So far, 2018 has not been anywhere near the blockbuster that was 2017 for the stock markets. While the Sensex saw a significant jump of 28% from January 2017 to December 2017, this year the index has only risen 7.6%. Factors such as growing protectionist rhetoric from the U.S., global trade headwinds, rising crude oil prices combined with the Lok Sabha elections around the corner have caused the bulls to slam the brakes on their charge.
Despite all this, Deepak Parekh, chairman of HDFC, is confident that the individual retail investor will continue to put his/her savings into mutual funds (MFs), resulting in an exponential growth in the MF space.
Speaking at a press conference in Mumbai on Wednesday to announce the launch of HDFC Asset Management Company’s (AMC) IPO, which opens on July 25 with a price band set at Rs 1,095 to Rs 1,100 per share, Parekh said this was the apt time for this listing.
“This will be the fifth listing within our group. We have always believed that a listing best reflects the value that we have created for our shareholders,” he said, adding that structural changes in the Indian economy are bolstering the industry’s optimism about the future and the financialisation of savings.
Parekh went on to say that the deterioration of Indian macros in recent times is largely the outcome of circumstances that “we don’t have a control over”. Parekh’s antidote to this is to boost domestic investment. “The reason why India has been able to stay in acceleration mode is that it is a domestic-driven consumption economy… Domestic consumption is the engine of growth that insulates us from global uncertainty,” he said.
Despite bearing the brunt of rising crude prices, a strong dollar and higher Federal rates, Parekh said that India “was nowhere near the precarious position it was in, in 2013”.
He pointed out that overseas investors have pulled out Rs 33,000 crore from India’s markets in the first six months of 2018. “However, support to markets has come from domestic institutional investors, who have pumped in Rs 63,000 crore till June 2018,” Parekh said, attributing a large part of the rise in inflow from domestic institutional investors to the rapid increase in assets under management (AUMs) of MFs.
The total AUM of mutual funds in India rose by Rs 4.75 lakh crore in FY18, crossing a whopping Rs 23 lakh crore.
Parekh said he is confident that the common man will be the key driver of growth for the MF space going forward. “Mutual funds have become the vehicle for the common man to invest his/her savings, and SIPs have become the preferred choice,” he said, adding that at an industry level, 51% of AUM of MFs comprises retail investors with 70 million individual portfolios as of March 2018.
Moreover, Parekh’s optimism stems from the fact that MFs are at just 11% of India’s GDP, while the world average is 62%. “The mutual funds space is set to grow exponentially in India… The scope to grow is immense,” he said.
However, he cautioned the mutual fund players in India that the onus to explain and educate the common citizens about MFs and the markets falls on them. “Often, the behaviour of the market is difficult to comprehend, even for experts. So how we sell to the common man is important. There is a responsibility on our side; how do we sell and how do we educate the common man?” he said, going on to say that having a long-term horizon is key when investing in MFs.
A good response to the HDFC AMC IPO will add weight to Parekh’s view and prove that investors are confident about AMCs and MFs performing well in the future.
HDFC AMC’s performance has been fairly impressive, going by the figures provided by the company. The AMC said over 51% of its business is in equity assets; it has over 8 million customer accounts, and adds 70,000-80,000 customers each month. It also claimed to be India’s most profitable AMC, clocking in a profit of Rs 721 crore in FY18.
The company’s IPO closes on July 27.
