Akshay Gupta, managing director and chief executive officer of Peerless Mutual Fund, says the stock market is waiting for fresh triggers such as policy reforms, rate cut or a resolution of the European crisis to take a firm direction. In an interview with Ravi Ranjan Prasad, Gupta says FII inflows will continue this year as the political and economic environment is stabilising in the country. Excerpts:

Equities have underperformed last year compared with other asset classes. How do you expect equities to perform in calendar year 2012? What should be the retail investors’ strategy for equities?

The worst seems to be over. The global economic and political outlook over the past few quarters was bleak. Most of the negative newsflows and sentiment have been factored in the correction of 2011. Inflation, liquidity and IIP (index of in­dustrial production) numbers are gett­ing better. The market is waiting for fr­esh triggers like policy reforms, rate cuts and effective resolution to European crisis to take a firm direction. We believe that the outlook for equities for 2012 is better than last year. This is due to the fact that Indian markets seemed to be in the fair valuation range at the end of 2011 and the rupee had depreciated significantly. If one were to combine the two factors, FIIs will allocate incremental investments to India in 2012. Howe­ver, the present trend will continue only if significant initiatives like policy refor­ms, solution to the power crisis, rate cu­ts and liquidity are favourable. We have been advising our investors to spread investments in equity funds over a period of time.

We have seen foreign inflows of $2 billion into Indian stocks in January. What is driving this huge inflow? Will it sustain in 2012?

FIIs spot opportunities very quickly. Th­ey are savvy investors. Currency and market depreciation made them take notice Indian equities very seriously. Emerging markets still hold higher gro­wth prospects over developed nations. The present crisis in Europe and the US has reiterated the concept of diversifying investments to international emer­ging markets since limited opportunities are available in the developed world. Therefore, we are seeing a surge in foreign inflows. Inflows may continue with the economy and political environment stabilising in India. I feel that a strong and stable domestic economy will be the key to equity markets in 2012.

Debt products like fixed maturity plans (FMPs) mobilised huge money in 2011. Are such products still attractive for investors as the interest rate cycle is poised for a reversal?

The interest rate cycle is poised for a re­versal. With inflation falling visibly and economic growth slowing down, we sho­uld see RBI cut CRR (cash reserve rat­io) and repo rates. In such a scenario, with falling yields, investors are advised to participate in more dynamically managed products such as short-term funds, ultra-short-term funds and income fu­nds. They will outperform FMPs becau­se of capital appreciation added to portfolio yields. FMPs are illiquid and taxat­ion on FMPs after the DTC (direct tax code) regime comes into force is still in the realm of interpretation.

In a short span, Peerless Mutual Fund has mobilised sizable assets under management (AUM). How has this been possible when others are struggling to get inflows?

At Peerless, we believe in the “customer first” principle. For the entire Peerless Mutual Fund team, the biggest accolade and award is ”customer delight”. Our cu­stomers include end consumers (in­vestors) and advisers who help us in se­lling our products. We believe in deep engagement and constant communication with our customers. This underlying philosophy of the team has helped our AUM grow in a short span.

Can you tell us about your investors? Who forms the major constituents — retail, HNIs or corporate/institutional segments? Also, from which part of the country your investors mostly come from?

All types of customers have bestowed their faith on us. We have the entire spectrum of investors from the largest banks and companies to pure retail customers. While a large part of the institutional money comes from the four metros and cities like Bangalore, Hyderabad and Pune, among others, our retail customers are spread all across India. Interestingly, a large chunk of our retail customers come from tier-III and tier-IV locations. Some of the lesser-known locations like Kannur (Kerala), Tiruvannamalai (Tamil Nadu), Karimnagar (Andhra Pradesh), Ghatal (West Bengal), Chinsura (West Bengal), Bishalgarh (Tripura), Puttur (Karnataka) and Ballia (Uttar Pradesh) have been contributing to our retail assets.

Has the mutual fund industry succeeded in getting money from investors in tier-III and tier-IV towns?

The top 10 cities contribution (in terms of retail AUM) has come down to 75 per cent from 90 per cent in 2003. However, the pace of retail penetration, especially in tier-III and tier-IV towns, has been slow primarily due to low awareness among investors and waning distributor interest due to inadequate compensation for their efforts in selling a variable-return product like mutual funds.

You have launched both debt and equity products. What next is in the planning? Recently, Sebi chairman asked asset management companies to focus on retirement products. What is your view? Are you also planning to launch some retirement products?

We intend to provide long-term and goal-based solutions for retail investors. This will make these investments get the benefit of time in the markets. We had launched a child plan to start with and will add retirement and pension products in the future, once the guidelines are clear. Other products that we wish to focus on are balanced funds, infrastructure-related funds and flexible-income plans.

Going forward, how is Peerless planning to grow? Any plans to have a foreign partner, especially when Sebi has allowed foreign investors to invest in mutual funds? Will the focus be on equity or debt products? ETFs are also getting popular.

We are open to any strategic partnership provided the partnership results in en­hancing our expertise and reach. Howe­ver, our business growth model is independent of such strategic tie-ups and we will continue to spread our reach pa­rticularly in the retail segment. We are capitalising on our existing products portfolio. With markets getting broader and deeper, we will launch more products across all asset classes. We hope regulations on asset classes like real estate and commodities, among others, fructify in 2012 to give a greater choice to investors. Asset class diversification is critical for more savings to come thro­ugh proper channels into real estate.

raviranjan@mydigitalfc.com