‘Inflows through SIPs likely to continue’

Investors continue to invest despite equity markets hitting new highs and valuations looking stretched. Nimesh Shah, MD & CEO of ICICI Prudential Asset Management Company, does not see this as a risk. He expects inflows to continue and markets to remain buoyant. Excerpts:

What is your take on continued inflows despite equity markets hitting all-time highs?

The Indian equity market is no longer cheap with the Nifty trailing PE (price-earnings) at 23.31 times and have already discounted this year’s earnings recovery. However, it is still a good time for long-term investors to enter the market owing to two major reasons.

First, the Indian economy is likely to grow at the rate of 7 per cent plus, which is one of the highest in the world and second, corporate earnings are likely to be robust. Going forward, we expect the first signs of GST impact to be visible in FY19.

Since the launch of the ‘Mutual Fund Sahi Hai’ campaign, we have seen an uptick in the number of folios created, which is an encouraging sign. This means that the inflows through SIPs are likely to continue, which is likely to keep the markets buoyant.

With the increasing participation of retail investors in the capital market and the likely improvement of earnings over the next few years, the liquidity-driven rally may continue.

Since flows from FIIs and DIIs are robust on account of growth expectations, markets could head further north.

What more are you expecting SEBI to do for the mutual fund industry’s growth?

Mutual fund penetration among retail investors could improve provided we retain and attract more distributors, which is currently not the case. Simplifying the on-boarding process is another area of challenge. Since all the investments are routed through bank account, we believe allowing investors to invest in mutual funds on the basis of bank KYC can be a game changer.

At the current juncture what is your investment bias — equity or debt?

It purely depends on the investor’s risk appetite, investment horizon and financial requirements. As an individual I am 80 per cent invested into equity and remaining 20 per cent into debt. Equity tends to deliver better returns over the long term, but can be volatile in the short term.

Over longer term, it has been observed that equity market returns have been almost in-line with nominal GDP growth which is currently at 11 per cent.

Which are the sectors that are currently expensive?

Consumer, home finance companies and NBFCs are the pockets where valuations currently appear stretched. The current consumer space reflects the scenario last seen in the year 2000, which was the time when margins were at their peaks but volume growth had collapsed. Currently, the margins seem to be peaking with very slow volume growth.

Which sectors will do well going forward?

Even though the pharmaceutical companies are currently facing FDA problems, I believe over time all these issues will be resolved, which is likely to lead to a meaningful re-rating. We are also positive on infrastructure and logistics.