Flight to quality would be a predominant theme for 2020 and maybe beyond as world grapples with a medical emergency. Interest rates are likely to remain low for the near to medium term and global liquidity glut will continue, Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpt:
Q) Franklin Templeton shuts down six credit risk strategy debt funds. This is the second casualty of COVID-19 after IndiaNivesh. Do you think that investors will again lose faith just like what we saw post-2008 financial crisis?
A) It is very important not to paint the canvas with the same brush. In fixed income investing, it is pertinent to be mindful of underlying asset quality and the intended investment tenor.
Interest rates world over including India is on the decline. This has seen a reduction in interest rates on bank products and small savings rates.
We are of the view that fixed income does offer solutions to investors in the current rate cycle with the potential to participate in the upside.
Hence, losing faith in a category which has demonstrated the ability to generate returns may not be a rational outcome
Q) If investors have debt funds in their portfolio what should they do now? Is my money stuck is the most common question which is asked by investors?
A) I would reiterate that investors should not get be tempted to act under recency bias.
MF industry in fixed income has seen a significant shift towards high-quality assets which is reflected in the underlying scheme holdings.
Investors in debt funds should live their investment horizons intended at the time of making an investment. Open-ended fixed income funds offer daily liquidity at market-related NAVs and hence panic reactions may not be warranted
Q) Do you think the current scenario will lead to redemption pressure in equity funds as well?
A) Unlikely. The 2 are distinct assets classed and should not be co-mingled
Q) What are the steps you are taking to safeguard investors’ interest?
A) At Kotak MF, post-IL&FS, and Dewan industry episode, the focus shifted significantly towards high-quality assets. This can be seen across our FI portfolios. Return of capital has been prioritised over return on Capital.
Cash and cash equivalents across our fixed income schemes have notched up materially in line with this philosophy.
Thus, we feel confident to manage the current phase as the portfolios can be comfortably liquidated.
Q) Experience tells us that History never repeats but rhymes. Healthcare crisis which could snowball into a financial crisis due to COVID-19 outbreak and extended lockdown – what will be the world like post-COVID-19? Do you foresee a change in the people does investment/saving etc?
A) Flight to quality would be a predominant theme for 2020 and maybe beyond as world grapples with a medical emergency. Interest rates are likely to remain low for the near to medium time and global liquidity glut will continue.
Investments via traditional vehicles like banking products and small savings may be fixed at lower levels. Thus fixed income offerings with high grade underlying will be one of the preferred modes of parking surpluses across various tenors.
Liquidity will also play a paramount role in shaping such investment decisions - where open-ended funds would tend to score.
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