Himanshu Srivastava: We would like to invite Amandeep and Naren on stage for a discussion with Kaustubh Belapurkar.
Kaustubh Belapurkar: Welcome back on stage. Firstly, congratulations Amandeep and Naren. I think great wins for both of you. So, I'm going to keep this short.
So, Aman, starting off with you, it's a second year in a row for you winning the Best Debt Fund House award. So, what to your mind has really worked in your favor? What's the mantra for success for UTI?
Amandeep Chopra: Thank you. Well, actually, I think, it's been a combination of factors. Clearly, what has really helped us has been a couple of things that we believe into very strongly. I think when investors entrust their money to us it's essentially to ensure that we do manage it actively and we don't remain sort of passively-indexed, something which was pointed out by Chris earlier.
So, I think, we do believe that when we do invest that fund's corpus, it's essentially built around some of the key themes and strategies that we have. We strongly believe that we are not sort of focused only on a singular strategy when it comes to managing our funds. So, it's a combination of top-down and bottom-up. So, a good macro view is important. We also do layer fairly strong emphasis on building a very diversified and well-researched portfolio.
And one of the things which we've learned actually over the Global Financial Crisis is that it's becoming that much more difficult to take a very long-term view on the markets. So, I think, a lot of our strategy is actually built around near-term views. And I think that is what has really helped us.
So, just to put it into perspective, over the last eight years the fixed income markets in India have actually seen three full cycles. We've seen a bear market, bull market and so on three times. So, I think, clearly, just having held on to a position may not have really helped. I think from that perspective and the learning that we've had over the last few years clearly has helped us remain very nimble and agile and I think that's been the key driver for our portfolio performance.
Kaustubh Belapurkar: Thanks Amandeep. Thanks for the articulated thoughts and wishing that you continue the great work that you and your team have been doing in the years ahead.
Amandeep Chopra: Thank you.
Kaustubh Belapurkar: So, Naren, just sort of throwing that same question to you. So, ICICI, like we spoke, has consistently been appearing amongst the top fund houses doing exceptionally well. So, what to your mind has been working right? What are the things that you've been doing or your team has been doing that's really putting all the blocks into place?
Sankaran Naren: I think one is, you have to create a good research process and I think we've been working on improving our research process consistently. We have a fund management team which is basically homegrown and we run different types of strategies. We've worked a lot to try to create different styles within the company because what happens is, if you look at specific styles like value or quality, there are times when value does well, there are times when quality does well, there are times when growth does well.
So, given that we are a mass asset company trying service investors all over India in all types of categories, we have worked a lot in trying to create different styles of fund management. And given that markets don't behave in a similar way, I think that, I would say, has helped us a lot because we have seen in this period periods where quality has just done exceptionally well. There have been periods where, I mean, I would say, mid-caps have done extremely well. And I think on a continuing basis, one of the key things that we try to do is introspect into what we did right and what we did wrong and keep improving our processes so that we make newer types of mistakes and not old mistakes and that I guess has helped us.
I must tell you 2012 to 2016 was a less volatile period for equities. If you see the last five years, there has not been a year where the market has gone down 10% also in the large-cap index. So, I mean, I think how our processes are going to be tested is when markets much more volatile and how we handle the markets when they go up substantially and become overvalued like 2007. Those are all going to be very interesting periods for fund management, for me and my entire team.
Kaustubh Belapurkar: Thanks so much, Naren. So, Amandeep, just quickly swinging back to you, we saw in the earlier presentation abo the way the flows have been globally and even from an India perspective. So, really for you, to your mind, we've seen that the RBI has kind of taken a shift of policy stance. What do you think is going to pan out in 2017? How do you really see the scenario panning out for the year ahead?
Amandeep Chopra: Sure. So, I have both, a short-term and a long-term view on fixed income markets. I think in the long-term, I continue to be very positive. For the first time, I think, we've seen a fairly strong cohesion between monetary and fiscal policy in trying to address inflation, which clearly is positive for fixed income markets in the longer-term. But having said that, I think over the next 12 months, I see a lot of challenges for Indian markets.
