Mr. Killol Pandya – Head, Fixed Income, Daiwa Asset Management (India) Pvt. Ltd, is a post graduate in management with specialization in Finance from the University of Mumbai. He has over 11 years of work experience in the areas of fund management, portfolio development and analysis of securities. Apart from managing mutual fund schemes, he has worked in the areas of retirement benefit funds, fixed income dealing and proprietary debt portfolios. He has been associated with Darashaw & Co. Ltd., IL & FS Investsmart Ltd. and SBI Funds Management Pvt. Ltd. His strength area has been in managing liquid funds, debt funds, debt oriented hybrid funds and fixed maturity funds.
Daiwa Asset Management (India) Pvt. Ltd. is a part of the Daiwa Securities Group, which has a strong 100 years of history and is one of the leaders in the financial services industry in Asia. Daiwa Securities Group Inc. and Daiwa Asset Management Co. Ltd. own 100% equity share capital of Daiwa Asset Management (India) Pvt. Ltd. DAM, the asset management subsidiary of the Daiwa Securities Group, holds 91% of the equity share capital of Daiwa AMC and the balance 9% is held by DSGI, the parent company of DAM. Daiwa Asset Management (India) Pvt. Ltd. is the investment manager to Daiwa Mutual Fund which is a mutual fund registered by the Securities and Exchange Board of India.
Replying to Anil Mascarenhas of IIFL , Killol Pandya says, “Investors also need to be told that debt funds are not just meant for 'institutional investors' and HNIs.”
From a medium perspective, what is your view on the domestic debt markets?
The domestic debt markets have been seeing a persistent upswing in the interest rate scenario for quite some time now. Inflation appears to be the biggest concern driving the RBI’s policy stance and it seems unlikely that inflation may cool down in the immediate future. Market liquidity has been persistently tight and it is the RBI’s intention to keep market liquidity tight in order to ensure proper monetary policy transmission. In view of RBI’s policy stance of focusing on managing inflationary expectations, ensuring proper and timely transmission of monetary policy and its willingness to sacrifice short term growth to cool inflation, we view the domestic debt markets with a negative undertone within a medium term perspective.
In the present scenario how should investors look at debt funds?
As I have mentioned earlier, we have seen a consistent up-tick in interest rates for some time now. Though we are nearing the peak of the interest cycle, it is premature to say that the peak has been attained. In that context, I would recommend investors to orient themselves at conserving cash and taking advantage of re-investing at higher yields. Both these objectives can be met by investing into Liquid and other Money Market funds as of now.
What factors would increase appetite for investing in debt mutual funds?
The penetration of debt Mutual Fund products in India is poor in the context of its reach and its depth. While the industry has seen significant growth over the past decade, we are still a long way away from our potential. From the debt funds perspective, there is a need to generate awareness amongst investors of the products that are already available to them. Investors should be made aware that Mutual Funds are not only about equity funds and that debt funds can generate profits and not just give ‘fixed returns’ and that the funds do allow for liquidity and need not only represent ‘locked-in’ monies. There is an equally urgent need for the industry to reach out to the investors and find out what their investment needs are and tailor products to meet those needs.
Investors also need to be told that debt funds are not just meant for 'institutional investors' and HNIs, they are equally good for investments by retail investors. Investors should make debt funds a regular feature of their portfolios instead of considering them as exotic investment instruments.
Do you see interest rates peaking out by September?
We appear to be nearing the peak of our interest rate cycle. However, it may be premature to think we are already at the peak. The RBI seems to be of the opinion that inflation shall need to cool off on a sustained manner before its stance can change. In that context, we may be looking at further rate action in September/October.
However, we may shortly reach a scenario where the RBI may look to allow the rate actions to percolate into the economy while also taking stock of the inflation in the context of growth and other macro-economic indicators.
What impact has it had on yields?
Market yields are a function of the interest rate scenario, interest expectations and market liquidity. When faced with a sustained tightness in market liquidity and a continuing up-tick in the interest rates, markets have little option than to follow suit. Accordingly, domestic market yields have risen consistently over the past few quarters. This is fully in line with the rising interest rates and tight market liquidity conditions.
Every fund manager would give enough reasons to buy a mutual fund. For investors, when is an ideal time they should look at exiting a mutual fund?
The concept of ‘exiting’ a fund to conserve cash and capital is stricto-senso not applicable to debt funds. I believe that an investor should be provided with products which can allow him to make money in all market conditions. By dynamically shifting from aggressive to conservative products, an investor can make money in all interest regimes.
By when do you see inflation numbers stabilizing?
We hold that the inflation numbers may stabilize by September - November 2011. The RBI may look to pause at an appropriate time when the inflation stabilizes. Thereupon, we expect the inflation numbers to soften slowly (not abruptly) and expect the RBI to alter its stance on interest rates accordingly. We expect growth to slow from its current trajectory though we are not factoring in a hard landing at this point in time.
What is your view on the currency?
The INR has been in a long term appreciation mode over the past few quarters. The INR has been broadly moving in a band or 44.00 to 45.00 against the USD for some time now. We expect this band to hold for now. Going ahead, the INR may continue to appreciate against a globally weakening USD. The pace and extent of this appreciation may be modulated by the RBI through intervention.
How do you view the regulatory environment?
The regulatory environment surrounding Mutual Funds has been active and dynamic for some time now. While a lot of discussion prevails over the regulatory changes, I hold that the changes brought about by the regulator from the debt funds perspective are in the long term interests of the mutual fund industry.
What books have you been recently reading? Any key takeaways?
I like to read non-fiction and I like to read History. History is the record of humanity as such and it gives us unparalleled insights into the greatest successes and failures of human endeavour. I have recently finished reading a book called “Gem in the Lotus” by Abraham Eraly. It’s a lucidly written account of ancient India. The book provided me with new and unique insights into the diversity and refinement of our culture while elucidating details, trivia and facts about the times when India was intellectually, culturally and spiritually effervescent – about the times which helped in shaping India as we see it now.
What advice would you give retail investors in the present situation?
For retail investors in general (both equity and debt) I would suggest they retain faith in what is popularly called the ‘India story’. I urge them to retain their confidence in the tremendous potential India possess and more importantly one which it is beginning to unleash.
For retail investors in debt specifically, I would suggest that they look beyond bank Fixed Deposits and retail debentures to expand their debt portfolio. Mutual Funds already have products which can serve many of their investment needs – I would advise them to make debt Mutual Funds a regular part of their portfolio instead of considering it as an exotic investment tool.