Dalal Street Voice: Over next 10 years, I expect the MF industry to be at Rs 100 lakh cr: Naveen Chandramohan of ITUS Capital

Over the next 10 years, I expect the MF industry to be at Rs 100 lakh crores. So, within this context, we are only seeing the initial stages of this growth, Naveen Chandramohan, Founder & Fund Manager, ITUS Capital said in an interview with Zeebiz’s Kshitij Anand.

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Chandramohan has had an illustrious career spanning 15 years in the financial services sector. Prior to setting up Itus, Naveen was the Responsible Officer and Fund manager at Hutchin Hill, a USD 4.5 bn fund where he managed capital out of their Hong Kong office.

He is of the view that in a perverse way, the number of demat accounts open today will eventually benefit the MF and Asset management industry in the future. Edited excerpts:

Q) What is your call on markets which has managed to survive negative global cues, and is probably all set to hit fresh highs in October?

A) It is important to separate micro and macro factors with respect to India today. I have maintained this for over a year now that the micro in India (from a company balance sheet perspective) is the best we have seen over the last 10 years.

We are seeing that being expressed through an adequate flow of capital. When the fundamentals are strong, the price action will follow.

The risks on the macro front will always exist – be it China, US easing, US politics or oil prices going up. If one spends too much time here, you enter the region of forecasting, which is dangerous.

It is important for investors to continue to focus on individual company risks and create a growth-oriented portfolio to cushion against any macro risk.

Q) MF data for September is encouraging. Mutual Fund monthly SIP contribution breaching Rs 10,000 crore milestone for the first time ever and industry AUMs touching all-time high at INR 36.73 lakh crores is historic. What are your views and where do you see the trend heading?

A) I have written about this theme in the past too and at the cost of repeating myself, we will look back at March 2020 as the tailwind for the financialization of the Indian economy.

In a perverse way, I believe the number of demat accounts open today will eventually benefit the MF and Asset management industry.

Individuals will realise that they are better off with their money being professionally managed, as they would not have the time to do this part-time – it's important to realize that money management is a full-time profession.

Over the next 10 years, I expect the MF industry to be at 100L Crores. So within this context, we are only seeing the initial stages of this growth.

Q) As we enter the festive seasons with Dussehra around the corner, what is your advice to investors? The festival marks the victory of good over evil – any evil habits in stock market investment/trading which investors should avoid?

A) Portfolio returns normalize to cash flow growth. You could make tremendous returns on stocks today – 2x-3x in less than 1 year on individual equities, but if the business is not backed by cash flow growth, it's being built on poor fundamentals.

As regards to evil habits, that’s a harsh word. Investors believe they can make money in multiple ways, some require jumping a 1m pole and some require jumping a 10m pole.

The latter will be exciting, as long as, you are climbing, but the risks on the downside can cause severe damage.

It is important for every investor to build a philosophy around investing rather than look at equities as pieces of paper. This is applicable all the more in a bull market like we are in now.
 
Q) What does the acquisition of the Tata Sons-Air India deal mean for the aviation sector as well as banking industry?

A) Privatization of the business will be good in the long term. I believe the biggest beneficiaries will be the consumer who should see more efficient airlines run over time.

Alongside better customer service, this will be good for the domestic aviation business as well. I believe that most of the NPAs have been provided for.

This will free up reserves over time, so that the banking industry can transfer the reserves into new lending and growth.
 
Q) What is your view on the RBI monetary policy? The governor assured the market that we don’t want to rock the boat. When do you see the central bank raising rates in the near future?

A) It would be very naïve to say when the Central Bank would raise rates. But, if I were to think about it from their shoes, I would not want to raise rates too soon and upset the recovery.

It is important that the RBI acknowledges the transmission of the low rates into the real economy and with this as the backdrop, I do not believe RBI should raise rates over the next 2-3 quarters at the very least.
 
Q) Energy crisis is slowly growing – could it impact the Indian economy, and India Inc. as well? How should investors play this theme in their portfolios?

A) Our on-the-ground research shows us that the Indian domestic economy is currently well-positioned to manage the crisis.

However, it is important to realize that power, being a global theme, could change very quickly. It certainly is a risk that can accelerate over the next 2-3 months and it would be prudent to value risk appropriately.

Personally, to buy stocks after a supply risk come into fruition is effectively looking to put on a trade – which we are not fans of. There are two risks one should price in:
a) - Margins over the next 2 quarters for businesses is bound to take a hit though revenue growth will give them a small cushion.
b) - Power exchanges as a theme should continue to have tailwinds around the global situation today.
 
Q) As we enter the festive season – which sectors will be on investors buying radar. Do you see more traction in realty, consumer durable, FMCG and auto stocks?

A) We do not approach investing from the perspective of a theme but we are bottom-up investors who look at individual companies. In terms of the demand, I believe all the 4 sectors you mention will continue to see demand pick up across the board. This does not mean all the stocks do well though.
 
Q) Solar as a theme is picking momentum looking at the recent M&A activity in this space – what are your views, and do you think that the next set of multibaggers or wealth creators will emerge from this space?

A) Currently to me, Solar looks like a hot theme. It is important that power prices inherently have been deflationary in nature. This implicitly means that the government needs to be a lot more aggressive in subsidizing this space to ensure companies on a standalone can have good returns on capital.

While it is not surprising to see consolidation in this space, we would prefer to stay away due to the dynamics of capital allocation and returns.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)