Getting excited about the stock market bull run and what it can mean for your business? Well, Ashish Goel says that's only a small part of a much bigger picture that he, his brother Manish and his DFDA members are looking at. They are looking at 3 bull runs and not just one. And, though these bull runs are to some extent interdependent, when you take a look at the 10 business enablers that Ashish has listed out to argue the case for a business bull run, you would agree with him that its high time we in the business stop looking only towards the Sensex to boost our business. There is much more going for the distribution business, if you leverage the 10 enablers that have already been put in motion.

Everyone in the market is getting excited about a bull run taking shape in the stock market. But, for us at DFDA, we are excited not just about a bull run in stocks, but in fact three big bull runs we see happening in the next few years, which will throw up huge opportunities for all of us who are focused on grasping these opportunities. The 3 bull runs I refer to are :

1. Stock market bull run

2. Bull run for the country under an execution focused Government

3. Business bull run for us in the distribution business, driven by an enabling environment

We strongly believe that these 3 bull runs will work hand in hand with each other and are to some extent interdependent. But, even if the first and second bull runs do not work for a while or pause for a while, the last one - the business bull run will anyway take place.

Stock market bull run

Much has already been spoken and written about a bull market in stocks, driven by a cyclical recovery and aided by hopefully more proactive Government policies. All of us seem to be convinced that for the market, "Acche din aa gaye hain", and we at DFDA are also in this camp. There is frankly nothing more that I need to say about this bull run.

Bull run for the country

Far bigger than the stock market, is the bull run we visualize for the country. I am not trying to root for one political party or another. But I can say with confidence that in the new PM, we have a man at the top with a proven track record of strong execution and implementation. This is what has always been lacking in our nation. We have too many people with great ideas, but too few who actually implement them. What has kept our nation from realizing its true potential in all fields is only poor execution. That, I think, will change for the better, under the new leadership at the Centre. And, that in turn, will spur a lot more development activity in all spheres.

The new Government is talking about the importance of risk capital playing a pivotal role in development and growth. We believe this focus on capital formation will mean a lot more emphasis on channelizing retail savings into productive avenues. This in turn means great opportunities for anybody in the financial intermediation business. And, this big shift that we envisage in channelizing household savings into capital markets is not something that will depend on stock market levels this month or this year. This is a structural shift we see, which will mean a quantum and sustainable jump in volume of household savings that will flow into financial instruments of all kinds - mutual funds, pension funds, insurance, bonds, IPOs, FPOs - the entire gamut of retail financial products.

The important thing is that such talk has happened before - its just that when we have a person at the top who is high caliber with a proven track record, there is a lot more belief that plans will be executed rather than remaining only on paper.

Bull run for our business : 10 growth enablers

We at DFDA strongly believe that there is a big bull run ahead of us in the distribution business. Healthy stock markets and channelizing of household savings into financial instruments will no doubt be big enablers for the bull run in our business. But beyond these factors, there are 10 enablers that are now in place, which we think have sown the seeds for multifold growth in our business in the coming years. Some of these are created by the regulator, some by the industry and some by circumstances. I have discussed some of these enablers in my previous article (Click Here) and many are points that I haven't put down in earlier articles, but I think there is merit in putting all of these points in one place, to enable all of us to grasp the magnitude of change that is taking place, which will enable our business to grow very significantly in the years ahead.

1. B-15 initiative

I have mentioned this before, and I will say this again, that the B-15 initiative is a very welcome step to spur retail penetration in smaller towns. It is still early days yet, but we are seeing vibrancy coming in from smaller towns, thanks to this step. As I mentioned earlier, we at DFDA believe that the thought from the regulator is great, but a small tweak in its implementation can enable it to have much greater impact. Rather than differentiate between B-15 and T-15, if there is a differential treatment between retail and non-retail money, irrespective of where it comes from, we can boost retail momentum across the country, including in the T-15 cities which continue to be very under-penetrated.

2. 2 bps for investor awareness

What is really noteworthy is not just the quantum of money being set aside for investor awareness, but the focus on judicious spending. The regulator's keenness on collecting email IDs of IAP participants, publishing this on websites etc brings a lot more pressure on genuine efforts rather than mere lip service to IAPs. We are seeing several AMCs making a conscious attempt to do meaningful work in this area using this 2 bps budget, which I think will go a long way in making a meaningful impact on enhancing financial literacy. I am not saying that everything is working perfectly - but I think it is only right for us to acknowledge that now, there is a serious attempt being made by many AMCs to constructively use this budget, and we must welcome this and encourage all others to do likewise. Now that the industry Aum has crossed 10 lakh crores, this means a 200 crore annual budget to be spent wisely on investor education. I think if all players work seriously, this 200 crore annual budget can make a big difference in creating lakhs and crores of informed investors.

