To create alpha in volatile markets challenging for mutual funds: Nilesh Shah

Volatility in the equity markets is challenging for mutual funds to create alpha or beat the benchmark index, said Nilesh Shah, group president and managing director, Kotak Mahindra Asset Management Co Ltd.

“Mutual funds have done well in the past, but we have barely scratched the surface if we look forward. One big challenge faced by the industry will be how the fund managers navigate the volatile market and generate alpha like before. The success of mutual funds will depend on how we transit to lower middle-income group and bottom of the pyramid and how we work towards expanding our network and move to rural India,” Shah, who is the chairman of the Confederation of Indian Industry (CII) National Committee on Financial Markets and chairman of the Association of Mutual Funds in India, said on Friday.

India’s assets under management (AUM) to gross domestic product (GDP) ratio was at 12%, which is near China’s AUM to GDP ratio of 13%, Shah said at the CII Mutual Fund Summit 2021. “However, when we look at western countries the ratio is significantly lower in terms of penetration of mutual funds,” he said. “Mutual fund portfolio numbers show that it is inclined towards HNIs, upper middle class and urban India but the challenge is to breakthrough into rural India,” he said.

M. Damodaran, former chairman, Securities and Exchange Board of India, UTI and IDBI, and chairperson, Excellence Enablers Pvt. Ltd, spoke of the ‘journey of inclusive and responsible growth’ focusing on enabling the industry to bounce back from the current economic stress. It is not real growth if it is not inclusive, Damodaran said.

“If a small segment of society grows, it is not sustainable growth and it sets in motion tensions and frictions that could stress and possibly break the system. Thus, it is important to take everyone along the growth journey. It is important for individuals and institutions to identify potential and work towards that on a growth journey that is based on values and principals and is sustainable,” he said.

Trust between the industry and the regulator is critical and they need to have a continuous and constructive conversation on the basis of which regulations can be written, Damodaran said.

There is a huge untapped potential in the asset management industry, which is headed towards a positive growth trajectory, said Sundeep Sikka, chairman, CII Mutual Fund Summit, and executive director, and chief executive officer Nippon Life India Asset Management Ltd.