Markets are riding topsy-turvy, scaring retail investors who had made investments in equity with big hopes of an economic turnaround after the Modi Government was sworn in. On its part, the government has announced a series of reforms and investment plans but the private sector, laden with huge debt, is still on wait-and-watch mode. Three months after taking charge, Kailash Kulkarni, Chief Executive Officer, L&T Mutual Fund, is confident that mutual funds will continue to attract investments in equity schemes and deliver better returns for investors. Excerpts from an interview given to BusinessLine:
How do you see the recent volatility in the market?
We have seen a huge run up in the market after the Modi Government came to power. Obviously that got tempered in the last four months. I think the story was on expectation of a turnaround in corporate earnings. So the valuation went way ahead, but quarterly results have not been that great. Now people are getting to realise that to change an economy from the situation it was in, to one of development, is going to take time.
When do you see the economy turning around?
We believe, from the December quarter we may see some seeds of a turnaround. The government has started spending; it takes a couple of quarters to get the engine moving. Till then we expect the market to be volatile and news-driven.
What is your take on the current market valuation?
Despite the recent run up, the market is still not expensive from a valuation perspective. We were at a long-term average and after the correction, it is a great time to look at investment in equities. Especially for long-term investors, I think it is an opportunity to get in. If you are looking at the market for one year, equity funds are not for you. But if you are looking at a five- or ten-year horizon, then this is the right time.
What kind of returns can investors look for from equities?
Historically, equities have given a return of 14 per cent on the long term of over 5-10 years. Actually, it was around 17-18 per cent; I’m putting a conservative number. We expect to achieve this kind of growth in future.
Will inflation play spoil sport with monsoon playing truant?
Monsoon is a funny animal. A couple of months back when we had unseasonal rains, food inflation did not go up. Possibly we had enough of food stock of the crop that was destroyed. So, if you take the average it sounds scary. I believe the government is on the ball in understanding all these. We should not be worried unless it is a complete washout of monsoon.
Has the cap on upfront distributors’ commission impacted mutual funds?
Sales have not come down. That is the proof of the pudding. You may hear disgruntled noises. If it would have affected then you would have seen drastic reduction in sales but that has not happened.
Is there concern on service tax on distributors?
The law is very clear in saying that the service tax has to be borne by the distributor. There is a provision which says distributors with less than ₹10 lakh income from this business should not pay service tax. SEBI has moved the Finance Ministry to avail this facility for MF distributors. Yes, distributors are asking MFs and investors to bear the tax, but we cannot stop anyone from asking. The law is explicitly clear on who should pay. Every change is disruptive but realty can be different.