December 31, 2015
The year so far has seen India consolidating its position as one of the most attractive investment destination across the globe. From a fundamental perspective things have never been better with all key macroeconomic variables like lower inflation, lower oil prices, falling interest rates, falling subsidy burden and control in fiscal deficit, supporting a strong recovery.
On the policy front, both the Government and the RBI are emphasizing on growth revival. The RBI has front-loaded the key policy rate cut to encourage investment and boost economy. The Government is also front-ending capex revival. In the first five months of the current fiscal year, the capital expenditurewas more than Rs 52,600 Cr - an impressive 38% jump from the year ago period. Various reforms such as GST, Divestment, Subsidy management, bank recapitalization, Uday (reforms in the power sector), faster environment clearances, etc., are underway in different stages of implementation.
The last few months have witnessed heightened volatility in both equities and fixed income asset classes on the back of global headwinds – uncertainty around possible rate hike by US, worries over pace of Chinese growth etc. This year, Sensex touched peak of 30,025 in Mar’15 and low of 24,833 in Sep’15. However despite this volatility, India has fared relatively much better compared to other markets. India’s relative outperformance may be attributed to the improvements in the macro environment and reforms initiated by the policy makers.
Domestic retail investors have started recognizing the potential for a strong recovery and we are witnessinga clear shift in investment preferences from physical assets to financial assets. The shift in investor preferences can be seen in the MF Industry retail participation this year. Equity assets have crossed the Rs 4 Lakh Cr mark for the first time in the history of Indian mutual fund industry, signaling the return of domestic investors taking the mutual fund route.
2015 also saw another trend wherein net investments by domestic institutions have been more than that of foreign institutions. In 2015 so far, FPIs have invested a net of Rs ~16,700 Cr into Indian stock markets, whereas MF net investments are more than 4 times at Rs ~70,000 Cr.Moreover, close to 41 lakh retail folios have been added, taking the overall folio count of the Industry to around 4.5 Cr in October. Retail participation has continued its momentum from 2015. We are witnessing a trend where more and more investors are coming back into financial assets - this is 17th successive month witnessing steady rise in number of folios. Industry has achieved record high Retail inflows in Mutual funds over the year, defined by inflows in Equity, ELSS, and Balanced categories. Retail inflows were close to Rs 1.7 lakh Cr in 2015 so far. This is a major upswing compared to Rs 1.3 lakh Cr of Retail inflows in the entire 2014. Retail flows, net of redemptions have also been consistently positive in the last 18 months in a row. Overall net investment in MF in 2015-16 is more than the cumulative investment during the entire previous bull-run, between 2003-04 and 2007-08.
Retail participation has shown remarkable resilience to market volatility and we are confident that it will continue in 2016.Equities are likely to emerge as one of the best performing asset classes over the long run and investor are expected to prefer the asset class on higher growth potential coupled with relatively lower attractiveness of alternative investment options.However, it is imperative that investors adopt asset allocation across both Equity and Fixed Income products to avoid a skewed portfolio. This can also be achieved by investing in Balanced Funds which give the additional advantage of tax efficiency.For 2016, we are bullish on the MF Industry and the Indian economy as a whole. The new Government has started in the right earnest to not only bring about administrative efficiency but to put in place new policy initiatives which will revive the economic growth in a shortest possible time. MF Industry growth momentum is expected to continue with assets crossing the Rs 20 lakh Cr mark by 2018.