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WF: 2014 was a great year for Sundaram Mutual on all fronts. How has 2015 been for the company? What are the big hits and misses of 2015?
Sunil: 2015 has also been a great year as the sustained focus on existing schemes generated a 40 % y-o-y rise in gross equity sales. It was also heartening to achieve a 90% increase in our monthly new SIP book. The buoyancy in the equity markets and our excellent fund performance resulted in a 33% drop y-o-y in equity redemptions. Thus we experienced a staggering 900% rise in equity Nett New Cash (NNC). The icing on the cake was the continuing success of our Portfolio Management business which posted a 44% rise in Gross Sales and a 31% rise in NNC. Success must also be viewed in relative terms and we punched well above our market weight with an 8% share of the NNC in the small and midcap space and posted 15 % improvement in our share of equity redemptions. To round it off, we also leveraged our key institutional and distribution relationships to garner long term money in closed end fixed income products (FMPs and Hybrids) as well as in the shorter end of the open ended duration space.
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?
Sunil: Agreed, the large cap indices have shown a 6 to 7% correction while the mid and small cap indices showed low to mid single digit returns on a YTD basis. The reasons seem to be 1. a reality check for the markets from the euphoria of the Modi election victory and 2. Corporate earnings disappointing market expectations.
However I must point out that all of our small, mid and multi cap schemes delivered a positive alpha over their benchmarks.
For 2016, we expect a gradual improvement in corporate earnings as the full effect is felt of lower commodity and oil prices and lower interest costs. The drill down effect of GOI infra spend will benefit corporate top lines. However, a lot would depend on the Modi govt's ability to push through key legislation and on the ground reforms at a pace faster than what they been able to do thus far. Subject to this, the markets should deliver better performance than in 2015.
On the business prognosis, we expect retail flows to continue to remain strong as bank deposit rates begin easing and the relative attractiveness of equity and the fixed income asset classes gets strengthened. On the business level we expect retail participation to strengthen as lower bank deposit rates and the pay commission bonanza will drive mutual fund equity and fixed income flows.
WF: Distribution expansion has been one of your key focus areas. Unfortunately, as our WF New Blood Report 2015 shows (Click Here), ARN growth in our industry continues to be extremely weak, even though retail interest in mutual funds is on the rise. What can we do differently in 2016 and beyond, to significantly enhance IFA numbers across the country?
Sunil: We added more than 500 new distributors to our fold this year. We expect to continue that momentum next year also. However, enhancing IFA numbers in the industry as a whole will need a lot more efforts from all the stakeholders to make it a respectable, remunerative and a business with a lot more clarity from a sustainability perspective especially for new entrants.
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?
Sunil: Disruption as a whole would remain in the hype territory next year as the key challenge for the industry is to get a greater wallet share of individual consumer surpluses whereas most disruption initiatives such as robo advisory and online transaction platforms are focussed on existing customers. Similarly, passive and algorithmic fund management are quite a few years away from disrupting the industry as there is enough scope for alpha generation especially in the small and midcap space.
WF: What are your plans for 2016? What new initiatives are you considering in the product, sales and marketing aspects of your business?
Sunil: We do not see 2016 as dramatically different from 2015 and it will continue to be an 'execution' year as we seek to increasingly leverage our branch network and distribution relationships and strengthen the pipe we have built by greater product throughput. The thrust will be on a mix of our existing super performers and selective multi cap and multi asset class offerings both from the existing bouquet and selective new offerings. Some of these have already been filed with the regulator and others are in the conceptualisation stage.
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