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The Rediff Business Interview/Vivek Reddy

'Mutual funds will soon overtake banks in attracting savings'

'The market may go up and down, but the undercurrent is positive'

What is the role of the fund manager in the market? It is said that the investment decisions of the fund managers can affect the market sentiment.

The role of the fund managers is becoming more and more important. Once, individual investors formed the bulk of the market. Mutual funds were not very active with the possible exception of the UTI.

Now the fund managers are becoming much more active in the market as individuals find investing in the market on their own very difficult. So, the market is becoming more institutionalised. With institutionalisation, the market has become more intelligent. It is a positive trend, I think.

As the chief executive of a private sector mutual fund, what do you look for in the market while investing?

Good stocks, good companies and good management. You need to have good growth. You need to have a well-known name and good reputation in the business like Hindustan Lever or Procter and Gamble.… We need to know that these companies have some advantages, which no other competitor can easily duplicate. It has to be sustainable too.

We always balance it out. We do not like to invest 100 per cent in information, software or 100 per cent in pharma. We spread it out among 5-6 different industries, 30 per cent here, 40 per cent there, etc. That is how we make our investment decisions.

How challenging is it?

It is very challenging and exciting. Unlike many other jobs, we have so much excitement every day. Jayalalitha can say something and affect the market. Therefore, we have to think of all that. We have to react to the situations. We have to be up to date, online with information. So, it is very challenging. Investors also have their own requirements, their own needs. They get worried. So, we need to communicate to them. We need to tell them what is happening.

We introduced the concept of ''daily net asset value''. We started this in 1993. We tell them the value of their investment every day. They get worried at times. But they seem to have fair amount of confidence in what we do. They ask and they get worried too.

Can you pinpoint the areas that have great growth potential?

We expect continued growth in technology, pharmaceuticals and FMCG. Eventually, the recession-prone industries like auto, steel, cement, etc, are going to bounce back. Maybe not this year but it has to happen soon. The areas which have gone out of favour are commodities like petrochemicals.

On the other side, everybody likes the speciality areas, the knowledge-based areas. But everybody needs clothes, everybody needs housing. Therefore, those commodity areas also will pick up sooner or later. We are monitoring those areas too. We will invest once they start picking up.

Do you see revival in steel, cement, etc. Or, are you just hoping for revival?

Not in April 1999, not just yet. I think it will take about another nine months to one year or so for a revival. It requires some political stability, government spending and it requires the overall economy to pick up. I think, we have seen the bottom. So, it is time to pick up.

Can't it go any further down?

I don't think so. It has been down for so long that we don't think it will go down more. The recession is felt not only in India but all over the world.

The problem is, there is too much global capacity. People all over the world can buy only one million cars a year. However, two million cars are being produced. There is too much overcapacity in almost all the industries.

It is going to take some more time to smoothen out. That is why you see a lot of big companies merging and closing down several of their units. Once that happens, we will start doing well.

What is the future of mutual funds in India?

Future looks just terrific. Only 1.8 per cent of the household savings goes to the mutual funds now, while 30-40 per cent is deposited with banks. On the other hand, all over the world, both in the developed and the developing world, more money goes to mutual funds than to banks.

Why is the scene different in India?

That is because the industry is still nascent comparatively. In America, it took 50 years for the mutual funds to overtake banks. Even in India, the trend is picking up. That is why we see a lot of potential here. Right now, our penetration is so low that even when we grow from the rate of two per cent to four per cent, it means 100 per cent growth. In the next 5-10 years, we see enormous growth. People also understand that they cannot invest in shares on their own. We see a glorious future in India for mutual funds.

Photograph: Sanjay Ghosh

'Mutual fund management offers excitement every day'

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