Nivesh Mitr was in conversation with Neil Parag Parikh, Chairman and CEO, PPFAS Mutual Fund. Read the full interview below –
Nivesh Mitr (NM): There is rising crude oil prices, global trade war, political uncertainty and rising bond yields. How is all this shaping your view on the markets?
Neil Parag Parikh (NPP): All the events you mentioned, will keep the markets volatile, at least until the elections in 2019. They will also create buying opportunities over the next 6-12 months. These macro events are part and parcel of equity investing and cannot be avoided. We believe it is better to concentrate our efforts on bottom-up, company-specific research to build a portfolio.
NM: What vision do you hold for PPFAS AMC? What is your long-term plan for the company?
NPP: We will continue to be a value-focused fund house who are passionate about equity investing. I do not believe in a ‘supermarket’ approach, which involves launching multiple schemes just to garner AUM. We are asset managers and not asset gatherers. Currently, we are offering just two schemes i.e. Parag Parikh Long Term Equity Fund and Parag Parikh Liquid Fund. I believe we have a long way to go with the Equity scheme and will concentrate all our energy to make it the most preferred equity fund. In the near future, I also wish to launch an ELSS scheme to complete the product basket.
NM: Which sectors are you bullish on and why?
NPP: Being bottom-up value investors, we do not have a specific sector allocation/ weightage. We are a true ‘go- anywhere’ fund. This means that we will go anywhere where we find value. We also invest in overseas companies (up to 35% allocation in the Portfolio). So within a sector, there will be some opportunities to invest while others in that same sector will be expensive. That is where our research capabilities will help us to differentiate the good vs the bad within a sector. We do like private sector banks for the long-term and also some of our overseas investments look relatively attractive compared to their Indian peers.
NM: Which sectors are you underweight on currently and why?
NPP: We find the Non-Banking Financial Companies (NBFC) space and certain consumption stocks quite expensive. Valuations in these pockets have really run up and we are not comfortable investing at such lofty valuations.
NM: What is your opinion on real estate vs. equities as an asset class?
NPP: I am a believer in equities and believe they are the best asset class for people to invest in. Through Mutual Funds, anyone with Rs. 1000/- can invest and participate in the growth story. Equities provide a good hedge against inflation. Liquidity is also very good so in case of emergency, the stocks can be sold off relatively quickly and with ease. None of the above advantages is there with real estate. Only a few can meaningfully participate in real estate. Also, transparency is much less in real estate compared to equities.
NM: What do you think needs to be done to make mutual fund investments a mass-market product and increase its penetration?
NPP: Slowly but steadily penetration of mutual fund investments is increasing. People are realising the need and advantages of financial assets compared to physical assets like gold and real estate. The shift is clearly discernible and that is heartening to see. I think ease of on-boarding and KYC requirements need to be made simpler and easier for greater penetration. Too many and too frequent regulatory changes disrupt the whole process. That needs to be made smoother without periodic tinkering from the regulators.
Simplified products and limited choice of products to not confuse investors. This will also help in communication among advisors and clients. Excessive choice and complex products are actually a big deterrent to increasing penetration.
Communication from fund houses about their Offerings have to be crisp and concise, without any grey areas for mis-selling. For example, recently Balanced Funds were sold as assured monthly dividend products which were wrong. Many people have got burnt with these as they thought it was a product which generated fixed income. Such unsavoury experiences sometimes result in making investors shun mutual funds completely, thereby precluding them from creating wealth in the long-term. It also creates adverse publicity for the Industry in general and is a setback to those mutual funds who devote considerable time and resources towards attempting to educate investors in the right way.
NM: What role can technology play in the industry (to increase participation of retail investors)?
NPP: Going ahead, technology will play an increasingly important role in increasing penetration. We can already see this happening today in the form of electronic platforms for Registered Investment Advisors (RIAs) and low-cost online platforms. These can certainly aid in deepening penetration.
The convenience of being able to purchase mutual funds with a click of the button should help popularise this option, just like the advent of online has helped expand the Indian ‘retail’ market.
Of course, regulation may sometimes limit certain transactions even though they are technologically feasible. However, given that the industry deals with investors’ hard-earned savings, regulation should be viewed as a constructive restraint in order to retain the confidence of investors.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.