Global chaos is likely to continue for another 2-3 months
and India needs to be proactive if it wants to ensure growth, Nanavati tells
Sanket Dhanorkar. He also talked about the future of the market and the
investment strategy that a retail investor should adopt in the prevailing
uncertainty.
When do you expect a turnaround in investor interest?
The mutual fund figures for the past two years have been very poor. We have lost retail investors instead of gaining them, which is not a good sign when India is touted to be a growth economy.
A de-growing industry within a growing economy reflects a mismatch. Now, however, steps are being taken to educate the investor, explaining why one should invest in mutual funds for the long term. If you sell funds for the right reasons, it will be better for the future. The industry would rather have three clients coming in for the right reasons rather than 10 coming in for the wrong ones and then redeeming in the short term and affecting the fund performance.
Another key aspect for the future inflow will be interest rates. Inflows will happen only when interest rates come down. If your bank fixed deposit is offering 10%, a lot of people wouldn't want to take the additional risk of equity markets. The day the FD rates start coming down, you could see an incremental shift to equities as an asset class.
How will the European crisis play out?
The ramifications of the Eurozone collapse are significant. There could be absolute chaos in the global markets for 2-3 months, even more. The chances are fairly high because the math just doesn't add up. The kind of debt that European countries have is far beyond their GDPs.
Even the Indian companies with high debt on their books are being punished severely. There is a fair chance that there could be one or two sovereign collapses in the global economy. It will pan out in the next six months. As soon as the Eurozone problems are over, the focus will again shift to the US debt, which remains the biggest worry, and as yet, unresolved. The global and local markets will remain volatile for another 12 months at least.
When will the foreign investors return to the emerging markets?
Prior to 2008, if you were a foreign investor, you could invest billions of dollars across equities in the US, Europe and emerging markets, as well as in debt, in all these regions. At this point of time, though, it is more a question of what is left to invest.
Today, global institutions can't invest in European debt or equities and possibly even the US markets, but they are sitting on cash. So, from time to time, they keep coming back to the emerging markets for short periods of time because they feel these are relatively safe. The emerging markets move 10% up or down on small amount of flows. So these are purely liquidity-driven rallies/corrections and have nothing to do with the fundamentals.
On the domestic front, what will improve the investor sentiment?
We need to get back to the basics and focus on our own economy. One can't just say that India will grow at 8% and it will magically work out. One needs action to make it happen.
We need to look at all the pending issues and resolve them one by one. Since policymaking has come to a grinding halt, one of the solutions is to set up an empowered committee of leaders to remove the logjams and progress with the projects. Breaking the logjam should be at the top of the government's agenda in the next six months. Only then will the economy move and improve investor sentiment.
Can the economy revert to the high growth trajectory seen earlier?
There have been two distinct periods in the last decade. The period between 1998 and 2003 saw the economy grow by a mere 5%, while 2004-8 saw it clocking almost 9% growth. What is an achievable growth rate without fanning inflation now? Going by the past 20 years, it should be around 6-7%. If we act and work on it cohesively, it can be 8%. In the absence of action, 7% can easily become 5-6%. We would miss a great opportunity. If we get 8%, we will stand out as an economy in the global environment.
When do you expect a turnaround in investor interest?
The mutual fund figures for the past two years have been very poor. We have lost retail investors instead of gaining them, which is not a good sign when India is touted to be a growth economy.
A de-growing industry within a growing economy reflects a mismatch. Now, however, steps are being taken to educate the investor, explaining why one should invest in mutual funds for the long term. If you sell funds for the right reasons, it will be better for the future. The industry would rather have three clients coming in for the right reasons rather than 10 coming in for the wrong ones and then redeeming in the short term and affecting the fund performance.
Another key aspect for the future inflow will be interest rates. Inflows will happen only when interest rates come down. If your bank fixed deposit is offering 10%, a lot of people wouldn't want to take the additional risk of equity markets. The day the FD rates start coming down, you could see an incremental shift to equities as an asset class.
How will the European crisis play out?
The ramifications of the Eurozone collapse are significant. There could be absolute chaos in the global markets for 2-3 months, even more. The chances are fairly high because the math just doesn't add up. The kind of debt that European countries have is far beyond their GDPs.
Even the Indian companies with high debt on their books are being punished severely. There is a fair chance that there could be one or two sovereign collapses in the global economy. It will pan out in the next six months. As soon as the Eurozone problems are over, the focus will again shift to the US debt, which remains the biggest worry, and as yet, unresolved. The global and local markets will remain volatile for another 12 months at least.
When will the foreign investors return to the emerging markets?
Prior to 2008, if you were a foreign investor, you could invest billions of dollars across equities in the US, Europe and emerging markets, as well as in debt, in all these regions. At this point of time, though, it is more a question of what is left to invest.
Today, global institutions can't invest in European debt or equities and possibly even the US markets, but they are sitting on cash. So, from time to time, they keep coming back to the emerging markets for short periods of time because they feel these are relatively safe. The emerging markets move 10% up or down on small amount of flows. So these are purely liquidity-driven rallies/corrections and have nothing to do with the fundamentals.
On the domestic front, what will improve the investor sentiment?
We need to get back to the basics and focus on our own economy. One can't just say that India will grow at 8% and it will magically work out. One needs action to make it happen.
We need to look at all the pending issues and resolve them one by one. Since policymaking has come to a grinding halt, one of the solutions is to set up an empowered committee of leaders to remove the logjams and progress with the projects. Breaking the logjam should be at the top of the government's agenda in the next six months. Only then will the economy move and improve investor sentiment.
Can the economy revert to the high growth trajectory seen earlier?
There have been two distinct periods in the last decade. The period between 1998 and 2003 saw the economy grow by a mere 5%, while 2004-8 saw it clocking almost 9% growth. What is an achievable growth rate without fanning inflation now? Going by the past 20 years, it should be around 6-7%. If we act and work on it cohesively, it can be 8%. In the absence of action, 7% can easily become 5-6%. We would miss a great opportunity. If we get 8%, we will stand out as an economy in the global environment.
Source: http://economictimes.indiatimes.com/opinion/interviews/if-you-want-to-enter-equity-do-so-with-a-3-5-year-perspective-saurabh-nanavati-religare-mutual-fund/articleshow/11314786.cms
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