PSU Banks: Akhil Chaturvedi on how SIPs and lump sums are shaping India’s investment landscape

“So this is all based on a lot of optimism, big market returns, a lot of optimism from investors who continue to enter the markets essentially through… mutual funds and other platforms, I think it’s still the tip of the iceberg,” he says. Akhil ChaturvediCBO and ED, MO AMC.

Congratulations, what a proud moment. You have managed to cross that Rs 1 trillion mark as far as your assets under management are concerned. Tell me, given that there has been a lot of movement in the equity markets over the last decade, but we are still scratching the surface and the penetration levels are not that deep yet, what is it that we could look at in terms of visibility for your company? AUM In the next four or five years or even ten years?
Akhil Chaturvedi: Thank you very much. Yes, it is a big milestone that we have reached, the Rs 100,000 crore milestone. It has been a big journey. I think in the last 10 years, literally, we were at Rs 2,000 crore. From there, to cross Rs 100,000 crore is almost 50 times the growth. This is all because of the way our economy is working and the same is reflected in the capital markets. And in the last few years, obviously, we have seen a lot of retail participation through mutual funds, insurance and participation in EPFO.

So, this is all due to a lot of optimism, great market returns, a lot of optimism from investors who continue to come into the markets essentially through mutual funds and other platforms, I think that’s still the tip of the iceberg.

The path to growth looks very promising and we are very excited about the next 5-10 years. As we all know, we continue to see a lot of growth in SIPs – literally SIP volumes have increased by almost 40% in the last year or so – we are seeing a lot of lump sum flows outside of SIPs as well.

So, people are investing money in different platforms. It is an exciting journey and the penetration level, as you rightly mentioned, is still very low. If you look at the total household assets, we have a penetration of just 5% in equities. Even in financial assets, we have 7.5%. What we see is that if every one or two years we see an incremental movement of 1% of household assets into equities, that could be at a time almost 8 to 10 lakh crores per year, so it will be huge volumes, huge liquidity coming through mutual funds.

So the road to growth is quite long and I think the compound growth rate for our industry has been more like 15% or so. I think we should expect similar growth in the coming years.

Motilal Oswal AMC, where is the growth coming from? Is it coming from new SIPs? Is it coming from a lump sum? How essential has the pattern been for you?
Akhil Chaturvedi: So, as I said, it has been a combination of SIPs versus lump sum flows. So, while the mutual fund part of the business continues to grow through SIPs, our SIP portfolio has tripled in two years. We were at around Rs 100 crore. We have crossed Rs 600 crore of SIPs per month. And these are realised cash flows, not the recorded SIP portfolio, which could be a little different.

On the alternative side of the business, which is portfolio management services and alternative investment funds, we see high net worth companies and family offices allocating large amounts. Although lately we are seeing people in that segment as well trying to stagger their investments given the current situation. But overall, it has been a mix of SIP and lump sum across all platforms, mutual funds and alternatives.

What is the average size of SIPs? The industry average according to AMFI is about Rs 2.5 billion. Motilal Oswal is a larger type of AMC, what is the average size for you?
Akhil Chaturvedi: For us, it is around 3,800 because many SIPs also come through digital channels, direct channels and many retail investors, so our number of investors in SIPs has also tripled. So, the average ticket is still more or less 3,500, 3,800, more or less.

Number which the industry is also sharing with us, if you could also share with us what is the overall ratio of new SIPs versus SIPs that are cancelled, where is that ratio when compared to Motilal Oswal AMC?
Akhil Chaturvedi: Around 40%. So if we record 100, the net result is about 70-75.

You’ve launched a couple of NFOs recently, the defense one being the largest, and then there was a small-cap one before that, and then there was a mega-cap one before that. Would you consider launching new NFOs in this type of market? Would that be a priority strategy for the AMC?
Akhil Chaturvedi: Over the past few months, we have been trying to complete our product range. For a long time, we limited ourselves to launching new products and remained in the diversified segment, which consisted mainly of mid-cap and flexible funds.

Now, given the shape of our results, the confidence in the investment team and new ways of investing in broad themes, we believe that it is a good time to complete a basket of products. Therefore, we have launched our small-cap fund, our large-cap fund, our multi-cap fund and a variety of funds in the diversified segment.

