Redemption pressure more in insurance than MFs: HDFC MF

Denying any redemption pressure on mutual funds industry, Vinay Kulkarni, senior fund manager, HDFC MF says the pressure is high on the domestic insurance industry. Kulkarni says they are "okay" on their MF business. "As a fund house, it is driven more by Systematic Investment Plan (SIP), not so much by lumpy inflows," he clarified.  

He says the investor sentiment in the country is very poor. "It has never been worse before."
However, Kulkarni is optimistic for the industry in the days to come. He expects the marker to do well in the second half of the calendar year and advises retail investors, who have remained on the sidelines, to make long-term investments in good-performing equity mutual funds. Below is the edited transcript of Kulkarni’s interview to CNBC-TV18. Q: What exactly is happening in terms of redemption pressures because there were reports that it had abated. Then with this recent midcap carnage, it seemed like redemptions were kicking in much harder for many domestic mutual funds?
A: I think redemption pressures have been a bit high on the domestic insurance side. On the mutual fund side, we are quite okay. As a fund house, it is driven more by Systematic Investment Plan (SIP), not so much by lumpy inflows. Those are going fine. However, the investor sentiment in the country is very poor. It has never been worse before and going forward it can only get better from here. Q: There was a hope that in the Budget the mutual fund industry will get some help which might galvanise retail sentiment or participation. Did you see any of that or do you think retail participation will continue to lag for sometime longer?
A: No. There was nothing much in the Budget for the mutual fund investors except some reduction in the taxes in the Securities Transaction Tax (STT). However, if one looks at the market and the economy, macro economic indicators have been very bad for sometime now. The gross domestic product (GDP) growth has plummeted. It is somewhere close to a bottom as the next cycle is concerned. Typically in the country, reforms don't happen unless there is urgent push towards them. Currently, we are at a stage where it appears that both the government and the Reserve Bank of India (RBI) are clearly worried about the current account deficit (CAD) and what impact it could have on the rupee.
Going forward, we will see some reforms from this government. We will see the process of fiscal consolidation continue and the reason for this is that unless we do this, the rupee could come under substantial pressure and this could really impact the inflation rates in the country. So, given this very strong pressure towards reform, I believe that we will continue to see some reforms or the other from the government.
As far as the economy is concerned, we are at the cyclical bottom. So, if we have a situation where the government peruses serious economic reforms at the bottom of the cyclical and given the fact that globally things continue to be benign, the money flow remains positive and there are very few investment destinations which are growing faster than India. Given these few facts, we believe that we have possibly seen the worst in the economy and market tends to discount the good events ahead of the time. Hence, I believe that going forward, specially in the second half of the calendar year, the market should really perform well. Given the fact that retail investors have not been big buyers,  this is good opportunity for investors to make long-term investments into good performing equity mutual funds. Q: Where is the key competition still coming from– is it the fixed income side, the tax free bonds or are people still interested in exposure to commodities like gold etc?
A: I think commodities have had a fairly good run. Gold had a fantastic run over the last ten years. If one looks at other asset classes, definitely the tax rate takes away lot of the attractiveness of fixed income side. Given these facts, I believe that equities do constitute the most attractive asset class at the moment. However, it may seem a bit unrealistic to assume that equities will do well in such an environment of domestic uncertainty. I believe the relative attractiveness of equities is very high right now.