1. Market confidence - equity
Before we take a look at Sensex predictions for March 2015 from our IFA leaders, lets take a look at their track record :
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 by Dec 2012. 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.
The second survey was conducted in June 2013, when the Sensex was sliding down from 20,000 levels to 18,500 levels. Despite all the pessimism on the precarious macro situation which was prevalent then, our IFA respondents remained "cautiously optimistic" about their Sensex forecast for March 2014. Only 12% of respondents believe that markets will drift towards a lower trading band. As many as 62% of respondents believed that the markets will grind their way upwards into the 19,000 - 22,000 trading band, and thus break out of a long phase where markets failed to cross their 2008 highs. The result : in March 2014, the Sensex oscillated between 21,000 to 22,000 levels, with an upward bias, and finally broke out upwards of its 2008 highs. Our IFA leaders got their market call bang on, again!
So, what do our IFA leaders, with a 2 out of 2 track record, say about market levels by March 2015?
Notwithstanding the current global nervousness due to geo-political strife in the Middle East, our IFA leaders are confident about the onward march of our domestic equity bull market. Nobody expects a steep correction, only 2% expect the market to drift to a lower trading band, and a majority of 75% expect the market to trade in a band higher than its current one. With 54% of respondents predicting Sensex levels in the band of 27,500 - 30,000, they are clearly looking forward to robust returns from equity markets in this fiscal year.
If everyone's bullish, and markets are known to punish a crowded trade, are we to brace ourselves for an unexpected correction? On the other hand, with an enviable track record of 2 on 2, will our IFA leaders score a hat-trick by March 15, with their Sensex predictions? Fundamentals certainly point towards a bullish outcome - lets watch this space and hope for a hat-trick!
2. Market confidence - debt
Not very good news for those expecting interest rates to decline significantly by March 2015. Over half of our IFA leaders expect interest rates to remain in a high band of 8-9% and 45% expect a marginal decline to the 7-8% band. Only 4% expect a significant decline in interest rates to below 7% levels. Clearly, our IFA leaders seem as worried about sticky inflation as the RBI Governor, and are cautious about betting on declining rates, until the inflation beast has been decisively tackled. Among regions, North seems the most worried about high interest rates, with a hefty 66% predicting 10 yr G-Secs to trade in the 8-9% band by March 2015. West seems relatively more optimistic about declining interest rates this fiscal.
A not-so-bullish view on interest rates could influence advisors attitudes perhaps more towards accrual based strategies rather than pure duration strategies.
3. Market confidence - currency
61% of respondents expect the rupee to strengthen to between Rs. 55 and 60 by March 15 while 37% expect it to remain in the current band of Rs. 60 - 65. Clearly, an optimistic equity outlook on the back of optimism on the economy, seems to be influencing views on the currency gaining some strength during this fiscal year. This currency view could well influence advisors thinking on export oriented sectors as well as perhaps dampen their urge to globally diversify client portfolios.
4. Product confidence - equity
No surprises here - given the high conviction levels on stock markets, our IFA respondents are very confident about recommending equity funds to their clients - both SIPs as well as STPs for lumpsums. To be fair, they were almost as confident even when markets were going through turbulence when they responded to the previous two surveys - which is a strong testament of their equity conviction. This year, there is higher level of conviction in recommending STPs for lumpsums than we saw in the previous year - which is understandable, given the much higher degree of confidence in equity markets that almost all participants now have. A notable feature in the regional break-up is the huge conviction that West based respondents have in equity SIPs - with a phenomenal 75% giving it a perfect 10 score.
Respondents were asked to select all categories that they were confident of, and not just one. This explains why statistically, the scores on these tables don't add up to 100%. The big message in terms of product preferences seems to be a growing appetite for mid and small cap funds. We flagged this in our last survey, where we saw a relative reduction in preference for large cap funds and a growing appetite for mid and small cap funds. A year down the road, that trend has accelerated, with preference for mid and small cap funds now decisively overtaking appetite for large cap funds. Diversified no cap bias funds continue to hold their appeal among India's leading IFAs. Appetite for sectoral and thematic funds remains relatively muted. There seems, in other words, to be more conviction in and appetite for mid and small caps as a theme rather than say infrastructure funds. Good old diversified equity funds continue to be a big favourite among our respondents. Product teams in fund houses may find these insights useful in shaping their product promotion strategies.
