Jun 18, 2013, 01.31 PM IST | Source: CNBC-TV18

FIIs will continue to enter India via ETFs: Raamdeo Agrawal

Raamdeo Agrawala said, the ETF conclave hosted by them is to popularise ETF for buying stocks since that is not yet as popular as ETF gold buying. He expects pension funds and large passive investors from all over the world to look at allocation into India through ETF route.

On the backdrop of their Exchange Traded Fund ( ETF ) conclave starting tomorrow, Raamdeo Agrawal, Joint MD, Motilal Oswal Financial Services told CNBC-TV18 that he expects market to remain narrow and earnings growth to be in the range of 7-9% in FY14. First quarter earnings of FY14 is expected to be dull with only few companies reporting good numbers, he said.

Agrawala said, the ETF conclave hosted by them is aimed at popularising ETFs for buying stocks since that is not yet as popular as ETF gold buying. He expects pension funds and large passive investors from all over the world to look at allocation into India through ETF route.

Furthermore he expects gold demand to rise again.

Also read: Bullish on India, will buy if market falls: Morgan Stanley

Below is the verbatim transcript of his interview on CNBC-TV18

Q: The big worry these last few days is what has happened with the rupee this morning as well, extremely weak. How much of an irritant do you think it is going to be for some of these potential investors into India and where do you see the rupee headed?

A: Rupee is moving in 5 rupee-band that is from 52 to 55 and now 55 to 60. It is a very large band. Now we are hearing some pains on the import side including from people going on foreign travel. We are also seeing some export attraction, like today, Ford said that India might become one of the large export base for Ford SUVs.

At this level of the rupee, we are seeing some impact on export as well as imports side but the May trade deficit number was quite staggering; around USD 20 billion. So the rupee weakness is not yet over. My sense is that may be it will halt for some time when marriages do not happen for next three-four months; but again gold demand will come back, so our problem is not over. Rupee will remain weak  and it may go to 61-62 but I don't think the last word is spoken on that.

Q: What sense do you expect to get from the ETF conference in terms of global flows because for the first time there is a bit of a question mark on that given what is going on in the West in terms of liquidity creation?

A: This conference is about popularizing ETFs in India which is particularly ETF for buying stocks. Per se the stock market is not that popular. ETF Gold has become very popular for the gold purchases in India and it is the biggest segment of ETF right now.

Globally, last year almost USD 100 billion flew into worldwide ETFs and we know that in India itself lot of ETF money came in by Foreign Institutional Investors (FIIs). So the expectation is still positive particularly from pension funds and the large passive investors from all over the world into India because they are trying to correct the allocations into India. So it is expected that this ETF route would broadly continue.

Q: What do you make of this dichotomy? Every analyst over the last few months has been saying that this is not a macro top down market. The only way you can make money is by stock selection, in an otherwise range bound market. Yet the investment style globally for many fund managers or investors is moving towards passive vehicles like ETF rather than actively managed funds. How do you align these two contrasting kind of trends?

A: The first decade was meant for hedge fund managers. Somewhere in turn-up of the century, they all came from all kinds of themes and they thought that they will be able to give positive run in good market as well as bad market. Then the world realized that there is no hedging, and everybody is on the same trade and everybody got sunk. So the whole promise by most of the hedge funds didn’t turn out to be right.

Now, people are going back to asking whether we should go back to active or whether we should go to at least passive investment vehicles where one does not have to depend on any fund manager per se. A significant amount of money, particularly large sovereign funds, pension funds they are saying let us get the beta right and may be on top of it some alpha through active managers, and may be even some well-recognised funds.

Therefore we are seeing this shift from lot of hedge fund money to passive investment vehicle i and that will continue. There will be significant role for the active managers also which is right now looking to be little reduced.

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