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WF: 2015 has been a good year for the industry in terms of market expansion, but a challenging year in terms of delivering returns. What is your business and market prognosis for 2016?
Aashish: If one forms perception about performance by watching the index then yes 2015 has been a disappointing year but for a lot of well managed portfolios including some of our own PMS and MF portfolios it has been a spectacular year both on absolute as well as relative performance.
2016 will be a year of sustained growth for the MF industry backed by continued buoyancy in Indian economy, improved market sentiment and retail inflows. I am not fearful of US raising rates; I believe people are missing the point that Fed raising rates would mean a sign of confidence in US economic prospects and that cannot be bad news. If there is a sustained rise in US rates, in the later part of their rate raising cycle one may see markets really tapering off, but to begin with it will be bullish for sentiments.
WF: What are the structural drivers that you see falling in place now, which can drive business expansion into a higher plane?
Aashish: The biggest structural driver which I have been highlighting and I did so even at our conference earlier in 2015, is that habits change with generations. The huge jump in retail MF flows since 2 years now is being attributed to change of Government, lower interest rates etc. I don't disagree these are important, but the big picture is being missed. This flow is here to stay because we now have technology and payment systems that enable us to reach a new generation of people who have never seen RBI Bonds at 12% risk free and tax free and who don't believe in putting money in the post office for 9%. This is a new generation of people who will buy online and who understands capital market products and capital market culture relatively better than the previous generation of people.
Growth in MF industry is sustainable and this is an industry that has just started its journey. 10-15 years in an economic journey is nothing; though I agree 10-15 years in a career is a lot!!! So there is talk about regulations making MF business unattractive for distributors, I don't disagree. I empathize with my friends in AMCs and distribution, but what about the fact that the product is become more attractive on features and availability for the end customer? How about seizing that opportunity? How about working with slightly lower margins but maybe 5 or may be 10 times the volumes and values?
WF: Disruption seems to be the buzzword in almost all businesses these days. What disruptive forces do you see driving our business (fund management as well as distribution) in the next few years? On the flip side, where do you see more hype than potential disruption?
Aashish: This is partly covered in my previous answer, impact of regulatory moves on margins is real but in context of tremendous upside to volumes and values, I dare say it is hyped.
The other one that's over-hyped is technology. At your conference there was a session on technology that I participated in and immediately post that session one gentleman walked up to me nervously and said technology is going to disrupt in a big way, how should I position my business. I asked him whats your client profile? He said I handle 10-12 HNI families and I have 200 crs AUM. Now look at this case? There is no connection of high tech disruption in this gentleman's business as I see it, but I am sure he is all scared. Other than providing some basic reporting to his clients, I don't see how he should look at technology? Maybe he can watch for preferences of the next generation at the client's end but here and now technology is over-hyped with regards to his business model. It's very important to understand that technology can be a weapon, a means to an end but not an end in itself. One needs to see how to use technology to serve clients and ease business - the starting point to evaluating technology can't be in isolation and for the sake of technology itself. Today there is so much focus on technology, a product meant for strategic wealth creation; which takes huge consultative selling to get investors into is available for redemption on an "app" just by clicking a button!!! Do we need this?
WF: What do you see as the key business risks going forward?
Aashish: The risk for our industry is the usual risks we create for ourselves in every growth phase. We complicate matters for investors by having unfocused communication, product proliferation and taking unnecessary risks. Come to work at 9 am in the morning, do a process oriented job of investing and servicing and go back at 6 pm without running into any adventures. If we fasten our seat belts, put our heads down and stick to basics, we will grow rapidly. But if we try to be too creative we will set ourselves back.
WF: What are your business plans for 2016? What new initiatives on the product, sales and marketing aspects can we look forward to from your fund house in the new year?
Aashish: We run a very boring company and I think that makes us interesting. In business it is important to focus on competencies and differentiate. But, we are very lucky because in our industry if you remain focused that itself is differentiation! We have no plans for any new products.
I hope and pray for years and years together we are able to manage the same funds based on the same philosophy and create wealth for investors based on our time tested investment principles. Eventually wealth creation needs 10-15 good companies held over long periods of time. Nifty is 50% of our market cap and BSE 200 is over 85% of our market cap; add to this few sustainable emerging companies that the market chances upon every once a while. All told, I don't think there are more than 250-300 companies worth long term investing and our industry already has some 500 funds to buy these 250-300 companies. Sometimes I think our industry must be running sub-optimal performance because managers are forced to look for new ideas with the pressure of so many schemes being launched day in and day out. If managers are allowed to focus, we might actually bump up overall industry returns by a few percentage points.
But yes, I am excited because in the new year we will be launching our maiden advertisement campaign to create awareness about Motilal Oswal Mutual Fund. For the first 3 years our endeavor was to spend our energies on building our track record and building our presence with distribution partners. Unless there is a track record and unless distribution partners are aware of products, there is no sense in spending money on above the line marketing. We will hit 2016 with an all new Motilal Oswal Mutual Fund campaign.
WF: If you were to indulge in some crystal ball gazing, what pieces of regulation associated with our business, do you see being changed in the coming year?
Aashish: Apart from procedural stuff emanating from taxation rates and the likes I don't see any major changes specific to MF industry. Merger of schemes is going to be a big item with regulator instructing trustees to evaluate the product portfolio is going to be a big item for the industry though we are totally unaffected by it. Instead of waiting for trustee boards and AMCs to start working on it, distributors should start consolidating investors' portfolios on their own accord.
WF: What is your message to your distribution partners as we prepare to enter 2016?
Aashish: I have already covered my key messages but I would summarize as below:
You are right in feeling that regulatory moves are making our business less rewarding for us, but they are making it more attractive for investors. Growth in the MF industry is here to sustain - habits change with generations. New technology, availability and a new generation of investors unencumbered with past anchoring on returns will result in volumes and values exploding. Overall, the business is becoming more attractive for all involved. Don't get over awed by technology. See what's available vs what's relevant for you to service and reach your chosen client segment better. Don't get carried away by sales and marketing practices of AMCs. They have reasons for creating new products frequently, see what's relevant for your clients and their goals and allow only those products to enter your consideration set.
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