The Mutual Fund Show: Here’s Why Investors Must Brace For Volatile Markets Till May

After a tumultuous 2018, equity investors must brace for volatility till the general election in May.
But that shouldn’t deter them from investing in mutual funds through systematic investment plans, said A Balasubramanian, chief executive officer of Aditya Birla Sun Life AMC, in BloombergQuint’s weekly series The Mutual Fund Show. “2019 should be a comeback year for the mutual fund industry and markets due to favourable macro variables like stable interest rates, benign crude oil prices and stabilisation of the most important tax structure—goods and services tax,” he said.
Mutual funds under various categories failed to return gains of over 10 percent last year, according to a BloombergQuint analysis, with small-cap funds returning negative 7 percent. That was because the benchmark indices fell after an initial surge due to fluctuations in crude oil prices; the U.S.-China trade war; a weaker rupee; and defaults at the IL&FS Group that sparked a selloff, a credit crunch at non-bank lenders and fears of market contagion.
Balasubramanian—who has worked for over 26 years as a portfolio manager—said that the next five years of the India growth story will be better due to, among other factors, an improved tax-GDP ratio, reduced fiscal deficit, higher spend on infrastructure and higher liquidity.
Fixed income schemes, according to the fund manager, should perform better in a falling-to-stable interest rate scenario. His pick in the equity asset class was multi-cap funds, which give money managers the flexibility to move funds between small-, mid- and multi-cap classes.
Here’s Balasubramanian’s checklist for investors in 2019:
  • Investing in mutual funds isn’t all about equity.
  • Focus on asset allocation.
  • Stick to the discipline of investing at regular intervals.
  • Have a clear long-term goal.
  • Tolerance to volatility is a must.
  • Consider some investments in index funds and exchange-traded funds.

Edited Transcript:

Do you think 2019 will be a comeback year?
Definitely, 2019 could be a comeback year for many reasons. Investors faced a lot of uncertainty in 2018. We faced lot of troubles on equity markets and macro variables affecting India’s progress such as oil, interest rates, and inflation. Volatility in the Indian equity markets was among the highest in the emerging market basket. So, 2018 was not a great year.
But at the same time there are many macro variables which have been impacting India’s growth like oil, interest rates and inflation. All of them are turning more favorable for India. India being one of the biggest importer of oil, if oil stabilises, there are many things which will get stabilised along with oil like currency, interest rates, inflation, import-export parity, current account deficit. We will see multiple areas improvement coming back.
It is also the year of GST (goods and services tax). It took a lot of time to stabilise. We are getting into stage where GST is not only getting stabilised, but the government is now open to look at GST rates in two-three buckets. Assuming the scenario, it will not only benefit the government, but also consumer space and the companies that produce these goods and services in terms of reduction of service tax which means that majority portion will benefit the consumer at large and some portion will go to the companies. If companies benefit, they have to come back with earnings growth too which would be better than 2018.
If we look holistically at 2019, many variables will be favourable for India among the emerging markets. It would be also seen by global investors especially in a time where developed economies are going through their own pain points. Especially the latter part of the year -- last 2.5 months or so -- was tough for developed markets including the fall in Japan, and the U.S. And especially FAANG companies which are Facebook, Apple, Netflix, Google which have fallen sharply.