There have variations in Assets under management (AUM) collections by mutual funds in the past three months. There has been some impact on collections since direct sales agents were not given compensation. The Sebi has recently also allowed trading of mutual funds through the exchanges.In an interview with CNBC-TV18, IV Subramanium, Director, Quantum Mutual Fund spoke about his reading of the markets, fund flows and his outlook on the market and sectors.
Q: What has been the experience in terms of AUM collections by mutual funds in the past three months? They have had to face some kind of vicissitude, first the DSAs were not given compensation and that brought its impact. Now trading through the NSE has been allowed. Basically how have been the fund collection trends?
A: Immediately after August when the new regulations were announced, there was a lot of hue and cry and there was some uncertainty on how the mutual funds would be distributed. You did find flows into the mutual funds declining because the touchpoints were not as effective as they were a year back.
But having said that for the last few months we have also seen things stabilizing and the flows have certainly improved. Going forward with new channels like the NSE and the BSE terminals, I think the touchpoints would definitely be far higher than we had in the past. That should really auger well for the mutual fund flows.
Q: We have seen mutual funds sell pretty aggressively above that 5,000 mark. Insurance companies have been buying, FII figures have been positive. If we see the last two weeks, the week ended December 4, MF’s were net sellers of Rs 430 crore and the week ended December 11 about Rs 1,100 crore. Is it pretty much skittish retail bringing about some redemption pressure or is there just lack of value above these 5,000 levels because this has just been a zone that we have been in for the past three months?
A: That depends on the strategy which each mutual fund follows. By and large if you look at people who follow value philosophy and as long as they find value in the market they will remain invested.
So having said that there are certain segments or certain pockets within the market like consumer discretionary and some of the media stocks or some of the IT stocks, they certainly look a bit expensive compared to their historical valuations. There could be some mutual funds out there wanting to cash out on those and wait for the broader markets to correct.
But it is very difficult to say as what exactly is driving this because each mutual fund follows its own strategies and there could also have been some redemption pressure not only from retail but I think it could also have been from some of the larger institutional players in the market. And that could have also resulted in cash levels going up in mutual funds.
Coming to Quantum, we have raised some cash and that is purely a function of valuations. We are still comfortable with the stocks which we hold in the portfolio but those which we sold were purely from a valuation point of view. And if the valuations look attractive going forward we will definitely redeploy the money back into the markets.
Q: We have a couple of interesting turning points on the horizon there will be the inevitable profit taking towards December 31 and then we get into an earnings season and the pre budget euphoria atleast normally. What kind of sectors would you put your money on, would it be a midcap index that you will back, or would you go with the heavies and would you basically be bullish?
A: I am extremely bullish even now. Somewhere in the middle of next year we can at least justify in terms of numbers that the market could reach levels of 21,000-22,000. So we don’t have a problem with the direction of the market.
But having said that, it depends on where you invest your money. So at this point I am less bullish on consumer discretionary particularly some of the automobile stocks. They have increased quite significantly over the past year and a half and so valuations look to be a bit expensive. I am still not comfortable with the real estate space and cement space.
Barring these three spaces I think most of the other areas we still find a lot of stocks which are attractively priced even at this point. Even if you look at their long term earnings potential they definitely look attractive to me.
So I am still bullish on the power stocks, we have investments in engineering and banks. We are extremely positive on the IT sector as well. So these are areas where we have invested. But we don’t take a call on the macro where the budget would be announced or when or what kind of a budget. We really look at company specific trigger points. As long as we find value in any company we go ahead and invest.
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