“We see ourselves as a niche focused manager that offers only equity funds”

The MF industry has been witnessing stellar growth over the past 12-18 months. What do you feel are the key drivers behind this trend? Do you think the industry is scaling too fast for its own comfort?

There are near term as well as long term structural drivers for this growth. In the short term the growth is driven by relative unattractiveness of other asset classes like gold, real estate and fixed income and this has been further accentuated by the unintended yet pleasant consequences of demonetization. So naturally there is lot of flow being directed towards capital market instruments. On the other hand equity market performance has been positive over the last few years, there is a bit of a recency effect there which is further adding conviction as a fuel to the basic need for seeking alternate avenues. On the long term basis, one must keep in mind habits change with generations, who our investor was say 15 years back and who our investor is today are totally different people. For one generation of people interest rates meant fond memories of GoI Relief Bonds at 11% tax free and the PPF rate at 12%. For yet another generation interest rate means 6% and there is clear understanding that there is indeed no free lunch.

Industry is well prepared for this growth; to put it in the current context we have been digital and cashless for as long as I remember, maybe two decades now. We have a very solid track record of delivery and our regulator has created a highly evolved playfield for all of us to participate in while safeguarding investor interest. The only word of caution to my fellow industry participants is that mistakes are made in bull markets and hence we should maintain sanity in every form and avoid launching too many new products or complicating our offerings to investors.

What is your view on direct plans? Do you see first time investors taking the direct, unadvised route as a threat to the industry?

I have a strong contrarian view to this especially because your question is specific to first time investors, I see it rather as a threat to investors than to anyone else. If there is no advice then MS Excel rules – descending sort for performance, buy the best performing schemes of the last 1 year or 3 years without understanding what goes into the performance and does it suit investment objectives. If this doesn’t work, redeem and look for something else. One just cant over-emphasize the value of third party advice. If you come to my office or my website, I will say MotilalOswal is best and if you go to ABC or XYZ they will say they are the best. The point is investor doesn’t need “best” product, investor only needs “right” product and in that journey “direct” is a distraction. If you are on the wrong train, it makes no sense to make the speed of the train a decision parameter in your journey!

According to me 99% of investors don’t realize that performance is an outcome and chasing the outcome doesn’t assure outcome – understanding the process that goes into creating the outcomes; that is the key!

Debt Funds have seen significant traction from retail and HNI in the past year. Does MotilalOswal MF have plans to launch more products in this space in the times to come?

We do not manage fixed income funds except for an ultra short term fund that enables our investors to park monies for switching in and out of equity funds. Beyond this, we have no plans to offer fixed income funds. We believe in adhering to our competency of research based equity fund management and we believe we must offer what we are good at. Unlike most of our peers we don’t see ourselves as a “supermarket” that offers a one-stop shop for whatever a customer can possibly buy; we see ourselves as a niche focused manager that offers only equity funds and within equity also our single time tested philosophy of BUY RIGHT : SIT TIGHT.

Are the PMS capabilities of MotilalOswal carried forward into the AMC business in any way? Is your QGLP Mantra really an extension of the way the group runs its PMS business? What are the benefits to investors from this approach?

We started offering open ended actively managed equity funds in 2013 while we have been managing PMS since 2003. While the investment teams and fund managers for both businesses are different and regulatory framework, dos and donts are different, as an organization it is but natural that our experience of managing PMS has helped us prepare for our MF offerings. Managing with a buy and hold philosophy, seeing clear benefits in running focused portfolios, buying high quality high growth secular companies based on bottom up fundamental research; all of these traits have been practiced for well over a decade. Usually, when investors get introduced to a new AMC, they may be wary of lack of experience, but at MotilalOswal before we offered our first open ended fund, we had over a decade of experience and track record of having managed money and created wealth based on our established philosophy.

How can the relatively smaller AMC’s compete effectively with the larger players who appear to be dominating the AUM game right now? Do you foresee consolidation in the AMC business in the next couple of years, with the 40 odd AMC’s dwindling to a much smaller number?

I don’t think AuM stands for anything really; what matters is performance and the process to enable sustenance of performance. As far as size of AuM is concerned; we are not small in AuM by default we are small by design and we are growing in our chosen niche. We offer only equity and within equity we offer funds based on a single philosophy. We have made a conscious choice to be focused on our core competencies and we have ensured that over Rs 2,000 crs worth of our groups investments are also invested in the very same funds that our investors invest into. Forget the AuM for a moment, commitment is important. As opposed to this strategy of focus, our peers offer liquid, FMP, short term, income, equity and within equity – value, growth, opportunistic, contrarian, open ended, closed ended, arbitrage, equity income, balanced etc etc. If you evaluate the stock market composition vis-à-vis our industry product offerings, I feel sorry to say my industry is offering some 500 odd equity schemes in order for investors to basically buy 200 companies that are worth buying. What some industry players are offering vs what we are trying to accomplish, renders no comparison – it is an apples and oranges or as some may put it an apples and custard apples comparison. And I strongly believe that if all AMCs are going to look the same and conduct the business in same manner then 40 are too many. On the other hand if they are willing to differentiate and innovate then 400 are also not enough.

What is your advice to investors at this time? Should investors with a reasonable time horizon still be aggressive in their asset allocation… or is prudence the key?

Prudence is always the way to go. For every individual there is a right asset allocation and they must stick to that. As regards advice on equity markets, yes please review your equity allocation and stick to the desirable number. Equally, do not get bogged down by highly generalized and sweeping statements about market valuations. Market valuations are high because earnings are coming from a trough and at the same time dramatic fall in interest rates changes discounting rates and PE multiples. So past 10 year average PE is not the right indicator, that played out with average risk free rate between 8%-9.5%, whereas we are likely to see 6%-7% for the foreseeable future. In any case, we as a manger don’t really worry about index valuations, we are only concerned with identifying 15-20 companies that can double their earnings every 3-4 years and we hold them for long term as long as we find them at reasonable valuations.