Investors Are Now Seeking More Logical Processes For Making Investment Decisions

BW: The NIFTY now trades at a P/E of 26X, the VIX indicates growing confidence despite stretched valuations, and serious earnings growth is yet to kick in. Are these tell-tale signs of an impending bubble? Does the current state of the equity markets concern you?

Radhika: Equity markets are trending new highs led by high demand for equities in the backdrop of low global yields and expected recovery in global and domestic growth.

Domestic investors are shifting from physical assets to financial assets which bodes well for equity demand for the next 2 to 3 years. This is already visible in the flows we are getting in mutual funds.

Valuations are high but one should also consider where we are in the growth cycle. Probably we are at the bottom of the growth cycle and during such period, valuations may look stretched. As growth recovers and earnings start improving, markets will continue its upward run. Valuations will then look more reasonable and realistic.

BW:  The SEBI recently indicated that expense ratios may be in for a further trim. How do you think this will impact the distribution business and the future of the industry? 

Radhika: Today if someone wants to invest in Equity with professional advice, Mutual Funds are the cheapest product available. As long as there is alpha, investors may be ok with the current expense ratios. However, if SEBI still decides to reduce expense ratios by few basis points, it may not have an adverse impact on the industry as Mutual Funds will become more competitive and volumes will further increase. Also, in pure large-cap space, since the alpha is eroding, low-cost ETFs and active funds may see more takers.

BW: The cumulative AUM of the Mutual Fund industry has just soared past the 20 trillion mark. What, in your view, have been the key drivers of this recent dramatic growth?

Radhika: The AUM increase can be attributable more to investors staying invested and new investors coming in primarily through SIP as well as staggered investment route. Also, demonetisation of high-value currency notes had a positive impact, with the industry getting a tailwind from the conversion of cash assets into financial investments.

BW:  What would your advice to direct, unadvised, first-time Mutual Fund investors be at this time? Are they at a higher than usual risk of making regrettable investment decisions?

Radhika: Investors are now seeking more logical processes for making investment decisions and they have started understanding the logic of buying low for long-term wealth creation. Investors should invest through the SIP route that entails regular investments and better investment experience for the long term. Alternatively, investors can invest in Dynamic Equity Allocation Funds, these funds adjust their equity levels according to market conditions and are ideal for investments during all market conditions.

BW:  Lastly, what is Edelweiss’s competitive strategy? How does it plan to take on the larger industry players in the times to come?

Radhika: Currently we are focusing on the Tier 1 cities of India. We are very ambitious about this business and do see ourselves as a leader in this space over next 5-8 years. We want to build Edelweiss AMC into one of the most respected brands in the asset management business. We are fortunate as an AMC to have one of the widest product ranges in the industry - long-only equities, fixed income, hybrids and international funds - backed by the best talent in each asset class.