Edelweiss Mutual Fund had a sharp run-up and crossed the ₹1-lakh crore in asset under management (AUM) recently despite the upheavals in the market. Unlike others, Edelweiss MF has largely taken the passive route to grow its asset and tried to deliver better returns at lower cost for investors. Radhika Gupta, Managing Director & CEO, Edelweiss AMC, shares her view on the way forward. Excerpts:
Do you think the Indian market valuation has fallen after the recent turbulence?
Markets have fallen sharply. We do not look at index valuations as much. There are pockets of opportunities on the small- and mid-cap side and valuations have definitely come off their peaks. Our Indian markets are more moderately valued than they were and some of the segments have been extremely frothy. The froth has come off from those segments. The punishment has been harder for a particular kind of stock. Their multiples for high earnings have not been delivered. In a lot of new-age companies, the froth has come off.
Do you expect markets to dip further, given the inflation worries?
Our theme for the year is recessionary conditions before returns. Nobody can predict the markets. While India is still predicted to grow faster than its global peers, it will not be completely insulated from the market volatility. Inflation remains less of a challenge in India compared to the rest of the world. Though we are placing recession before returns in India in the short term, we are confident that the domestic economy will see much more constructive activity in the long term. We are seeking positivity around earnings growth. There will be certain places where margins will be impacted by higher costs, but on the whole, we do see that India is coming off a corporate earnings load. There is also some hit to sectors that are more export-oriented.
What would be the impact of SEBI move to thrust more responsibility on trustees?
Over the years, SEBI has had a conversation on the role of trustees and it is very important that SEBI is adapting its regulations for a changing mutual fund industry. We are no longer an industry in its infancy, as we were a few years ago. Governance practices are extremely important and regulations on oversight of the role that trustees can play are welcome. Over the last 10 years, multiple changes have happened on the regulatory front. While there is sometimes a tougher short-term impact, each of them has made the industry a far more transparent place and got us to the ₹40-lakh crore mark and will hopefully take us to ₹100-lakh crore.
Will the compliance cost shoot up?
Increased compliance will definitely raise the cost of mutual funds. Over the last few years, the number of circulars and provisions that have come out have definitely led to an increase in the cost of compliance. It is a challenge for all of us to think about how we want to build a profitable and sustainable asset-managing franchise.
What led Edelweiss MF cross ₹1-lakh crore in AUM?
The AUM growth has been broad-based. Our equity AUM has gone from ₹1,500 crore to over ₹23,000 crore in the last five years. Fixed income AUM, including arbitrage, has crossed ₹75,000 crore. We have grown in long-only funds, hybrid funds, international funds, and are market leaders in fixed income passives. Sometimes our solutions are first in the industry like target maturity funds and BAF. We are not afraid to take our conviction on a product to market even if it is different for the industry, which is largely momentum-based. The growth is backed by a team that works hard despite all the entry barriers and challenges that small AMCs are supposed to have.
Will you continue to focus on the passive route funds?
We will continue to concentrate on the passive route for our debt funds. We believe that passive with its low cost, transparency and liquidity, delivers value to the fixed income investor. Active funds have not generated alpha and have had their challenges with credit on the fixed income side. Cost also significantly matters in a debt fund because returns are fixed, unlike equity, where there is an upside. We have seen success with the target maturity segment, and that remains a big part of our plans. We have just launched the country’s first short-term passive index fund and have many other ideas up our sleeve. A lot of players are entering this category. They can copy our products, but not our conviction. We do not have FMPs or active debt funds. Our CIO focuses on passive debt funds. We have a technology strategy for passive debt funds, and that makes us stand out in the market.
Is Edelweiss IPO on the cards anytime soon?
It is early to say whether we will come up with an IPO. Our objective is to build a high-quality franchise — a profitable one, and we have made some headway in terms of size and profitability. But we have a journey ahead of us and just like the businesses we invest in, we can build a high-quality business that one day will be a listed company.