‘Recent credit events in the debt market was unexpected’

By Morningstar |  01-04-19 | 

Aditya Birla Sun Life AMC has won the Best Fund House – Overall award 2019 for the second year in a row. A Balasubramanian, CEO, Aditya Birla Sun Life AMC, chats with Morningstar about how his team achieved this feat.

Aditya Birla Sun Life AMC has won the Morningstar Best Fund House Award (overall) 2018. How do you strike the right balance in putting up a winning performance across both categories – equity and debt?

We have been keeping high focus in providing best investment experience in both equity and debt by keeping two highly focussed and dedicated investment teams headed by two Co-CIOs. This structure has been evolved right from inception and it got better along the journey in having right people in each of the segments.  All investment decisions are backed by strong research analysis while managing both equity and debt through bottom up investment process. Finally, our risk management foresight is built as part of the investment process while the risk function does their work independent of money managers.

How important are fund manager skills vis-à-vis AMC process in delivering performance?

Individual fund manager’s skill set is extremely important in delivering best possible investment experience. Having said that, overall investment process gets evolved and set in a manner, and fund managers & analysts are made to operate in a boundary in order to generate consistent investment performance. Over a period, investment process set up by the team on the basis of broad investment philosophy have been the key pillar in ensuring the consistent performance, as well as proactive risk monitoring related to the portfolio actions. Similar to best practices in investment companies across the world, we also have high focus on people’s individual capability and at the same time follow research-based investment decisions in delivering investment performance.

The recent episodes of defaults in debt markets have spooked investors. How are you recalibrating your investment process and strategy to be immune from such risks? Is it possible to avoid such risks?

Investment risk is always part and parcel of the investment world and the risk sometimes come and hit us when it is least expected. While we all ensure underlying investment process is applied in every decision making, recent credit events in the debt market was unexpected and did come as a shock. On such occasions, money managers can do best in ensuring the underlying assumptions remain intact in order to ensure safety of such investments. At every point of time, new learning comes and such learnings are normally used to recalibrate the portfolio strategy and give effect in the portfolio construction on an incremental basis. While one cannot completely avoid risk or avoid mistakes, it can definitely be taken care by keeping the exposures under control and also not investing instruments that are not backed by any cash flows or any other tangible securities. Such risk can be reduced by keeping the overall exposure to such investments or such groups at a certain level.

Inflows through systematic investment plans (SIPs)  are rising consistently. Are you finding new investment opportunities to deploy this fresh inflow?

SIPs in equity schemes continue to be on the rise on the basis of efforts to build retail participation in equity schemes in the country. We do have a large proportion of monthly flows into our equity schemes coming through SIP route. Finding opportunities to invest the flow of funds on an ongoing basis would depend upon the ability to spot investment opportunities across market cap. While the PE multiples go up to a very high level on the basis of demand and supply gap, supply too increases at the higher end of market thus bringing balance in the market. I also see over a period of time floating stocks to many of the Nifty and Sensex companies to go up given the fact increasingly companies would be forced to fund their capital allocation through good mix of equity and debt.

The industry has grown multifold since its inception. What do you think will be next drivers of growth for the industry?

Despite the growth of the industry so far, mutual fund industry is still about 18% of the banking industry deposit size. I would assume this ratio would continue to move upward to close to 30% in the next few years. In fact, mutual fund industry is becoming an important component of the financial services industry hence growth is permanent. Next drivers of growth would come from increase in customer base across different parts of the country through geographical expansion as well as digital expansion. Second, digital penetration in the country would also drive the customer growth across deeper parts of the country.

Are you seeing enough room for product innovation given the standard categories as laid down by SEBI?

SEBI came out with a policy document wherein it was clearly defined the kind products that need to be there in each of the category as foreseen as of today. While this exercise is unique to India, it is also helping the industry to provide greater clarity to investors and distributors while positioning the fund to them for investing or recommendation. There will be some more scope for product innovation revolving around derivatives and commodities market.

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