Mutual Funds : Looking Ahead

 MUTUAL FUNDS: LOOKING AHEAD

Being a retail or HNI investor, majority of investors have chosen mutual funds or systematic investment plan as investment tool. When Retail investment products like fixed deposits, NSC, KVP & etc. products have become dull products on returns parameter, then as Investors many people started investments in mutual funds for better returns. The golden period of returns from 2016 to 2018 has gone now. Markets are showing uncertainty in lieu of global cues, political uncertainty, higher crude prices, high bond yields, and higher dollar prices. If we see the returns pattern from the last three months in the major of the funds, they are negative.  Is it the end of the mutual fund era?

Major of investors, with the help of an investor education program and mutual funds initiative program, started investments in mutual funds and other structured products as traditional products became less lucrative in terms of returns. With the way of SIP and other systematic plans, investors pumped Hugh money in mutual fund portfolios. The risk-reward ratio was favoring investments in mutual funds as investors were ready to take systematic and calculated risks in these mutual funds portfolio. Better diversification, lesser risk, lesser cost, and easy access made the mutual fund a lucrative investment tool. But this golden era of investment in equity and equity-related mutual fund is not over yet. This is just a beginning. What we have seen is just a trailer of yet to be released blockbuster movie. Why , let’s evaluate this from below mentioned points:

1. Consumption Story of India: In India, approx 48% of the population is earning population and this population is majorly creating a lifestyle-driven population. We as earning population are having the saving rate of approx 15-20% monthly and rest, we are spending on living an ultra-luxurious life. Education, essential expenses are approx 50%-60% of total income and the rest is spending on eating out, clothing, vacations or entertainment. Any increment in income does not significantly increase in essential expenses rather incremental income generally spends towards luxury expenses like new technology purchase, international vacations or home renovation or new car purchase, new house purchases, etc. This scenario is going to increase in the coming years as we believe that the young generation wants a more sophisticated life with high-end products which will definitely boost the manufacturing industry and service industry in the country.
   


2.  GDP Growth: We have to understand that being a big consumer market, we as a country to grow on pace of 7-8% GDP growth rate as internal consumption story and opportunity in international the market will lead the manufacturing and service industry to grow faster. In the last 4 years as a nation we have step up from 10^th to 5^th position in the largest economy in dollar terms. India’s GDP grew 7.2% in the third quarter, surpassing expectations and wresting back the mantle of fastest-growing economy from China on the back of a rebound in industrial activity, especially manufacturing and construction, and an expansion in agriculture. China grew 6.8% in the quarter & is expected to grow at that pace for the full year.


3. Agriculture Growth: During 2017-18 crop years, food grain production is expected to reach a record 277.49 million tonnes. During the 2016-17, it was 275.68 million tonnes. India has been the world's largest producer of milk for the last two decades and contributes 19 percent of the world's total milk production. India is emerging as the export hub of instant coffee which has led to exports of coffee increase by 17 percent in the calendar year 2017 to reach US$ 958.80 million. Tea exports from India reached a 36 year high of 240.68 million kgs in CY 2017. India topped the list of shrimp exporters globally in 2016 with exports of US$ 3.8 billion which are expected to double to US$ 7 billion by 2022. Total area in India, sown with rabi crops reached 64.29 million hectares in February 2018. India is the second-largest fruit producer in the world. India's horticulture output reached 300.64 million tonnes in 2016-17 and is expected to reach 305.43 million tonnes in 2017-18. Agricultural export constitutes 10 percent of the country’s exports and is the fourth-largest exported principal commodity. Agricultural exports from India reached US$ 28.09 billion during April 2017-January 2018 with exports of basmati, buffalo meat reaching US$ 6.19 billion and US$ 6.59 billion, respectively. India is the largest producer, consumer, and exporter of spices and spice products. Spice exports from India grew by 6 percent year-on-year between April-September 2017 to US$ 1.37 billion. Dairy sector in India is expected to grow at 15 percent CAGR to reach Rs 9.4 trillion (US$ 145.7) billion by 2020. The online food delivery industry grew at 150 percent year-on-year with an estimated Gross Merchandise Value (GMV) of US$ 300 million in 2016. The sector grew 15 percent every quarter during January-September 2017. (Source: www.ibef.org )


4. Per Capita Income: The per capita income levels in India may be languishing as on date, but is set for a rebound, according to the latest estimates of Morgan Stanley. The global firm expects India’s per capita income to rise to $4,135 by 2027. With a per capita income of $1,702, India ranks well behind some of the key emerging markets, like China, Russia, Brazil, Indonesia, the Philippines, Mexico, and Turkey.  This will also propel India’s position to a middle-income country. “We estimate that digitization will provide a boost of 50-75 basis points to GDP growth and forecast that India will grow to USD 6 trillion economies and achieve upper-middle-income status by 2026-27,” Ridham Desai head, India Research Head at Morgan Stanley said. (Source: Financial Express ).


5. Financial & Securities market in India: The Mutual Fund (MF) industry in India has seen rapid growth in Assets under Management (AUM). Total AUM of the industry increased 25.79 percent year-on-year to hit a record Rs 22 Lakh crore (US$ 342.91 billion) at the end of February 2018. At the same time, the number of Mutual fund (MF) equity portfolios reached a record high of 2.27 billion in February 2018. Another crucial component of India’s financial industry is the insurance industry. The insurance industry has been expanding at a fast pace. The total first-year premium of life insurance companies grew 17.35 percent year-on-year to reach US$ 25.44 billion during April 2017-February 2018. Along with the secondary market, the market for Initial Public Offers (IPOs) has also witnessed rapid expansion. A total of 153 initial public offers (IPOs) were issued in the Indian stock markets in 2017, which raised a total of US$ 11.6 billion. Over the past few years, India has witnessed a huge increase in Mergers and acquisitions (M&A) activity. The total value of M&A in India rose 53.3 percent year-on-year to US$ 77.6 billion in 2017 from US$ 50.6 billion in the preceding year. India is today one of the most vibrant global economies, on the back of robust banking and insurance sectors. The relaxation of foreign investment rules has received a positive response from the insurance sector, with many companies announcing plans to increase their stakes in joint ventures with Indian companies. Over the coming quarters, there could be a series of joint venture deals between global insurance giants and local players. The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in assets under management (AUM) to Rs 95 Lakh crore (US$ 1.47 trillion) and a more than three times growth in investor accounts to 130 million by 2025. (Source: www.ibef.org )

Above mentioned indicators, we can well judge the situation of growth in India. As of now, as per our studies, we can say that neither we are in the bull phase of the market nor we are in the bear phase of the market. We are basically in a deep consolidation phase of market wherein we as advisors don’t expect the market to deliver ROI beyond 6-7% in the current year 2018-2019. But this doesn’t mean that you stop your investments in mutual funds or equity-related products. It can be a phase of slow growth but equity being a long term product needs more attention in the current year. We believe that if you can buy on dips then it is always the best decision towards your investment. Buy and hold will be the strategy for this financial year but for sure in coming years returns will be much higher compared to yesteryears. Aggressive growth will lead to higher growth in different sectors and which will further lead to higher levels and returns in equity markets. Lackluster returns can continue for the entire year but take this as an investment opportunity. 

(Author of this article is Mr. Rohit Khandelwal. He is a certified AMFI advisor)

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Mutual funds are subject to market risk. Kindly read scheme related documents before investing.