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I would not press any panic button on falling equity inflows: Sunil Subramanium

Advisors are also telling customers to stagger investments in equity market at this point in time.

ET Now|
Updated: Dec 10, 2019, 11.03 AM IST
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Sunil Subramaniam-Sundaram MF-1200
The customers are convinced about the long-term potential of equity. They are going to stagger the investment through STPs into the equity market rather than put it in as lump sum, says Sunil Subramaniam, MD, Sundaram AMC. Excerpts from an interview with Tamanna Inamdar of ETNOW.

It is the third consecutive month that we have seen a fairly steep drop in equity inflows. Put this into perspective for us.
What you are referring to is the net inflows, that is the gross inflow minus redemptions. If you disaggregate the two numbers, gross inflows actually went up 3% month on month but gross outflows went up 47%. That is why overall there was a 78% drop. The 47% increase in the redemptions came because markets this month were at a reasonably all-time high. Post the tax benefits that Nirmala Sitharaman passed on to corporate India and EPS numbers, a lot of these companies benefited from that. We saw the markets rising and those investors who came would come in let us say two years ago, at around the last quarter of 2017 did a bit of relief profit booking. I would say those investors who had bad experience, are booking profits and leaving but fresh inflows -- SIP inflows -- are pretty strong. Also actual gross inflows are marginally up month on month. I would not press any panic button on this.

How does this reflect the overall mood?
What it is telling me is that long-term investors who have come in through the SIP route are continuing to retain their faith. Investors who have been there for a longer time already are tending to look at the economy growth. I am sure that a lot of them are feeling that this runup is justified. I do not have a breakup of how much is HNI and how much is retail; maybe the HNI segment is feeling the rise is not backed by fundamentals and want to take money off the table and come back into the market when they see a stronger GDP support to earnings growth. There could be some kind of tactical action at play here by some of the investors. I would hesitate to call them smarter investors, they are just say more reactive investors.

Do you think it is also to some extent reflective of what we are seeing in the economy right now?. You can call it being smart or afraid -- but it is a time of caution where appetite for risk and consumption and discretionary spends is dampened? Are you seeing some of that sentiment play into the mutual fund space as well?
I would say a little bit. Consumers are not spending, they should be saving. I think equity is a form of saving and the SIP flows are indicative of the fact that consumers are preparing to put a savings EMI rather than a consumption EMI in buying a car or a house or whatever it is. You may call it fear, you may call it whatever, but the fact is that ground level economic data are not supportive of long-term future. So, some of the reactive investors are reacting in this way, but I do not think this is sustainable. If data changes, automatically these people come back. So I do not think there is any trend here.

Maybe the HNI segment is feeling the rising market is not backed by fundamentals and want to take money off the table and come back into the market when they see a stronger GDP support to earnings growth.

-Sunil Subramanium


The SIP figures are at an all-time high and we have seen a growing trend there. In the last couple of years, post demonetisation, maybe one of the fallout has been this greater participation in SIPs. How do you see that going?
I would give credit to the whole advisors/distributor community that two things happened. In the previous bull cycle of 2006-2007, we saw similar strong retail participation but that was more into a lump sum and so when the market corrections happened, around 2011-12-13, they all walked out in a hurry with very bitter experience.

This time around when the fresh flows have been coming into the industry on the back of good performance, the advisors have been very smart in terms of telling customers to not come in with the lump sum. They were told to come in with the monthly kind of inflow into the market. That trend has been well marketed by advisors and I would like to thank the whole advisor IFA community for doing that.

The second aspect, more recently for this month’s numbers, I saw a lot of advisors telling customers look that equities are still good long-term assets. But do not put all your money in one go, put it through an STP, put it into a debt fund or a liquid fund and do a monthly systematic transfer into equities because you can average out your exposure over the next 12 months. I think that is one of the reasons SIP flows are at life-time highs. At the same time, while you are seeing a net inflow being negative, I think people are saying let me stagger my exposure, there are big events ahead of us. There is a big budget coming up, then the US elections, there is a Brexit related election. A lot of events are lined up over the next few months. Hence, maybe advisors are also telling their customers to stagger investments into the equity market at this point in time and put it over a 6 months, 12 months period. That could be another explanation for the strong SIP book in this month.

Going forward, how do you see this trend panning out? Do you see more and more people going towards SIPs? What is the trend that you are gleaning in the sector?
More people are going towards STPs. SIPs are systematic investment plans, STPs are systematic transfer plans. People are parking their money into liquidity schemes and then giving a mandate to transfer that to equities over the next 6 to 12 months. I see that trend picking up a lot in a time of uncertainty because everybody knows that in the long term, equities is a good asset class. What is supporting this whole thing about equities is the fact that with all the transmission pressure that RBI is putting on banks, you can expect deposit rates to fall.

The comparative return that equity needs to deliver to a customer to justify vis-à-vis its bank deposit - that bar is being set lower and lower. Today, even if you get a low double digit return from equities, customer should be very happy because 6% to 7% bank deposit post tax you are going to get 5%. At 10%, equities are still going to deliver double returns. So equities will continue to be attractive asset class, may not give the kind of fantastic 20-25% per annum return of the past but even at 10% to 12% or 15%, they are a very good asset class, beating inflation.

The customers are convinced about the long-term potential. They are going to stagger the investment rather than put it in as lump sum and stagger it through STPs into the equity market.

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