In conversation with A Balasubramanian, Managing Director and CEO, Aditya Birla Sun Life AMC Limited

The first quarter earnings of most companies were better than analyst expectations and this has helped the mutual fund sector, says A Balasubramanian, Managing Director and CEO, Aditya Birla Sun Life AMC Limited

What is your outlook on the Indian equity markets in the short to medium term? What are the pertinent risks facing markets in H2FY23 and how should retail investors navigate the current market volatility with mutual funds?

As is known, equity market sentiment is driven by earnings, macro changes in the economy, the flow of funds and sentiment, among many other things. Despite FIIs selling close to USD 33 billion in the last 18 months, the Indian market sustained its performance due to the domestic savings being channelised into the equity market through mutual funds and insurance firms and PMS. Growth in the economy got derailed due to rising interest rates on the back of high inflation post geopolitical issues. In our view, the US economy is likely to face a mild recession sometime in the year 2023 as per the general prediction.

If that happens, the current series of serious hikes in interest rate may get moderated and therefore put a break on the current rate hike cycle and it may turn either neutral or downward biased. As the shift happens from inflation-focused to growth-focused which will come as part of most governments across the world, we should see a revival in the equity market that will drive it to a new high. The risk to the system will continue to remain the same due to the ongoing geopolitical risk and its related development, high price rise eating into savings pocket and thus impacting consumption power, and policymakers continuing to remain hawkish on interest rate, among other things

How has the Q1FY23 earnings’ season fared? In your opinion which sectors appear vulnerable for the upcoming quarters? What is the combination of funds that you are looking for in your offering, pro-portfolio?

The first quarter earnings of most companies were better than analyst expectations. The banking sector did very well on the back of a pick-up in overall credit growth. Most of the sectors have managed to reduce the volatility in the business model and hence I don’t see any single sector would have any significant negative impact on their earnings. However, earnings could come purely in the commodity sector as their price movements are generally linked to global price movements and to that extent one can see earning fluctuations.

Pro-investing broadly relates to the construction of a core equity mutual fund portfolio. This is done while making their investment in a mutual fund. Anyone who wishes to invest in equity mutual funds and start investing for long-term wealth creation needs to create a core portfolio by allocating their funds to three categories of funds at the least such as balanced advantage Large-Cap that invests in frontline companies across different sectors and flexi-cap funds. Each of these fund categories carries a different kind of risk. However, they act as wealth generators by choosing to be a part of everyone’s core portfolio.

What are the emerging trends you are witnessing among mutual fund investors?

Investors generally continue to reinforce their confidence in mutual funds which is getting reflected in the overall AUM growth and in equity. Secondly, the SIP way of investing continues to gain popularity among investors. There has been general acceptance for the use of value-added products such as Step Up SIP, SWP and STP and there has been growing interest. In our case, we have also seen interest getting generated for doing multi SIPs in order to diversify one portfolio and also save for multiple goals that one may have in their life. I would say investors are getting mature and thus improving the overall confidence in mutual funds.

SEBI has discontinued the usage of pool accounts from July 1, 2022.  How has this impacted your business? Also, how will this move benefit investors?

The whole transition was made smoother by working together with all market participants including the regulator. The new methodology is in line with the broad thinking from SEBI that customer money should reach the counterparty directly and the reverse should happen in the same way. As the market keeps becoming larger and larger, SEBI wants investors’ interests to be protected and therefore any such kind of changes must be looked at by the investors and the system over the medium to long term.