Shastri had also been responsible for driving business led growth with Sahara Mutual Fund, Lotus Mutual Fund, where he had achieved phenomenal growth through increased brand awareness measures, management of different verticals, managing strategic partnerships with stakeholders etc. His last assignment was with Pramerica Mutual Fund as Director & Business Head – Portfolio Management Services and Products with overall responsibility for establishing & managing the portfolio management business and developing asset management products.
Replying to Anil Mascarenhas of IIFL, Rajiv Shastri says, “We are at the cusp of a multi-year lower rate cycle. Investors can benefit by investing in schemes which can maintain higher duration portfolios.”
Earlier in the year, you wrote that to suggest that an inflation-focused RBI will dampen the government's focus on growth is to misread the problem in the economy. How do you view the situation now with the FM continuing to nudge the RBI to cut rates?
The situation remains unchanged today as well. The government has initiated some inflation lowering measures in recent months and believes inflation has responded to them. In addition, the international commodity price scenario has lent crucial support to the emerging lower inflation environment. However, the RBI can respond neither to these measures nor lower inflation numbers. It can respond only to inflation expectations which are still elevated. It would need a few more months of a lower inflation environment for inflation expectations to fall. This would include the crucial summer months which have historically experienced higher food price inflation. Any meaningful lowering of rates will have to wait till then.
We do not believe that the FM has tried to nudge the RBI in any way and our analysis of the FM's words differs to this extent. We believe that he was speaking more in terms of the high relative cost of capital between India and other competing nations over the last many years. The only way to bring this gap down on a sustainable basis is to ensure that inflation expectations fall and remain low, which is exactly what the RBI is trying to achieve. As such, we strongly believe that the Government and the RBI are in sync and future interest rate movements will reflect that.
With over 7 months in power do you think it is too early to judge the Modi-government? What do you expect from the Budget?
While we believe that it is too early to judge the Government based on outcomes, it is fair to begin judging its efforts. And as far as efforts go, the Government gets a reasonably high score. Some of the measures it has taken like including onions and potatoes in the list of essential commodities and encouraging states to remove fruits and vegetables from the ambit of the Agricultural Produce Market Committees (APMCs) have addressed important supply side constraints with an immediate impact on inflation. Others have been focused on building a strong foundation for future growth which include resolving the coal production conundrum, rationalizing labor laws & the Mahatma Gandhi National Employment Guarantee Act, and easing land acquisition norms.
Seen from the perspective of the Governments "Make in India" vision, these measures will have a beneficial impact on the three essential resources required by the manufacturing sector; land, labor and capital. This impact will start becoming visible in the second half of 2015.
How do you view the RBI statements in the recent policy? When do you see a rate cut scenario?
We expect a total of 50 bps of rate cuts in calendar 2015. The first may come early in the year and the second one, late. If the beneficial impact of the Government's measures starts becoming apparent sooner than our estimated timeline, we may see an additional cut of 25 bps in the second half. However in the coming years, we believe that rates will come down substantially, outstripping all but the most optimistic forecasts.
What is your view on the debt and money markets? What kind of balance should investors have in these times?
We believe that we are at the cusp of a multi - year lower rate cycle. Investors can benefit from this by investing in schemes which can maintain higher duration portfolios. However, the rate cuts will not be evenly distributed and such investors may be exposed to significant volatility. As such, longer duration products should be considered only by investors with a reasonably long investment time horizon. At this point in time, we would suggest investments in such products only for periods of a year or more.
Brief us about the investment philosophy of Peerless MF.
On the equity side, our investment approach aims to generate wealth by investing in a portfolio of high quality stocks. As such, it is a completely bottom - up strategy which focuses on individual companies rather than the markets as a whole. We believe that this time tested approach offers the best chance to outperform markets over reasonably long periods of time. On the fixed income side, we aim to construct a high credit quality and hence highly liquid portfolio of securities across all our products. We believe that this approach offers investors the best risk - return characteristics.
What factors would increase appetite for investing in mutual funds?
Appetite for mutual fund products would increase substantially if
- Investor awareness of products increases and
- Investors believe that asset management companies and distributors are dedicated to serving them
This would require better and more effective communication and possibly a change in some industry practices that were established under different market conditions and circumstances.
What is your outlook on the economy and currency over the next 12 months?
As far as the economy is concerned, we are confident that the worst is behind us. However, improvements will only be visible after some time and as such, the coming few months may prove to be volatile for markets. On the currency front, we will stand to benefit from the fall in commodity prices over time and we look forward to some stability in the second half of the year.
Which are the sectors you are bullish and bearish on? Why?
We approach our portfolios from a company specific perspective and have no detailed view on top - down parameters like sectors, industries etc.
What is your view on the regulatory conditions? What are some of your suggestions?
We believe that the regulatory conditions in India are conducive to sustained growth. This is especially true for the Mutual Fund industry and we look forward to regulatory developments that further increase product acceptance amongst the investing public.
What books have you been recently reading?
My reading is typically restricted to economic research papers. A favorite topic is the relation between taxes on capital income and inequality, which I have written on earlier.
What advice would you give retail investors in the present situation?
As always, investors should invest only based on their risk appetite and investment time horizon. While it is often tempting to try and gain from the latest market opportunity, expected returns should not divert attention away from risk.
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