Q&A: Nimesh Shah, MD & CEO, ICICI Prudential AMC

Look at sectors which are underpriced

With the domestic equity market close to its earlier peak, fund managers are cautious. Some sectors have outperformed the benchmark indices while others are still trading at lower valuations. In an interview with Mehul Shah and Chandan KK, ICICI Prudential AMC’s Managing Director and CEO Nimesh Shah says investors should avoid sectors which have already rallied and focus on spaces that are still underpriced. Edited excerpts:

What is the mood among retail investors?
Retail investors have gone through the entire cycle of ups and downs in the last three years and that too in a smart manner. I am quite impressed by the way they have behaved in mutual funds. They were not the first one to redeem when the markets crashed. Rather, they showed a good approach by waiting till the markets turned around.

What should retail investors keep in mind while selecting a mutual fund scheme?

One should not look beyond three to four categories, namely largecap, midcap, flexicap categories. Then, there are sector-specific funds. Historically, retail customers come in a particular sector when that has already rallied. An investor should be able to understand which sector would do well and should not look at those that have already outperformed.

Your infrastructure fund has completed five years. Is it a good time to invest in these kind of funds?
Between the last peak and now, infrastructure funds have not done well compared with other funds. May be it is the right time to pick funds in the infrastructure space. India has just started investing in the infrastructure sector. The country is nowhere near the world’s scale. This sector has not done well over the last three years, but the growth in the economy has continued. So, companies in this space have to grow. This sector is also underpriced as stocks have not appreciated much.

How is the profitability on the retail equity business front with the entry load ban?
We are scale players and have Rs 16,000 crore assets under management (AUM) in the retail equity business. To a certain extent, the profitability has got affected, but I do not expect all businesses to make money every quarter. This is a business we want to invest in and want to grow over a period of time, no matter whether I make money or not in a quarter or a year. Apart from this, our institutional and portfolio businesses are making reasonable profits. The only challenge is the retail equity business.

With debt valuation norms coming into force, how has the business changed?
What the regulator has done is a great risk mitigation thing for sponsors, investors and companies. For sponsors, this is the best thing from the risk adjustment point of view, as their risk has gone down considerably. With the liquid funds of less than 90-day duration and the rest of the portfolio being mark-to-market, the industry should go for a lesser duration. Moreover, for asset management companies, it will become a more logical business to run.

Are you considering no-exit load for equity schemes?
I am against removing the exit load. We do not want speculators to come into mutual funds. I want investors. The exit load to a certain extent ensures that if an investor comes in, he is conscious of the fact that he has to stay. I would rather have exit loads, so that there is a slight deterrence. We believe an investor can make money in equity if he stays for a long time.

Source: http://www.business-standard.com/india/news/qa-nimesh-shah-mdceo-icici-prudential-amc/411168/