More retail investors could flock to MFs as Sensex inches closer to 30K: ICICI Pru

“We have seen customer base increasing every month. The number of investors that we have actually doubled in the last 12 months as new people have entered the market. When market trade at record highs the expectations are also like that which needs to be toned down,” he said.

Shah further explains that we are trying to bring down expectation of investors which are investing at current levels. We putting a large part of the money in debt and the rest in equities. The structure will reverse when we see a significant correction in markets.

The broader market outperformed benchmark indices in the last 12 months, but largecaps are still better bets, explains Shah.

The small and midcap theme gave bumper returns in the same period. The smallcap theme actually gave a return of 40 percent when compared with a largecap theme which rose 24 percent. But, this is the time to be in largecap space.

According to Shah, the broader theme which investors should remain invested is the large-cap theme. “Even after going wrong in the last one year, we continue to hold our view that in the risk-return profile largecaps are still better bets compared to midcaps,” he said.

Commenting on attractive themes to invest, Shah said that we like dynamic asset allocation funds like Balanced Advantage Funds. For investors who are looking to invest big chunk into equities, we recommend ICIC Prudential Infrastructure Fund with a time horizon of 2-3 years.

We have taken contra call on power, telecom and roads which will make huge money for investors, Shah said. We have gone underweight on IT but like pharma, he said.

Below is the verbatim transcript of the interview.

Anuj: The story of last year was about domestic investors pumping in a lot of money in equity markets. Do you think that trend has remained intact? Have we seen inflows even at all-time highs?

A: Yes. If we see last one year, we started the year at around USD 1 billion of net inflow every month. We have ended the year with almost USD 2 billion of inflow every month, so gross sales also doubled by the time the year ended. So in the month of February-March we have around Rs 25,000 crore of gross sales as an industry and the net sales could be anywhere around Rs 10,000-12,000 crore months-on-month. So, a very good inflow is coming into markets.

Latha: What is your sense about how retail investors behave typically when you see all-time highs do people sell more or buy more, I mean give you more money?

A: Historically, psychologically across the world as the market go up, the flow has always increased. Unfortunately, that should not be the case but as responsible asset management companies (AMCs) we need to restructure our products. It is fact of life that as the market comes near 30,000 as they cross 30,000 you will see more and more retail customers coming in, my customer base is increasing every month, if you see last two to three years especially the last one year the number of customer that we have, the number of investors that we have has doubled in the last three year, so that is the kind of inflow of new people also coming into the market. Therefore, we need to be careful.

The whole thing is that the expectations are too high. We are trying to mellow down the expectations, we are getting more and more people into dynamically asset management products, so that when the market at a very high level and the flows come in you get them into mix of debt and equity, allocate more towards debt and in a flow based market, as the market correct, you will allocate more and more in to equity.

For entire interview, watch accompanying video.