Three Reasons Why The Mutual Fund Advisors Now Face A Litmus Test
The Mutual Fund industry in on a high. Per ICRA's monthly report on Mutual Funds, Equity oriented Mutual Funds witnessed a monthly net inflow of Rs. 12,409 crores in April - up 86.4% from Rs. 6,657 crores in March 2018, and the Assets Under Management (AUM) of the Indian mutual fund industry increased 8.9% to Rs. 23.25 lakh crore in April 2018 from Rs. 21.36 lakh crore in March 2018. That said, there are some compelling reasons to believe that its not going to be all smooth sailing for Mutual Fund distributors over the medium term. In light of recent headwinds, the industry now faces its stiffest test in years. Here's why.
Equity & Debt Markets Have Been Unsupportive
The NIFTY has been stuck in a narrow band for some time now, with markets now seeming to have firmly decided to wait for actual earnings growth to kick in before they rally once more. We've also witnessed increased volatility on the back of global as well as local events. Consider this - yesterday's Karnataka Assembly Elections resulted in a 100-point swing in the NIFTY, and its down 83 points from yesterday's close as I write this! Even SIP investors haven't made any returns over the past 6-8 months. The story of the debt markets has been even more horrifying, with yields moving up spectacularly over the past year and a half, touching nearly 8% as we speak - with crude soaring towards the $80/bbl mark. In such an environment, investors are starting to get iffy - and Advisors are feeling the heat.
New Business Models Are Emerging - And Redefining The Market
With AMFI's "Mutual Funds Sahi Hai" campaign ringing ubiquitously across the country, we've seen hitherto unseen interest levels in Mutual Funds from smaller cities and towns. Per ICRA's report, the country's smaller towns or B30 (beyond top 30 cities) accounted for a sizeable 17.30% of the total industry AUM at the end of April 2018. In light of these developments, we've seen a slew of new and innovative, far reaching Mutual Fund distribution business models emerging and posing a challenge for traditional brick and mortar Advisors. Many of these models are "DIY" oriented, and are aiming to create a convenient, low cost and transparent investing experience for internet savvy millennials. E-commerce players like PayTm and Amazon may further disrupt the MF distribution business in times to come. Needless to say, traditional Advisors will need to reinvent themselves to stay relevant.
Real Estate May Begin To Resurrect Itself
If recent indicators are to be believed, the beleaguered Indian Real Estate sector may be due for a comeback of sorts. Anuj Puri, Chairman - ANAROCK Property Consultants believes that the Indian real estate sector is coming back on track. "2018 started on a positive note with the first quarter recording a q-o-q increase in housing sales, and the momentum seems to be increasing. With nearly 1,800 unit sales added across top 7 cities, the month of April alone saw a 25% increase in absorption across the top 7 cities as against March", Puri notes. If the traditional darling of the Indian investor community starts making a comeback, we're likely to see a lot of redemptions happening from financial assets such as Mutual Funds to fund property purchases - and this will hit the distribution business hard; particularly when you consider the not-so impressive recent performance of both equity and debt oriented mutual funds.
