Driving growth with performance, product and placement
In this interview, Kartik Jain, Managing Director and CEO of Shriram AMC elaborates on the company’s financial strategies and the tools it employs to enhance investment opportunities for its clients.
What is the core investment philosophy of Shriram AMC and how does it differentiate from other asset management companies?
The investment philosophy of the AMC is directed towards providing sustainable alpha to our investors in terms of higher returns versus the benchmark. Each scheme will have a different risk and return profile which will determine its investment strategy. The fund house deploys a proprietary ‘enhanced quantamental investment’ strategy to achieve optimal risk-adjusted returns to the investors. Quantamental investing is an investment approach that combines quantitative analysis with fundamental analysis to make investment decisions. It seeks to leverage the strengths of both quantitative and fundamental methods.
This helps to achieve a more comprehensive understanding of the financial markets and investment opportunities. The quantitative analysis will act as an input to the fundamental analysis. However, depending on market conditions and economic cycles, the fund manager can selectively use one approach to make investment decisions. This approach is unique to Shriram AMC as this gives us greater flexibility and nimbleness to react to the shifting market trends as well as reduces behavioural biases while institutionalising a process-led approach to our investment strategy.
Shriram AMC is undergoing a transformation known as SAMC 2.0. Can you explain what this transformation entails and what changes stakeholders can expect?
Shriram AMC is a part of the 50-year-old Shriram Group that operates Shriram Finance (a part of the Nifty 50 index) which is India’s largest retail NBFC, Shriram General Insurance and Shriram Life Insurance. We are undergoing a process of transformation with a refreshed focus in partnership with Mission 1 Investments who have taken a 23 per cent stake in the AMC. SAMC 2.0 leverages Mission 1 Investments’ depth of investment experience coupled with the brand, trust and footprint of the Shriram Group.
The key pillars of our strategy cover the three Ps of performance, product and placement. We have strengthened our performance with our proprietary EQI model with all our equity funds moving to the top quartiles as a result. Our product suite is well-positioned across the risk-return spectrum and we continue to add more to meet specific customer needs. Placement or distribution focuses on both the extensive presence of the Shriram Group as well as external retail, institutional and wealth channels and segments.
As a result of this ongoing initiative, the AUM of the company has increased from Rs 271.72 crore in March 2023 to Rs 841 crore as of July 2024, an increase of more than three times. To cater to a wider set of customers with meaningful solutions, we have launched new schemes – Shriram Multi Asset Allocation Fund in August 2023 and Shriram Nifty 1D Rate Liquid ETF with ticker LIQUIDSHRI in July 2024. We are in the process of launching additional products to meet specific customer needs.
The EQI model plays a significant role in your operations. Could you explain the EQI model and how it impacts your investment decisions?
The enhanced quantamental investment (EQI) model is a proprietary strategy that combines quantitative analysis with fundamental analysis to make investment decisions. The quantitative analysis will act as an input to the fundamental analysis. However, depending on market conditions and economic cycles, the fund manager can selectively use one approach to make investment decisions. In quantitative analysis, we create quantitative and statistical models using market data, company earnings releases, estimates, news and various macro-economic data.
The analysis can implement mathematical, computational and various factors such as momentum, low volatility, valuation, liquidity and quality to analyse historical market data, identify patterns, statistical correlation and covariance and develop predictive models to invest in companies or sectors. As a part of fundamental analysis, we use a combination of both top-down and bottom-up approaches. The top-down approach is used to do a macroeconomic analysis, and review of government policies and market trends to determine the target industries to invest into.
Further, once the industries are identified, the bottom-up approach will be used to arrive at the stocks to be selected. In the bottom-up approach, the quantitative analysis will act as an input and all the other companies in the universe are first filtered for size and quality parameters like market capitalisation, ROE, cash flow from operations, etc. The fund manager has the liberty to modify or add any specific industry or financial ratios to filter out stocks. The combination of the above is used by the fund manager to construct and also rebalance the risk-adjusted portfolio to deliver sustainable alpha.
