In Part 1 of this 3 part series (Click Here), we shared results of the Business Confidence section of our 2nd annual Advisor Confidence Survey, which was conducted in June 2013. In this Part 2, we bring you results of two more sections - Market Confidence and Product Confidence. These summaries are collated from responses received from 189 leading IFAs from 40 cities across the country, who Wealth Forum invited to participate in this rather exhaustive survey. Details of zonal composition were shared in Part 1 (Click Here).
Market Confidence - Equity
Despite all the pessimism on the precarious macro situation, the gloom around the flat earnings momentum and the nervousness about a world without QE, advisors remain "cautiously optimistic" to borrow the much clichéd term from fund managers. Only 12% of respondents believe that markets will drift towards a lower trading band - of which only 2% are really bearish. As many as 62% of respondents believe that the markets will be around or marginally higher than current levels by March 2014 - in other words - can struggle and splutter its way to the next trading band upwards (19k-22k). A healthy 27% believe that markets can move decisively upwards by March 2014. Advisors in the West are a lot more optimistic than their peers elsewhere : 37% of them are calling for bullish markets from hereon, as opposed to the overall average of 27%.
How good have our leading IFAs been in predicting markets? Quite good, really. In the inaugural survey, when they were answering the questionnaire in the last week of Dec 2011, the Sensex was hovering between 15,000 and 16,000, having completed a dismal calendar year performance. Back then, 70% of respondents believed markets would end 2012 higher than 2011, with 53% picking 17,500 - 20,000 as the predicted range and 17% picking 20,000 + as their likely outcome. As it turned out, Sensex was in the 19,000 - 20,000 band in December 2012 - which meant that a majority of respondents were quite right in being optimistic about 2012.
Will they get it right this time too? The verdict for March 2014 from our respondents seems to be "markets will grind their way higher". If they are right again this time, that's not a bad market outcome, under the circumstances.
Market Confidence - Debt
The view on debt markets is a lot more cautious - recent events have clearly made advisors a little circumspect, with 36% of respondents believing that bond yields are likely to remain in the 7-8% range, which really means that they perhaps think that the best part of the duration play is behind us and not ahead of us. However, the majority - 62% believe that interest rates will be lower by March 2014, with 61% calling for a 6-7% range by the end of this fiscal. Here too, West is the most optimistic, with 73% of advisors believing that rates will continue declining into the lower range of 6-7%. A look at the other 3 regions suggests that opinions are almost equally divided between sticking in the current range and trending down to the lower one.
In the first survey in Dec 2011-Jan 2012, when 10 yr G Sec yields were above 8%, a huge 79% of respondents opined that yields will head lower by Dec 2012, and they got it right. This time around, they are not so clearly bullish - a point that we will do well to take note of.
Product Confidence - Equity
Investors may be fretting about their SIPs and their equity fund holdings - but India's leading advisor's confidence in equity SIPs continues to be very high, averaging 8.8, which is just marginally lower than the Jan 2012 score of 9.0. This is significant considering that the intervening 18 months between the two surveys have seen among the highest levels of equity folio and equity SIP closures by investors. Lumpsums in equity funds through STPs continues to enjoy reasonably high level of advisor confidence, though markedly lower than equity SIPs. Clearly, the belief in equity markets delivering returns over the next 5 + years is high, but confidence in more near term gains is not quite that high.
A notable feature in terms of regional disparity is that advisors in North and East have given a much bigger thumbs-up to equity SIPs - with 60% and 63% giving it the maximum 10 on 10 confidence rating, as compared to South and West, where a much lower 42% and 49% have given a maximum 10 on 10 confidence score.
Our leading advisors are clearly watching relative valuations very closely. 18 months ago, large caps were the clear favourite when the Sensex was hovering around the 16,000 levels. Now, after the run up in large caps, diversified no cap bias funds enjoy advisor confidence much more than pure large caps. It is also interesting to note that advisors are now more willing to hunt for that incremental alpha by venturing a little more into the mid and small caps spaces - which have been significantly beaten down, although appetite for sectoral and thematic funds continues to be very poor. The shifts in category confidence within equity funds is a clear indication of the effort our advisors are putting into proactively driving client portfolio performance, by being on their toes in terms of identifying relative alpha opportunities.
Product Confidence - Fixed Income
At an overall level, there doesn't seem to be too much of a change in terms of levels on confidence in bonds and bond funds across regions as well as between last year and this year. The real differences however are in product selection - which is another affirmation of the level of nimbleness and responsiveness to changing market conditions that our advisors are exhibiting. 18 months ago, when yields were much above where they are today, the preferred products were clearly FMPs and short term plans. Now, in the midst of a rate cut cycle, dynamic bond funds have become advisor favourites, at the expense of FMPs. Short term plans continue to be relevant for short term needs of clients. An interesting trend is the rise in confidence on Credit Opportunities Funds : the quest for higher accruals is very clearly seen among India's largest IFAs.
Product Confidence - Hybrids
Hybrids are gaining in popularity amongst leading advisors - particularly in East and South, though not as much in North and West. There is a sizeable 10% of North respondents who have selected a score of 1 - which means no confidence at all in hybrids. Overall, 30% of North respondents have given a poor confidence score (scores of 1 to 4) for this product category.
Within hybrids, it's the old war horse - the balanced fund, which is the clear advisor favourite now in all regions except East, where MIPs are the big favourite. Confidence in capital protection funds has gone down sizeably, possibly because some of the products that matured in recent months gave a disappointing performance. Adding a touch of gold is clearly not desirable any more - as can be seen from the steep falls in confidence levels of all products that have some gold allocations in them. The significant rise in confidence on balanced funds from 18 months ago perhaps suggests efforts by advisors to maintain healthy equity allocations despite market volatility, by offering balanced funds in place of pure equity funds, which many investors may be averse to investing in now.
Product Confidence - Gold Funds
Confidence on gold varies from cautiously pessimistic to very negative. West has the clearest negative view on gold with almost half the advisors selecting 1 - which means no confidence at all. West was also least confident 18 months ago - and their cautious stance on gold turned out to be correct.
Product Confidence - Life Insurance
Term plans continue to be a big favourite among India's leading IFAs - just like they were 18 months ago. This is a strong signal about the IFA community's focus on doing the right thing for their clients. The other big message - like last year - is the poor confidence levels in pension plans from insurance companies. This surely represents a big opportunity for the MF industry to tap in a far more aggressive manner.
What do you think?
We believe the product confidence scores exhibit a very sharp focus on tracking markets, and adopting a forward looking stance rather than a rear view mirror approach towards product selection. The challenge for IFAs is really about how to get more and more investors to adopt a similar forward looking approach, in order to get a better investing experience. Would you agree with this broad conclusion? Do your market and product confidence levels vary significantly from those of the respondents of this survey? Share your views by posting your comments in the box below - its YOUR forum !
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