'Although mid- and small-cap funds have the potential for higher growth, they come with inherent higher volatility.'
Systematic Investment Plans (SIP) inflows are robust in this financial year despite volatility in the equity market and the trend is expected to continue, says G Pradeepkumar, chief executive officer, Union AMC.
SIP inflows will remain the cornerstone for growth for the mutual fund industry, Pradeepkumar tells Abhishek Kumar/Business Standard.
In a report, Union MF expects India to outshine all major economies. If that happens, which sectors will benefit the most?
Given that India is one of the fastest-growing large economies in the world, we believe that its average per capita income growth will remain strong.
This incremental per capita income is expected to drive growth in the consumption-focused sectors, such as consumer discretionary and consumer staples, over the medium to long term.
Moreover, India is making significant strides towards becoming a global manufacturing hub and an integral part of the global supply chain.
The government's focus on various production-linked initiatives and increased infrastructure spending is laying the groundwork for the nation's long-term growth.
Hence, we believe that the industrial and financial sectors have significant growth prospects over the long term.
The market has hardly delivered returns for almost a year-and-a-half. How challenging it is to get new investments in schemes?
The Indian equity market outperformed most of the developed markets in 2022 despite facing macroeconomic headwinds.
While we did observe some slowdown in terms of the inflows in the equity funds during the financial year 2022-2023 compared to 2021-2022, it is worth noting that SIP flows remained robust.
Looking ahead, we anticipate that this trend will persist and serve as a cornerstone for growth within the mutual fund industry.
What are the triggers that can give a boost to the market?
First is the government's efforts to boost the manufacturing ecosystem, particularly through fiscal stimulus such as infrastructure spending.
This will likely position India as a manufacturing powerhouse and attract substantial business for domestic manufacturers.
The recent performance of the core sector is indicative of the significant capital expenditure undertaken by the government to enhance infrastructure throughout the country.
This bodes well for India's long-term growth prospects.
Secondly, an accommodative monetary policy by central banks can provide a boost to the market by increasing liquidity and encouraging investors to participate in the market.
Lastly, the rural economy has faced several challenges, including inflation and delayed infrastructure outlays.
A revival of the rural economy is critical for generating broad-based growth and boosting consumption, which will have a positive impact on the overall economy.
Debt funds are off investors' radar for almost two years now. Does that worry the MF industry?
Fixed-income investors have been experiencing muted returns, but the tide is turning, thanks to higher bond yields.
In our opinion, 2023-24 would offer great opportunities for fixed-income funds.
With interest rates expected to reach their peak and a projected reversal of the cycle within the next two to three years, there is potentially an attractive investment opportunity in fixed income funds.
Which equity funds will deliver, considering the valuations and economic outlook?
From a valuation perspective, we are neutral between large-cap, mid-cap and small-cap funds.
Although mid- and small-cap funds have the potential for higher growth, they come with inherent higher volatility.
Nevertheless, given the positive long-term economic outlook, all equity funds are well-positioned to benefit from the growth story.
Why has Union MF stayed away from passive funds even as they get popular?
We believe that, over a long period, it is possible to generate alpha over the benchmark in a developing market like India.
Our internal studies have also reinforced this perspective.
Having said that, we may consider launching passive funds in future.
