'We are cautiously optimistic'

The world markets are abuzz with talks of an earlier-than-expected economic revival. Yet, it makes sense to be cautiously optimistic, Bruno Leefeels Bruno Lee, regional head, wealth management, personal financial services, Asia-Pacific, HSBC. In a conversation with ET, he articulates his views on the wealth management in India and the impact of the regulatory changes on the mutual fund pricing structure. Excerpts:

Many feel that the worst is behind us. Would you agree?
There is some positive improvement in terms of economic data in the US market and Asia. Also, the fear factor has significantly reduced. But, I think we still need to be cautious as there are things that might crop up such as the unemployment situation. Overall, I would say we are cautiously optimistic.

What has been your advice to your high networth income (HNI) clients?
We feel that one should not wait till the market touches a record high to return to investing in equity. HNIs should review and rebalance their portfolios on a regular basis to ensure that they are comfortable with their exposure to risk and the changing environment. Further, to deal with volatility in the markets, diversifying into different asset classes is crucial. In India, where fixed income has been providing attractive returns, clients should have a strategy to allocate assets among equity and fixed income. Indian investors need to understand that the fixed income environment is quite attractive and the equity market is recovering. But outside India, in the US or eurozone, interest rates are low. There is a huge pool of cash sitting on the sidelines. When people’s risk appetite increases, BRIC market will attract a lot of inflow and that will push up the market to the next level.

How do you see the recent regulations on Mutual Fund (MF) pricing structure affecting the market?
Overall, MF penetration is low in India. The regulation ensures more transparency in pricing, which we support. But the other thing to be considered is the high cost of distribution. Bulk of people’s savings are still in fixed deposits, so many are not familiar with stocks/MFs. Thus, it requires a lot of education and financial planning support. Also, unlike stocks, MF is an ongoing service and maintenance cost is high for distributors. So, we are looking at pricing it correctly without sacrificing the service quality.

As a distributor of MFs, what shape is the new charge structure likely to take?
We are thinking along the direction of giving customers a choice. Some customers may do only one transaction for a one-time fee. They could be sophisticated and require relatively limited ongoing servicing. But other customers may need more frequent updates and ongoing services, for them we could charge a certain advisory fee. The charges will also depend on their needs, which are different for customers with lower investible surplus and ones with higher investible assets. We will have to look at customer needs, behaviour and requirements to design an appropriate way within the regulatory environment.

We took some time do our research on how best this could be done and are now on the verge of launching our charge structure. We want to ensure that this is a sustainable, profitable structure, otherwise, it could kill the whole distribution.

What kind of potential do you see in the wealth management space in India?
At HSBC, we are excited about opportunities in India. Some estimate the retail segment will grow at around 10% CAGR, from 900,000 in 2007, to over 1.6 million until 2013. The country has a large young population. As education is important in India, there is a need to save for the long-term — for kids’ education and retirement. We are well positioned to provide quality wealth management services to the mass-affluent segment to help fulfil their important goals in life.

Which are the markets that seem attractive at the moment?
Our quarterly global fund managers survey indicates that the relative allocation to equity market will improve during the third quarter. At the same time, within the global equity market, Asia (excluding Japan), particularly the Greater China region, will continue to attract more inflows because of the continued growth. And recently, we have seen the market reaching a relatively high level compared to March. Sensex in India has almost doubled in about six months’ time. So that is a sign that the money is flowing back into the market.

Source: http://economictimes.indiatimes.com/articleshow/5035815.cms?flstry=1

Money flows back into MFs

If the number of draft offer documents filed with Securities and Exchange Board of India (SEBI) is any measure, mutual funds (MFs) seem particularly cheerful despite stricter new rule on entry load.
Market players say AMCs are on a high, thanks to renewed retail investor interest in equity, flow of new money and maturing of fixed deposits where wary investors had parked their funds during the recent trough.
MFs’ offer documents filed with SEBI rose 32-fold between August and September 18 from a single document filed in the seven months to July, 2009. September alone saw 22 offer documents being filed.
“This has to be because of the up move witnessed in markets and improvement in the economy. Fund houses now foresee higher retail investor interest,” said Apurva Shah, VP and Head of Research — Institutional Equity, Prabhudas Liladhar.
Though it appears that the downturn is behind, figures indicate that the market rally was initially not spurred by retail participation. There was no new money flowing into the market.
“The old money had depreciated during the downturn and investors were shying away from investing. Now, with people recovering losses made during the slowdown, they are eager to participate in the rally and invest in equity and Mutual Funds,” said Gopal Agarwal, Equity Head — Mutual Fund, Mirae Asset.
“Also, high-cost fixed deposits, in which investors had parked their funds during tough market conditions, are now going to mature and would flow to mutual fund and equity market,” said Agarwal.
Shah feels that the new SEBI norm on entry load would stem the flow of old money, as distributors would not see any incentive in channelling it into mutual funds.
Indian economy is perceived as resilient, and its cyclical nature of downturn attracts foreign institutional investments, said Agarwal, adding: “Both internal and external factors are in favour of Indian economy and markets. That is why, despite stricter norms by SEBI, MFs are buoyant.”

Source: http://www.hindustantimes.com/Money-flows-back-into-MFs/H1-Article1-456124.aspx

MFs invest Rs 40,246 cr in blue-chip companies

Money managers handling mutual funds are playing it safe and betting on the top 10 stocks in the bourses, ensuring that their funds perform in line with the overall market. In fact, these blue-chip companies are attracting 28% of mutual fund investment in the equity market.
According to a Sunday ET analysis, out of the Rs 143,860 cr being invested in stocks by mutual funds, as much as Rs 40,246 cr has been invested in just 10 scrips — Reliance Industries, Oil & Natural Gas Corporation (ONGC), Bharti Airtel, State Bank of India (SBI), ICICI Bank, Infosys Technologies , Larsen & Toubro (L&T ), Bharat Heavy Electricals (BHEL), Tata Consultancy Services (TCS) and HDFC Bank.
Significantly, the first five have an allocation of around 18% of the total equity investment of the mutual fund industry. Also, the 10 frontline stocks have high weightage in the Sensex index. Their cumulative weightage is around 59% in the Sensex in terms of market capitalisation as on September 16.
The Sunday ET analysis was done on the basis of the data provided by Value Research India, an independent investment information provider. The figures are as on August 31.

According to Kenneth Andrade, head investments at IDFC Mutual Fund, there is a correlation between the weightage of these companies in the overall market capitalization of listed entities and the investments made by the mutual fund industry.
So far as individual holdings are concerned , Reliance Industries and ONGC attracted around 4% of the total equity investment of the mutual fund industry each. Bharti Airtel, SBI, ICICI Bank and Infosys Technologies were allocated 3% of the total amount each.

Source: http://economictimes.indiatimes.com/MFs-invest-Rs-40246-cr-in-blue-chip-cos/articleshow/5034235.cms