India’s largest mutual fund (MF) house, Reliance Capital Asset Management Ltd, is not just known for its size and scale but also for its active management. Sunil Singhania, executive vice-president and one of the longest serving equity fund manager of the firm, talks about his management style and other key issues. Edited excerpts:
Strong defence: Sunil Singhania says it is not true that the mutual fund industry is not speaking out against competitive products and that the insurance regulator, too, has started taking steps. Shriya Path Shinde / Mint
After a few months of net outflows, are you seeing investors returning to MFs?
Last two to three years have been very challenging. Markets crashed globally. Unfortunately, by the time investor confidence returned, the market had shot up. Then came regulatory changes, such as ban on entry loads. Though in the long term these would be very good, in the short term they’ve created a void because most distributors are not willing to sell MFs.
But there is a lot of retail investors’ unsatiated appetite for MF investing. In the last two years, Indian retail investors would have saved at least $500 billion, roughly Rs22 lakh crore. That is equivalent to 25% of household savings every year. So, in two years, you have saved 50% of India’s GDP (gross domestic product). Nothing of that has come into MFs or even directly into the equity markets. I think it’s a matter of time before investors come back to the equity market.
Why haven’t we seen leading firms, such as Reliance MF, speak up against this disparity in regulation on funds and insurance? Is it because these MFs have sponsors who also have insurance firms?
Look at it this way. When I am working for Reliance MF, I am naturally more concerned about my company. That would be true for all asset management companies. So, it is not true that the MF industry is not speaking out against competitive products. Amfi (Association of Mutual Funds in India) has been very vocal on this. You’ll read newspaper reports about other fund houses speaking out too. On the back of Sebi’s (Securities and Exchange Board of India) new rules for the MF industry, the Insurance Regulatory and Development Authority (Irda) has started taking steps, such as putting a ceiling on the expense ratio.
Eventually the investor will understand what’s good and what’s bad for him, irrespective of what the industry and/or regulators do.
You actively dabble in cash and don’t hesitate in sitting on a high levels of cash. Why?
Our cash holdings have gone down of late. People say that it is difficult to time the market and only a few can do it. We would like to be one of the few. Also, when an investor gives us money to manage in full faith, it is our duty to try and do our best.
We don’t want to say that our funds fell because the markets fell. So, as per our understanding of the market, we try to negate the impact to some extent by increasing our cash levels. That helps us in two ways. One, it protects the downside to some extent. Two, in a panic situation, cash comes in handy to buy stocks in depressed markets where there are distressed sellers, such as at the beginning of 2009. As long as we have a view that we should take a strong cash call, we’ll continue to do it. We can go up to 20% in cash, though under normal market conditions, we hold 5-10% in cash. And that is a strategy.
Reliance MF launched some diversified equity funds at a time when it had a substantial cash portion in other equity funds. What was the logic of the launches when you still had to deploy that cash?
That doesn’t matter. When our schemes have cash, the fund manager has the freedom to invest whenever we spot opportunities. In February 2009, when markets were at the bottom and when small stocks were available at throwaway valuations, we wanted to launch a small- and micro-cap fund. By the time we got Sebi’s permission, the markets and these stocks shot up 4-5 times. We did not launch the fund. But I can’t invest the cash of Reliance Growth Fund, our mid-cap-oriented fund, in these tiny companies. It is over Rs7,000 crore and too large. Or, say, in natural resources firms.
Sebi has ruled that fund managers would get more active in protecting the interests of minority shareholders. Is this going to be an operational hassle or a good move?
It’s a good initiative. In fact Irda should also make it compulsory for insurance firms. Any fund house that sees itself as a rational investor should do it. Fund houses may have to spend some more to hire a few more people to ensure that no firm, in which they have invested, is missed out. But it’s a good move.