The first thematic fund that we did on the active side was the manufacturing fund, which looks very interesting in India for the next five years at least with all the data points that we are reading. As we move forward, both on the active and passive side, we have a couple more ideas. Then, we will be launching on the passive side a very innovative fund, which would be the Momentum 50 Fund on the Nifty 500. It is an absolutely new product. So that is something that we are launching.

We have a few themes in mind. So, as we go along, when we feel the levels are comfortable, we will do a couple more thematic funds. We are looking at digital as an opportunity. We are looking at innovation as an opportunity. So, I think in the next six months, you should expect some more new ideas from us.

I wanted to make a little bit of a difference and understand your overall perspective on the markets and the current situation we are in. Since, yes, to some extent we have been taking cues from what we have seen around the world, how do you see the overall valuations of the Indian markets? Where do you think we are headed? Do you think the market backdrop will remain fairly bullish with a bout of consolidation along the way?
Akhil Chaturvedi: I mean, obviously, we’re all discussing how valuations are shaping up at the headline level, but we’re growth investors. We’re all the time trying to assess what the opportunities are, what themes look positive in terms of earnings growth, what are some of the turnaround stories, where the opportunity is at the right price today.

Overall, from a short-term perspective, it is difficult to predict, but the momentum still looks very positive. I think the headline GDP numbers are likely to be above 7%, which is positive. In case there are rate cuts in the US, we can expect there to be rate cuts in India as well, which is positive for India from a macroeconomic perspective.
Inflation is in a comfortable range of 4% to 6%. Again, this is positive and liquidity, as we all know, has been very, very strong. So, if global macros seem to be on the positive side, India is still doing quite well and liquidity continues to come in. I feel the market should be stable or positive.

What would be the differentiating factor for an investor at this point? That is, every scheme claims to be different, but 70-80% of the portfolios are almost the same.
Akhil Chaturvedi: So, on our part, I can tell you that we work very hard to create differentiation in our clients’ portfolios and we keep tracking our portfolios, overlapping them with some of other friends’ portfolios and the overlaps are quite comfortable, between 5% and 15%.

So how do we achieve differentiation? How do we get new ideas from the start? Basically, it’s about getting together and evaluating, identifying new opportunities, new topics. For example, at this stage, we are very optimistic about seven or eight topics.

We were the first to identify the telecom sector. We got into it and did well. On the consumer side, we are very bullish on high-end luxury consumption, which has been positive for us. The manufacturing sector itself seems to be on the up. Of course, in the manufacturing sector there are some sectors that look good from a value perspective and others that look a bit expensive.

So, we need to be a little bit more specific on the stock side. I think there are enough and more opportunities where earnings growth could be sustained or probably improved in the capital market businesses, and that is where the skill of fund managers is to identify these themes, sectors and sub-sectors, and then identify new ideas and try to be different compared to some of the other products, which is our goal.

How does this whole global ETF pattern fit into a market like India? Historically, we have seen it in mature markets, which is where we are heading, because we are the third-largest market in terms of market capitalisation, so we are not a nascent market, meaning a very large market now in terms of market capitalisation. In mature markets, ETFs are outperforming their benchmarks and mutual funds are struggling to outperform their benchmarks. How far are we from that phase of the market?
Akhil Chaturvedi: I think there is still time for the ETF business to mature in India. The biggest challenge we have in the ETF space is liquidity and volumes.

There are no market makers for ETF products. We are working on the ETF side. We have several products that are in ETFs and several products for which we have created both the covers on the index or index mutual fund side, and on the ETF side.

What we see is that the appetite for investing in index-based mutual funds is much greater than for ETFs today. But I think as markets evolve, there will be interest, there will be more market making and more liquidity in ETFs and I think over time this will eventually evolve.

We have seen that over the last 10 years. We launched our Nasdaq ETF in 2010. For the first 10 years, we literally had no volumes, no business. The corpus used to be around Rs 75-80 crore. But in the last four years, we have seen that both sides, the Nasdaq ETF as well as the Nasdaq fund of funds, have grown phenomenally.

But, having had the first-hand experience of managing ETFs, I believe that if we leave aside the Nifty 50 basket, the other baskets still face the challenge of liquidity and market making, which is something we still have to deal with.