What are the most significant trends emerging in the mutual fund industry? How is Shriram AMC positioning itself to take advantage of these trends?
Some of the key trends in the mutual fund industry include the digitalisation of processes, the use of quantitative models in the investment management process, rising domestic inflows into mutual funds and the growth of Tier II and III markets. With SAMC 2.0, Shriram AMC is well-positioned to take advantage of these tailwinds. We have launched Shri Funds on www.shriramamc.in, which is our DIY portal for straight-through transactions allowing customers to apply and manage any of their Shriram mutual funds all in one place.
Secondly, our EQI model is at the forefront of driving a unique and differentiated approach to delivering disciplined alpha in all our equity funds. Thirdly, we are driving our domestic presence across channels that leverage Shriram Group’s pan-India network as well as external retail, institutional and wealth management partnerships. Finally, our partnership with Shriram Group companies is also giving us access to deep geographies given the group’s presence in semi-urban and rural India.
The Union Budget 2024-25 has introduced changes to the taxation of mutual funds. How do you see these changes impacting investor behaviour and the overall growth of the mutual fund industry?
The key changes introduced in the Union Budget 2024-25 impacting the taxation of mutual funds include the increase in taxation rate of short-term capital gains from 15 per cent to 20 per cent and long-term capital gains from 10 per cent to 12.5 per cent. The limit of exemption of capital gains has also increased from Rs 1 lakh to Rs 1.25 lakhs which is an added benefit for the smaller investors. While these changes will result in a higher tax outflow for investors relative to the previous years, they will also encourage the desired behaviour of extending the duration of holdings in mutual funds. We have seen that time in the market is more important than timing the market and longer-term investor behaviour is beneficial for the industry as well as for the investors themselves.
How do you view the regulatory environment for the mutual fund industry? Are there any specific areas where you would like to see changes?
The intent of the regulator is to protect the interests of investors while creating an environment that is conducive to the longer-term, sustainable growth of the industry. The regulator also works very closely with the industry body AMFI and this has helped create a unique collaborative approach towards setting the guard rails for the industry’s growth and development. Some specific areas that would continue to be in focus include driving penetration of mutual funds amongst the underserved segments in both urban and rural markets and amongst women.
What is your outlook on the growth potential of the mutual fund industry in India over the next five to ten years? Are there any particular segments you believe offer the most promising growth opportunities?
Industry AUMs as of the end of March 2024 crossed the Rs 53 lakh crore mark, growing at 35 per cent over the previous year and delivering a CAGR of over 21 per cent over the last 10 years. The dependence on foreign inflows to support market valuations has systemically reduced when compared to the situation during the global financial crisis. This has been driven by a sustained vote of confidence from domestic investors with a steady increase in the systematic investment plan inflows that crossed an exit run rate of Rs 19,000 crore in March 2024, up 35 per cent over the corresponding month in the previous year.
This reflects the success of the industry-sponsored campaign around ‘Mutual Funds Sahi Hai’ which, along with the dramatic and heady run-up in Small-Cap and Mid-Cap stocks, has fuelled investors’ imagination and catalysed the irreversible trend towards the financialisation of savings. This trend is expected to continue with the industry AUMs slated to cross Rs 100 lakh crore in the next 3-4 years. Underpenetrated segments such as youth, women, Tier II and III towns and rural regions can be expected to drive this growth along with overseas fund flow into Indian mutual funds.
What advice would you give to young investors who are just starting their investment journey in mutual funds?
Investing in mutual funds at an early stage sets the base for inculcating a lifetime of healthy financial habits. The key benefit of starting at a young age is that time is in your favour and you can benefit from the power of compounding. No amount is small as an investment – what is important is discipline. Hence, the best strategy is to invest in mutual funds through SIPs consistently, month on month. The mantra to keep in mind with SIPs is quite simple – start early, don’t stop and keep adding.
Disclaimer: The opinions expressed above are personal and may not reflect the views of Dalal Street Investment Journal.