3. Financial literacy at schools and colleges

At DFDA, we have been saying for some time now that the key to enhancing financial literacy is to get students to understand about money before they begin earning money rather than after they earn, blow it away and then regret their mistakes. SEBI's long term policy for mutual funds laid special emphasis on including financial literacy into school and college curriculums, which we welcomed. It is now indeed heartening to see the first green shoots of execution effort in this direction. NISM, we understand has already created a course of 10 sessions on basics of financial literacy, which has already been piloted in 40 schools covering 4000 students. This is a small step, but a huge stride forward in implementing a much needed initiative. We at DFDA believe that as this pilot moves into a national rollout and covers schools and colleges across India, we are setting the foundation for the next generation of income earners to be a lot more informed and educated on the importance of saving and investing. This, we believe, will lay the foundation for channelizing household savings into financial markets much more than any other measures can.

4. Tax breaks for ELSS

We understand that the Government is favourably inclined to consider the industry's request for a separate tax break for ELSS, and not club it within 80C as is the case now. If this separate limit does fructify in the coming Budget, it can be a big retail driver, as the experience in almost all countries shows that tax incentives are one of the biggest drivers of category expansion. As long as equity mutual funds compete with fixed income generating avenues, you are not going to get the kind of significant traction that you will get when there is an exclusive limit for equity funds.

5. MF pension products

We hear again from our AMC friends that pension products from mutual funds are likely to be given tax incentives. We will have to see what finally materializes, but the short point we need to understand is that if pension funds from AMCs do get a favourable tax treatment, the entire outlook towards mutual funds will change dramatically. Today, in the retail world, mutual funds are seen largely as equity funds and largely as short term investments to be made during bull markets. This seasonality of the product can be slowly but surely changed when the same investors start using mutual funds as pension funds. Associating pension with mutual funds will be the strongest way of building a long term approach towards mutual funds among retail investors.

6. MF Utility

We have been waiting for a very long time for a solution to our operational bottlenecks. It now seems that MF Utility will go live shortly, which we think will help all of us in distribution reduce the amount of time we waste in solving operational issues, and thus free up a lot more time for meaningful client engagement.

7. Possible reduction in institutional business could spur more emphasis on retail

Our AMC partners may not like hearing this, but I think that retail business will get a lot more emphasis from fund houses as the institutional business shows signs of a slowdown. As industrial activity picks up and the investment cycle gets kickstarted, idle corporate surpluses will get diverted into productive investments, which means that corporate investments in liquid funds will likely reduce rather than increase in the years ahead. This could mean a shrinkage in overall institutional business, and therefore by default, a greater emphasis on retail, to fill up the holes. It may not be the most comforting thought for fund houses, but for all of us in the retail world, it would mean that fund houses will finally stop chasing the low hanging fruit because there won't be much left, and will work harder with us in bringing in retail money into the industry.

8. Focus on "investor experience"

It is very heartening to see many leading fund houses now talking about ways to enhance the investor's investing experience rather than only talking about how much more business to garner. The focus on asset allocation oriented products is a step in the right direction in this regard. SEBI's diktats on scheme rationalization is another welcome step. AMCs sensitivity towards fund expenses and willingness to reduce them especially in debt funds is another welcome step. Whether driven by SEBI, or by SEBI's directives on AMC trustees to do the right thing for investors, or a realization that happy investors is the best ticket to growth, or a combination of all of these factors, there is a welcome change in AMC mindset towards enhancing the investor's investing experience. We want this emphasis to continue as the bull market progresses, and not to be lost in the heat of a trending market.

The one discordant note on this front is the spate of closed-ended NFOs that we are seeing. We do not believe these are in the investors' best interests and are frankly puzzled at seeing SEBI turning a blind eye to this phenomenon. The faster that this trend stops, the better it will be for investors.