We clearly do know that there are very strong headwinds from the overseas markets that also are particularly driven by the U.S. So, I think, in the backdrop of tightening by the Fed, in the backdrop of a strong dollar and clearly some very sort of aggressive policies from the Trump regime, we do see a lot of risk for Indian fixed income markets. So, I think, we are right now in a zone where over the next six months you will actually see an extended pause from the central bank. While the macro will remain fairly sort of benign, I think the second half story is going to be very difficult for India.
So, in the second half, around September 2017, we'll actually start being at the wrong end of the inflation cycle where inflation starts creeping up. We will also possibly have seen two to three, two at least, rate hikes from the Fed. And I think in that backdrop, at least, our view currently is that any further easing from RBI is ruled out. So, in that backdrop, I think, the focus right now remains largely on capital preservation, trying to focus on higher income accrual and not being very active on duration.
I think, going forward, clearly, 2018, in our view, will sort of be the other end of the cycle where we'll start seeing some of the higher inflation trajectory slowly panning out and getting lower than where we are today. So, I guess, 12 months, very trying period. Over the next 24 months, I'll still say that we'd be very constructive.
Kaustubh Belapurkar: Thank you. Naren, we saw from again the flows data, one of the trends that came out and also very clearly from an Indian perspective and something ICICI has also been doing fairly well is more on the allocation side where you've really grown balanced sort of into a category, a very meaningful category from an investor's perspective. So, how do you see that – how should investors be playing that? What is your take on the balanced category of funds?
Sankaran Naren: I think in the last 20 years the two good things that have happened is, first that people recommended systematic investment plans and they also became meaningful. And I think the second trend which we have also actively encouraged is money coming into products like balanced and balanced advantage funds. Because my view is that over 27 years that I've seen markets, markets have delivered returns but the investor experience has not been in line with market returns and having been a fund manager through 2007 to 2009 I have seen this acutely between 2007 and 2009. So, I think the entire trend towards balanced and balanced advantage fund along with SIPs is the best thing that has happened to the mutual fund industry.
The interesting thing as Nimesh might see or says is that nowadays market corrections don't worry us because we have always got opportunities to buy thanks to market corrections. And that is very, very healthy because if you look at it, if you're able to keep buying as the market falls, then the investor experience will be pretty good and I think this trend that has happened is the best thing that has happened to the mutual fund industry. And I hope investors I'm confident will benefit out of it because my – even the global experience has always been that investor experience is worse than investor returns and the goal I believe for every mutual fund including ours will be to improve investor experience because investor returns will always come, but if you are managing to improve investor experience, you're going to have a very good situation for the industry. And I think the growth in the industry is because it is due to SIP and products like balanced, balanced advantage, it will sustain for a much longer period. The day it starts going back in a mega way into themes which are overvalued, then I would actually worry about the growth in the industry. But right now, it is just the opposite at this point of time.
Kaustubh Belapurkar: So, do you think we are in that space where we can actually now – foreign flows or outflows, we can cushion ourselves? I mean, we've seen early signs of that. But do you think that that's something hopefully will continue going forward?
Sankaran Naren: I would like to see some volatility because you can't make – if you create a perception that markets go only one way, higher, luckily 2015 and 2016 showed periods of time when the markets went down. And I think certain amount of volatility ensures that people don't cross the level of risk. So, I would actually worry if there is no volatility. I would worry if there are no downs in the market. Because I think it was the downs in 2015 and 2016 which basically encouraged the balanced and balanced advantage fund category. And I believe that periodically you do need volatility for markets.
One of the biggest worries I've seen is that when you have four, five big up years, in every succeeding year people forget the word risk. And that I don't want that to happen because it is when they forget risk that our industry goes through volatile periods. So, like right now, the volatility in fixed income makes the product much more interesting to us as a fund manager. If the market kept on going down like as it was in the last two years, that would have been much more boring than the current situation where there is volatility, because then people are conscious of risk and then they take the right decisions. And I think we need volatility.
Kaustubh Belapurkar: Thanks. So, just a last question to both of you. How do you plan to celebrate the awards win?
Amandeep Chopra: Well, I have my team and my CEO over here. So, I'm sure we will have a reason to celebrate afterwards.
Sankaran Naren: We kind of celebrated before, it looks like. So, now, we'll have to decide how to celebrate it after.
Kaustubh Belapurkar: Thank you so much, gentlemen. Congratulations once again. I will just call Himanshu and Nehal back on stage. Thank you.