Appetite for global equity funds is quite muted, with an average score of only 4.2, even among the leaders of the IFA fraternity. Strong long term prospects of domestic equities coupled with confidence on currency stability seems to have dampened advisor enthusiasm for international diversification, which was quite high in the second half of 2013, when we went through our currency turmoil. It appears that the message of global diversification as a core portfolio strategy has not really been bought into by many advisors yet.
Among advisors who are comfortable recommending global equity funds, US equities seems to be a favourite, with diversified global equities coming in at second position. Appetite for emerging markets and European equities is significantly lower. It would be interesting to understand the reasons for preference towards US equities. Is it conviction in a long term US equities bull market or is it robust past performance that's driving this preference?
5. Product confidence - debt
Appetite to recommend all forms of debt - bonds, deposits or funds - seems to have waned as compared to a year ago. Lower enthusiasm for bonds and deposits could be a consequence of higher degrees of conviction in the retail world for equities. Confidence in debt funds perhaps got dented as this survey was carried out a couple of weeks after the tax breaks on debt funds were summarily withdrawn. Be that as it may, a score of 7.2 nevertheless reflects fairly high degree of enthusiasm for debt funds, with North and West displaying higher confidence in them than the other two regions.
Mr. Jaitley's googly has turned the product preferences tables upside down. Credit Opportunities funds are now the hot favourite among India's leading IFAs. Last year's favourites - dynamic bond funds and short term plans are seeing a sharp drop in advisor preference. Interestingly, FMPs - the category most impacted by the tax changes, has seen an increase in advisor appetite. The industry's solution of roll-over of FMPs seems to be going down well with many of our respondents. When taking a 3 year view, it is not surprising that Credit Opportunities funds emerge as the hands down winners. This is where debt funds seem to have a lasting competitive edge over deposits.
The same product categories, when looked at from a tactical 1 year view, have elicited a very different response from our respondents. Short term funds are joint winners with Credit Opportunities Funds in terms of advisor preferences.
There are perhaps some very useful insights for product teams at fund houses to take on board in terms of how to position different products within the debt funds space for different investor requirements and different time horizons. There is a lot of scope for innovation in product positioning, given these rich insights from India's leading IFAs.
6. Product confidence - hybrids
Appetite for hybrid and asset allocation funds has reduced somewhat since last year, which may seem a little disappointing. Perhaps with equity conviction scaling higher, other products get elbowed out at the margin. The regional diversity here is quite striking. Preference for hybrids has grown in the North, while it has dipped the most in the South. Advisors in the South, who have taken to a fee based model more than other regions, perhaps prefer to do the asset allocation themselves rather than leaving it to products.
Hybrids with gold are rapidly losing mind space among India's leading IFAs. Balanced funds continue to be the undisputed favourite, and capital protection oriented funds seem to be edging their way into IFAs consideration set.
Have Mr. Jaitley's tax googlies elevated balanced funds into a core holding in every portfolio? Have his googlies brought arbitrage funds to centre stage or are they still in the peripheries? India's leading IFAs have fairly strongly voted for balanced funds to be a default allocation in every portfolio, considering the tax advantage of the debt component vs other debt funds. Product teams at fund houses will do well to revisit the way they wish to position their balanced funds and give this category due focus.
Arbitrage funds as an alternative to ultra short term funds score a respectable 5.5. The house seems divided on this one : 51% of respondents have given a score of 7-10, which signifies a high degree of comfort. 19% are sitting on the fence (scores of 5 and 6) while 30% have poor confidence in this category (scores of 1-4). Fund houses who wish to promote this category may want to have a targeted approach, based on relative conviction levels.
7. Product confidence - gold funds
All that glitters is not gold - gold has in fact stopped glittering and its equity that seems to be glittering in advisors' preferences right now. Gold as a strategic asset allocation does not seem to find too many takers when the outlook for gold prices is muted.
8. Product confidence - life insurance
Confidence in term plans as the best form of insurance cover continues to be sky high among India's leading IFAs. All other investment-linked insurance products have very little appeal among our respondents.
What do you think?
Do you agree with our respondents median Sensex forecast of 27,500 - 30,000 by March 2015? Do you think they are in line for a hat-trick? Which products within equity, debt and hybrids are you most confident of recommending to your clients now? Do you think balanced funds should now become a default choice in every client portfolio? What do you think of arbitrage funds as an alternative to ultra short term funds? Share your views with the industry by posting your comments in the box below - its YOUR forum!
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