In conversation with Sandeep Bagla, CEO, TRUST Mutual Fund

Excerpts from an interview with Sandeep Bagla, CEO, TRUST Mutual Fund

With high levels of inflation expected to persist in the future along with more rate hikes, what is your outlook on the Indian equity markets in the short to medium term?

With inflation likely to remain high for some time to come, interest rates are likely to go higher and liquidity will remain tight. The outlook on Indian equities while positive will also depend on factors like global liquidity and interest rates, risk appetite and the state of the real economy.

What changes have you made in your equity funds in view of the rising interest rates and volatility over the last few months? Currently, are you more skewed towards growth or value stocks?

While the jury remains divided as to what measures will have to be taken and for how long to bring inflation down, our view remains constructive on BFSI and cautiously optimistic on large IT and the automotive sector. We should be launching our first equity fund in 6-9 months.

What’s your outlook on Indian debt markets and yield curve post RBI’s recent hike in policy rates? Also, could you shed some light on the investment philosophy behind the recently launched TRUSTMF Money Market Fund?

In the Indian debt market, the yields on bonds have risen sharply as inflation rose and RBI hiked rates. Irrespective of the current situation, the markets believe that eventually inflation will come down to 5 per cent and hence the 10-year yield is trading below 7.5 per cent. At the shorter end of the curve, it is quite possible that the market yields have already discounted anticipated rate hikes. In our newly launched TRUSTMF Money Market Fund, we are investing only in six-month instruments around a yield of 6.2 per cent with a roll down strategy. Ab initio, the yield on the portfolio is better than liquid funds by 100+ basis points. If interest rates were to remain flat or rise less than expected, the three-month returns could go higher as well. The issuers in the portfolio are from a universe parsed by CRISIL, our strategic knowledge partner, based on superior liquidity, stability and credit characteristics.

How should a retail investor approach mutual funds in the current scenario?

Mutual funds are long-term wealth creators and should be used to channelise regular savings into productive investments. Retail investors should first arrive at the ideal asset allocation between debt and equity. Exposure in debt should be undertaken through funds like liquid or money market, BPSU or short-term funds and government securities funds. Equity exposure should come mostly through Large-Cap, moderate Mid-Cap and smallest exposure to short-term funds. While the market volatility is high now, investors could reduce risk, but are advised to stay invested in mutual funds.