The eventful 2019 gave plenty of hints regarding the shape of things in 2020.
Now that we have entered 2020, let us look at how some of the highlights of 2019 could play out during this year.
Revisiting business strategy
Post rationalisation in TER, fund houses and advisors have looked to increase their offerings. The trend is likely to continue in 2020, with more AMCs expanding to sophisticated products like PMS and AIFs. Advisors, on the other hand, are likely to diversify their offerings by adding financial products such as insurance, NCDs, tax free bonds, AIF, PMS and so on.
Another key trend has been consolidation in advisory business. Many IFAs have merged their advisory business in 2019 and the trend can continue in 2020 to reduce costs by sharing various expenses such as execution platform, software, back-end operations, customer communication, marketing expenses, and so on. In 2020, IFAs are more likely to consolidate their business to reduce cost and grow business, believes Vishal Kapoor, CEO, IDFC MF.
Boost from personal income tax cut
A cut in personal income tax could provide a fillip to the MF industry. At Cafemutual Confluence 2019, Bibek Debroy, Chairman, Prime Minister’s Economic Advisory Council has said that the government is likely to reduce personal income tax in the upcoming budget. Further, the Direct Taxes Task Force, set up by the finance ministry, in its report also suggested rejig in the current personal income tax structure.
Equity fund performance`
In 2020, fund managers expect the broader equity markets to remain well placed with low interest rates and expected recovery in growth in the second half.
Neelesh Surana, CIO, Mirae Asset believes that 2020 will be better for equity funds compared to 2019. He said, “We expect gradual improvement in the economic activities from current low levels which will be driven by interest rate transmission, reforms and directed measure by the government to iron out sector specific challenges, etc. In addition, rural demand is expected to revive driven by better prices and higher spend by the government.”
Overhaul of debt funds
Following a series of events in the debt fund space, SEBI has come up with multiple changes in 2019. Credit risk funds have taken the maximum beating this year and fund managers feel the category may continue to see more outflows in 2020.
Most G-sec and corporate bond funds have done well this year, thanks to RBI’s decision to reduce repo rate by 135 basis points. However, with the RBI pausing its rate cut cycle in December, debt fund experts feel that a repeat of such performance is unlikely.
Experts believe that returns from debt funds will likely to pare in 2020. “With yields having corrected significantly, there is little room for further moderation on an absolute basis, particularly on bank CDs and good quality corporate bonds. Going forward, returns from good quality debt funds like corporate bond fund category will be far lower than that seen last year,” noted an ICICI Direct report.
