and downs will be there, but it makes sense to be positive on India and whoever has been positive on India, irrespective of the time, they have invested and have ended up making decent sums of money. 3] They have understood the concept of SIP that if you are investing constantly and consistently then ups and downs you don’t bother because you get an average investment sort of a value or an entry point and that is what is giving us the confidence that 1] investors are matured and 2] there would not be any knee-jerk reaction like earlier when markets used to see a downfall and there used to be massive redemptions. In fact, now, on a day when markets react a bit, you see more inflows. So this flow is real and it is good that it is coming the way it is coming right now.
Q: There was one estimation which suggested that by 2020 or by 2022, the Indian mutual fund industry could be as big as USD 600 billion. The kind of inflows we are seeing on a monthly basis, Rs 4,000-6,000 crore plus, do you think this is structural and not going to break so soon?
A: If you look at the big picture, the industry right now is USD 300 billion each and this is despite doubling in the last three years, otherwise it was only USD 150 billion. Now, if you see the composition of India’s wealth, there are reports which say that the wealth held by Indians is over USD 20 trillion and a big portion of that is in real estate, a big portion of that is in fixed income, almost USD 7 trillion, and only USD 400 billion into equity and that includes mutual funds, insurance, direct investment and so on and so forth.
Incidentally, every year as individual Indians, we save USD 400-500 billion. So the total market size of the domestic equity mutual fund industry at USD 100 billion is not even 25 percent of the annual savings. So, I think there is a long way to go. Good thing again is that we are behind the world by 15-20 years, so, if you see some of the other countries, where this growth has happened, whether it is the US, Europe, or even places nearby like Korea, I think there is long way to go. We are just at the tip of the hockey stick.
Q: When you are saying we have a long way to go, Nifty at 10,000, what is the road ahead? What should a normal investor expect because markets have rallied pretty hard, valuations are stressed, what is the realistic expectations that one should have when they put fresh money into equity markets with a three to four year period?
A: I was sitting with my team right now and I was telling them that 10,000 is a good period, we should definitely celebrate all the good things which happen because you never know when reaction might come in. It is a phase, it is like Everest Base Camp that you have worked very hard and you have reached the Everest Base Camp. Now it is the time to get used to that particular level, chill out a little bit, and then go for the Everest.
So, our view is that the next seven to eight years are going to be one of the best periods for the Indian economy. Two years pending for this term and maybe another five years on the next term, and we should be prepared for a lot of good things happening in the country. At the same time, as equity investors even now there is a category of investors who expect 100 percent return in a year. So if you are expecting that, please don’t invest. If you are expecting 12-15 percent return year after year on a consistent basis, I think you will not be disappointed and that return if you look at the tax efficiency, is a great return.
Q: 15 percent compounded annual growth rate (CAGR) for the next five years, Nifty can easily double. 10,000 Nifty can go to 20,000. Is that a realistic expectation for a retail investor?
A: Now, you look at the economy, 1947-2007, 60 years it took for USD 1 trillion economy. The next trillion took six to seven years. So by 2014-2015 we were USD 2 trillion. Our view is that in the next six to seven years again, this USD 2 trillion can be USD 4 trillion. So even if investors have not invested and missed out the last 67 years of opportunity to reach USD 2 trillion, the same opportunity is there for them to capture over the next six to seven years. So whether it is five years or six years, I think we are heading in that direction, that is very clear.
Q: Even if I look at your portfolio, the composition of your portfolio, you seem to be pretty much overweight on the financials, especially the private banks. Is that the best way to play because why I am asking is because a lot of people are asking questions about the valuations and the value at which they are trading, you still feel that given there is a transition happening into financial assets, that is the best proxy of growth?
A: Private banks, we are definitely positive. We are positive on niche non-banking finance companies (NBFC), so we have some gold financing companies. We are very positive on the shift from physical assets to financial assets. So life insurance companies, asset management companies, as and when they get listed, wealth management firms through the broking outfits. However, incrementally, last six months we have also become positive on well-capitalised corporate banks.Our view is that yes, there is an NPA problem, but there is now a very good resolve or a very strong resolve to solve them and though there might be front ending of some write-offs, we are at a stage where fresh incidents of NPA formation in this scale is going to be extremely difficult. So, well-capitalised corporate banks is something which we would definitely be quite positive on.