Sticky inflation, rising crude oil prices key risks for GDP

What is your view on the ongoing market rally?

The market rally has been supported by two drivers - (i) liquidity driven by lower rates globally and (ii) bounce back in corporate earnings as cost cuts, tail winds in certain sectors like IT/pharma and lower-than-expected stress in financials. Corporate earnings have more to go in our view as economic revival gains ground. In fact, the Covid crisis has reinforced the view that the corporate earnings (of top 250 companies) did better than economic growth as the brunt of the slowdown has been borne by smaller/unorganized players. What impact this has on consumption remains to be seen. Lastly while the large caps, as indicated by Nifty forward PER of 21x, seem to be in the fair value range, an economic recovery led by liquidity and manufacturing revival will lead to broadening of the rally.

According to you, the flow of FPI will continue until what time?

India has been one of the rare countries where one, the fiscal deficit seems better managed despite a strictest lockdown and two, the Covid infection rate has not gone up despite visible increase in human interactions and economic activity. That is helping to attract flows from FPI. In addition, the premium of Nifty 50 over MSCI EM is still at around 45 per cent, not excessive as compared to the last 10-year history. One of the key risks from Indian equities point of view is higher crude prices and inflation.

Recently all asset classes like equity, debt and gold have witnessed a rally. In this scenario, what would be your advice to your retail investors?

Gold is more of an insurance at this stage in case there is a second wave or runaway inflation or any other unforeseen risk. At present valuations, equities will deliver returns in line with earnings growth although investors should increase exposure to funds which have exposure to mid/small cap. Sector funds like pharma, infrastructure and banking also have the potential to generate above-average returns.

So far only two fund houses, UTI & HDFC, have gone public. Is Tata MF likely to get listed?

As of now, we don't have any such plans.

Of late, SEBI has come up with its circulars on rebalancing of the portfolios of multi-cap funds and introduction of flexi-cap fund. What will be its impact on the industry as a whole and Tata MF in particular?

Our product portfolio is sharply defined. SEBI circulars with respect to multicap funds are to move the industry towards true labelling. I think each fund house will chart out their own way on which way to go i.e. whether to stay multi cap or change to flexicap. We will be renaming Tata Multicap Fund to Tata Flexicap Fund.

What is your company's plan to ensure more and more retail participation in the capital market?

We understand the mutual fund penetration is still very low. We are expanding our digital distribution through various fintechs. Voice, Video and Vernacular are at the heart of our marketing strategy. For retail participation, it is imperative that content reaches them in a manner that quite literally speaks their language. We have been pioneers in simplifying MF to the average Indian through our Prof. Simply Simple. This property is only getting stronger with every passing day.

What steps have been taken by Tata MF to curb mis-selling?

Mis-selling arises out of 2 things: product benefits get overstated or risk gets understated. We ensure that product risk reward pay offs are clearly communicated and follow it up through repeated training engagements.

With headline inflation being persistently above the comfort zone of RBI, when do you foresee the reversal of interest rate and its impact on the MF industry?

We are of the view that rates have come off sharply over the last 1.5 yrs. RBI has comforted bond markets by keeping rates low and regularly doing OMOs, operation twist and so on. However, what poses some concerns are sticky inflation and crude prices rising. We fear fiscal slippage due to pandemic, which may lead to much higher borrowing in the next fiscal and yields could possibly inch up.

Any new plan in the offing at Tata MF?

We are working on some exciting ideas and will approach the market when we are ready.

What will be your message to the retail investors in the present scenario?

2020 has been a whipsaw year with very sharp drawdown in March and a dramatic recovery more recently. Timing the market is very difficult. Staying true to ones' asset allocation, investing regularly through SIPs and not chasing past returns are key.

Tata Balanced Advantage is an all-season equity fund which automatically shifts between debt and equity basis a time- tested model. One can consider investing in the fund which is ideally suited for retail investors.