Mahindra has been one of the fastest growing fund houses in India. What are the three things that has contributed to this growth?
When we started the business about five-and-a-half years back, we focused on setting up a business that's not only urban but also semi-urban. So, we started establishing franchises across the country and now we are present in 65-70 locations. This reach has been our biggest advantage. The second factor is our process-driven approach, which has helped us deliver good returns. Thirdly, our 'customer first' approach has kept our focus where it should be. We also consider distributors as our customers and value their interests.
You have been with the fund house since inception, what are your three key learnings over the years?
By training I am a chartered accountant but Mahindra Manulife entrusted me with an executive role. So my first learning is to relearn. You need to relearn and upskill yourself from time to time. This is true for me. This is true for everyone.
Secondly, every business goes through an economic cycle. Some periods are good and some are not. It's important not to lose focus during the downturn. The work done during this period delivers when the upturn arrives.
Lastly, technology upgradation and technology adoption cannot be ignored anymore. Technology is now extremely crucial for cost-saving and business growth.
In an era of direct MF online distributors, why do you think individual MFDs still have an edge?
When these online platforms came, there was something new about them. That novelty has now worn off. Now most distributors, be it individual MFDs or national distributors, have adopted technology. The ability of MFDs to maintain personal touch with clients along with technology gives them an edge in the distribution business.
Further, MFDs should not get intimidated by emergence of new players. They should adopt newer technologies and keep upskilling themselves.
Physical meeting is one of the biggest advantages that MFDs have over these online distributors. However, work from home has restricted such meeting to virtual interactions, which may not be as effective as physical meetings. In such a scenario, how can distributors maintain their competitive advantage and continue to grow their business?
It was true in the initial phase. Things became partially normal from September 2020. There's no clarity if things will ever get back to as they were before the pandemic. Even if things become normal, physical meetings can only be done in limited numbers. MFDs should adopt newer means to stay in touch with clients. When we come out of this, we should be prepared for both digital and physical means to drive business growth.
How have you been engaging with distributors during these trying times? What support will your company extend to distributors to deal with the coronavirus outbreak?
MFDs have been a vital part of our growth journey. They are biggest contributors to our retail business. We connected with them in many ways after the outbreak of Covid-19. When our joint venture with Manulife was put in place in November 2020, we reached out to them through digital mediums to keep them informed and take them through the new processes. We also did multiple knowledge and training sessions in the last one year for them, including motivational sessions. So, all of this has contributed in establishing connections with them.
The ongoing rally has led to the perception that equities have become overvalued. As a result, many investors are looking to redeem their investments. In such a scenario, how can MFDs persuade their clients to hold their nerve and stick to the long term goals?
Current market uptick is basically the markets climbing a wall of worry. Those walls have been the pandemic, fiscal deficit, earnings of companies etc. There's also a saying that 'markets are slave to earnings'. So the simple question to understand in the present market scenario is this — have the earnings been delivered or not? Last year, when the market was expecting earnings degrowth of 8%-10%, the actual results came in at around 14%-15% growth. The GDP growth is also catching up. If economy and companies are doing well, why shouldn't markets go up? Yes, in some pockets, questions on the valuation front are justified, but fund managers are there to take care of that.
One may be tempted to take out the money at this current level and come in at lower valuations, but that's not an easy thing to do. There's a good chance that the planned re-entry point may never arrive.
Considering how difficult it is to time the market and the expected growth of our economy, staying invested is the right thing to do. The general expectation is that the equity market will grow 12%-15%, and if you miss the rally, a vital portion of your growth and compounding will go away. So my suggestion would be to catch the cycle. Such valuations are inherent part of the market, play them and play them from a larger and longer perspective.
What do you think will the formula for success for MFDs as the industry evolves in the years to come?
The first formula will always be customer focus. Do what is good for customers.
Consider the growth in savings when the economy hits $4-$5 trillion. In future, we may see close to $1 trillion in savings per annum, a large part of which will flow into mutual funds. MFDs have a lot of scope to grow their business in years to come.
To realise this growth, service quality and digitalization will be the most important aspects. The ability to adapt to changes will also play a key role. MFDs should not let short-term happenings distract them from achieving success.
Mahindra has recently launched a flexicap fund. Why do you think this is the best time to come up with such an offering?
Coincidently, the fund has come out at a time when all the paradox of market levels are there. At a time like this, it's vital that the fund manager has freedom to move investments across market capitalisation as well as across sectors. We believe there are three kind of cycles — economic cycle, business cycle and capital market cycle. The fund will take into account all three cycle while constructing the portfolio. The nature of the fund will allow the manager to shift investments from one segment to another without any restrictions. Like, now we may have a large-cap bias considering hefty valuations of mid- and small-cap stocks. But that may change with time. Flexicap fund will allow us to shift investments as per the market scenario.
I believe that the timing of the launch and the market momentum will help us to build a good portfolio for the future.
