Mumbai: India’s mutual fund managers, after waging a losing battle through all of 2008, are hoping they can recoup some losses in 2009.
“We look forward to 2009. It is the year where we’ll have to make amends for the past and the stage is set for the same,” insists Nilesh Shah, deputy managing director of ICICI Prudential Asset Management Co. Ltd, the third largest Indian mutual fund house by assets, managing about Rs37,055 crore at the end of November.
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Equity funds in India followed the stock market’s dive even as investors rushed to cash out of their fixed income or debt funds in the months of September and October.
Mutual fund assets under management shrank by more than 25% over the year, from Rs5.49 trillion at the beginning, to Rs4.05 trillion as on 30 November, the last date for which data is available.
“In 2008, both regulators and fund managers failed in predicting the depth of the economic crisis. While they were talking about globalisation, in the same breath, they were also talking about decoupling,” said Shah.
“It was an unprecedented year in terms of how things unfolded, and we are not going to see this kind of a year in the next 10-15 years,” predicts Sandip Sabharwal, chief investment officer (equity) at JM Financial Asset Management Pvt. Ltd, which managed Rs6,749 crore in fund assets at end-November, about half the Rs12,480 crore it was managing at the end of December 2007.
Equity diversified funds as a category dropped 56.68% during the year, in line with the 54% fall in the Sensex, India’s most watched index on the Bombay Stock Exchange.
Given that 2008 saw every equity scheme from every fund house take a beating, fund managers are desperately seeking to save face in 2009.
Shah of ICICI Prudential likens 2009 to 2003, when stock markets rebounded for a five- year rally after being in the doldrums for three following the bursting of the dotcom bubble and 9/11.
“2009 starts off negative, with most economies in the world slipping into negative growth, but I feel it will be a very different end,” claims JM Financial’s Sabharwal, betting that credit flows will restart, interest rates will fall further, and there will be no prolonged slowdown.
During 2008, when active management failed, the ideal strategy that would have worked, said Sabharawal, was passive management of funds that tracked a key index, keeping a large chunk of the fund in cash. But he predicts that “It (2009) is going to be a year of active management with some very specific picks emerging in industries and sectors that will lead the climb up.”
On the debt funds front, thanks largely to an easing in monetary policy by the Reserve Bank of India, mutual fund schemes have already started posting positive returns. As interest rates fall, the price of the paper in which these debt funds invest go up, effectively boosting the net asset value of the schemes.
Data from Value Research India Pvt. Ltd, which tracks performance of mutual fund schemes, show that income, gilt and, liquid and liquid-plus schemes—the three broad classes of debt funds—have posted year-to-date returns of 11.93%, 21.44% and 8.55%, respectively. Such returns have likely made up for the crisis of confidence and erosion in value of these funds in late September and early October, resulting in net redemptions of at least Rs90,000 crore over those two months.
The Securities and Exchange Board of India, which regulates mutual funds, has also chipped in to boost confidence, announcing earlier this month that it will not allow redemptions from close-ended schemes over the tenure of the scheme. It also said all new closed-ended funds should be listed on stock exchanges to provide liquidity to any investor who may want to sell in a financial emergency.
But the bottomline for success in 2009 is consistency, says Krishnamurthy Vijayan, chief executive officer of JPMorgan Asset Management India Pvt . Ltd. “There should be consistent selling,” says Vijayan. “If fund houses were making 20 sales call a day in a good market, they need to do the same in a bad market. If they had one advertisement a week in a good market, they need to have at least one a fortnight now. If they talked about them being a process-driven fund house earlier, they need to do that now too.”
Graphic by Sandeep Bhatnagar / Mint