9. Viable and scalable financial planning model

Financial planning has remained a niche proposition in the market for all these years, despite its undisputed benefit for investors. Retail distributors did not have cost effective access to a robust financial planning platform, and therefore never really got into financial planning in a structured way. A small percentage of distributors invested on their own and have built up successful practices. But, it has still remained a relatively small niche. Now, with Axis MF's Shubhchintak initiative, every distributor in the country has overnight been given access to a great financial planning platform, at a highly subsidized cost that makes it viable for all. This initiative has the potential to completely change the context of conversations that distributors have with their clients. This has the potential to fuel right selling across the entire distribution fraternity, which will create strong client relationships and therefore robust businesses for all of us.

I would like to compare Shubhchintak's potential with what auto debit did for SIPs. SIPs were around for 15 years, everybody said SIPs were great, but the volumes never came through because it was a huge task to get 12, 24, 36 post dated cheques and then keep worrying about operational issues with each instrument down the line. It is only when auto debit was introduced, that we saw SIP volumes jump up significantly. Likewise, financial planning has been around for some time. But what Shubhchintak does is to make it mass-retail.

10. TINA

Finally, there is the TINA factor (there is no alternative) that we at DFDA believe will be a huge growth driver for our business. For the last 6 years, all of us have watched clients investing in real estate, in gold and in bank FDs - and we silently watched all their savings elude us and go elsewhere. Capital market products became almost untouchable, and as a result, so did many of us. Now, lets look at all these 3 avenues which took away all our clients savings in recent years.

Real estate for many clients has changed from a dream to a nightmare. Many clients are stuck with illiquid properties that they are unable to exit from, they are saddled with huge delays in deliveries, they are saddled with high leverage which they are finding difficult to unwind and they are seeing prices slowly come down rather than going up. The best properties are only holding up on prices, nothing is rising anymore and many projects are seeing declining price trends. In this situation, appetite to consider fresh allocations towards real estate has finally vanished, for many clients.

The obsession with gold is now over, thanks to a prolonged period of softer prices. We are seeing many clients coming to us and asking to stop their gold SIPs, which is a telling indicator about investor sentiment towards gold.

Bank FDs, which have been a traditional favourite, are likely to see declining rates as interest rates begin softening in the economy. But, beyond rates, there is also another huge shift in perception that is happening on ground. For most retail investors, tax on bank FDs always meant 10% tax. This was what was cut as TDS. Few investors bothered about adding bank interest in their tax returns, and this income therefore escaped full tax at the applicable rate for the individual. Now, with the IT department collating all information from banks and sending out notices to all interest earners, there is a growing realization that you cannot get away with not declaring bank FD interest. Now, when we talk about tax efficiency of debt funds, we have many more willing listeners, because tax on bank FDs is finally a reality that cannot be conveniently side-stepped.

When the three principal avenues that attracted most household savings in the last 6 years are now looking challenging for their own reasons, TINA comes into play. Household savings should therefore keep going more and more towards capital market products - whether it is debt or equity or a combination, is a function of each client's risk appetite. But money is most likely to come towards our business.

Those who remained, will now enjoy the fruits of perseverance

I have said this before, and I will say it again, that the few of us who remained in this business are the ones who can look forward to reaping the benefits of our perseverance. In these last 6 years, the distribution business has become a lot more complex, which has raised significant entry barriers, especially for non-serious players. Commission clawback is a potent weapon that dissuades fly-by-night operators from entering this business and making a quick buck at investors' expense. Enhanced compliance requirements makes this business a lot more complex than it used to be. This business now needs patience - which non-serious players seldom have. And most importantly, these 6 years have toned down client expectations of returns from mutual funds but have simultaneously increased their engagement expectations from their advisors. This means that you better be good in terms of advising clients, if you want to survive in this business. Happy investors will refer good advisors to their friends, especially when these friends now start looking for good advice on financial products. Those of us who have worked hard to keep our investors happy, have every reason to look forward to sizeable growth in the years ahead, with 3 bull runs coming together.

One BIG risk factor

All good fund managers point out risk factors that can potentially upset their forecasts. Likewise, all of what I have said here has one BIG risk factor, and that is the impact of direct plans. Direct plans, especially with more convenience through MF Utility, are a perennial sword hanging over our heads, and none of us knows how much this will impact us in the years ahead. My sincere message to our AMC partners and the regulator is this : we are all geared up, we are raring to go, we would love to play our role in channelizing household savings into productive investments and contribute our bit to development, but we are always looking behind our shoulders, because of an unfair and uneven playing ground on which we have been asked to operate. Please rectify this anomaly and unleash the potential that all of us entrepreneurs have within us, to contribute our efforts in building a vibrant and inclusive financial market.

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