High Oct redemption not worrying, says HDFC MF's Barve

Q: What is the sense in the AMC itself, are you seeing a tapering off of redemptions, are you seeing the current rally in the markets draw in retail buyers at all, green shoots any?

A: I wouldn’t say, I think people are seeing this rally to probably take some money off the table and this is not very surprising in a way because year-after-year when you have seen people react based on what they see as market return in the immediate past and what they expect as returns in the immediate future. So, people don’t stay committed to an asset allocation plan for five-seven years.

The market has rallied by 9-10 percent just in a month of October, so until September people were seeing like a mid-single digit return on one-two year performance. Therefore, the first temptation for people is to see to some extent should I take some money off the table and wait for markets to consolidate.

Having said that, the numbers that we see on redemptions for the month of October are high but they are not worrying. There is 1,90,000 crore of equity AUM in the industry and the figure that has gone out in the month of October is about 4,000. It is not a good number to go by. However, at the margin people are seeing whether they should take money out, which is a very wrong thing to do because if you have lived through these long periods where returns have been single digits, you have to wait much longer. But people seem to be doing more of the psychological investing.

There is so much hype about the 21,000 index and I don’t think if the index at 21,000 is at the peak from a number perspective but it is not peak valuation. People still feel at 21,000 - should I be taking some money off the table.

We are seeing green shoots but in equity as an asset class, we are not seeing very strong flows. However, the industry has done well in the last almost year and a half or two, we have seen some very strong and decisive flows come into the debt markets, into debt products. So if you look at debt assets under management (AUM) for the industry about a year and a half back, it used to be about Rs 3,30,000 crore and now it is at about Rs 4,40,000 crore and while some might be corporate money most of it is retail.

As an industry in terms of AUM, the numbers are still quite okay but if people choose debt versus equity for the time being, the numbers are still quite okay but if people choose debt versus equity for the time being, then so be it.

My sense is the debt products also have been partly oversold. We are still not out of the woods. It is a little concerning whether people have been totally moved out of equity saying nothing is going to happen in equities so move your money to debt but it is very wrong to do that. You have to stay with pure asset allocation; maybe you can shift 4-5 percent of your asset allocation to debt if you think there is some safety of principal protection in that.  But the way people have behaved in moving out, some of them who have probably 40-50 percent allocation to equity are down to 10 percent and I think they are doing a completely wrong thing.

Our view on equity is certainly more positive. There are a lot of negatives around us but we think they are already priced in. We think that markets can tend to surprise us - there is a period of uncertainty before an election. We have seen. There is an interesting data analysis that we did - we tracked about 9 years of election results and we found that in seven out of the nine years, in the year of the election the markets have done well. In a way it is easy to understand but people don’t like the uncertainty that prevails before an event like election but post that event being behind you, markets come back to fundamentals.

Retail investors and their lack of participation is true but there are some things that are very structurally difficult for us. The fact that we have a marketcap, which is almost 55 percent held by promoters that leaves your free float to 45 percent and of the free float of 45, about 21 percent or thereabouts is foreigners. So, a little less than half of the free-float is held by foreigners. So we don’t have as much as the domestic participation in the market and I think it is a national issue.

Q: You were speaking about debt being better received, the events of August, the growth of assumption did not lead to redemptions, you think the market has overcome that hump and now flows have started in the debt market?

A: Since the announcements in July and August, the debt market also saw a big pushback but since then we have recovered from that as you know the yields for example, the 90-day yields were above 11.5-12, they have now receded quite a bit. So in products which saw most of the money come in which was in short-term plans on products like that which are at the medium-end of the duration; those have seen some recovery in returns and people are by and large staying to it.

However, sometimes we have this unusual situation or a cycle in the market where you see a little bit of a short-term challenge in the bond market but the real thing is that I would say is concerning is that people need to keep their equity allocation there. I think it is very frustrating for us in the industry; people have to go back and restart their SIP investing.

Q: You said short-term plans in the debt market, what are the other products that people are getting into, I know FMPs are hard sold quite a bit and also apart from the debt products that are popular right now in the equity space, we are seeing a lot of sectoral churning within the market, which are the sectoral funds that are being recommended at this point?

A: I don’t think there are sectoral funds being recommended. The funds which have raised some money, recently they are more of the closed-ended funds. That gives the asset manager also a three-year clear period for which the money stays with you and some money has been risen that.

I don’t think sectoral funds are being favoured right now and rightly so because rather than putting your money on a particular sector you are much better off in a diversified equity, gives the fund manager form of flexibility to catch the momentum right.