Nilesh Shah, Managing Director, Kotak Mutual Fund talks to Cafemutual about his new role, his plans for the fund house and more.
What is your roadmap for Kotak MF for the next two years?
We would love to be recognized as the most trusted AMC in the country. We can grow further only if we have investor’s mindshare. The trust, admiration, confidence and the comfort in our brand will essentially come through our conduct and performance. We have to ensure that our distributors are well informed about the developments affecting the market. Also, we have to connect with our investors and provide value to them. It doesn’t make sense if our conduct is good and performance is not up to the mark. Performance doesn’t necessarily mean topping the charts. We aim to offer better risk-adjusted returns. We are already the ninth largest AMC and our focus is to build on our existing platform.
You have been CIO in the past. Are you also involved in fund management in your current role?
I don’t get involved in day-to-day fund management but I do help my fund managers. I help them if they have any doubts. I just have to ensure that the fund management team adheres to the processes. The fund performance of Kotak schemes has been good even before I joined. So I just have to make sure that the momentum continues.
How is the transition from being a CIO to a CEO?
You have to take ownership of your job. When I started my career in the mutual fund industry, I was never restricted just to investments. I assisted our sales team in reaching out to distributors and help them get new clients. I was also involved in setting up best practices for industry in terms of valuation, indices, and so on. I have donned multiple hats in my career. I helped my colleagues in different functions. We worked as a team and never in isolation. This helps the overall growth of the company. So the transition from CIO to CEO has been smooth for me.
Do you miss being a fund manager?
Not really. This is a job where you get paid for the work you do and you also get blessings from your investors. I think everyone reaches a stage in life where money is no longer that important. It’s the blessings which are more important. It is our duty to create wealth for your investors.
Who do you look up to in the field of investments?
There are many people from whom you learn throughout your life. You don’t follow a person, you try to follow a trait of the person whom you admire. You learn different things from different personalities. So I have learned about value investing, growth style, thinking long term, building portfolio, analyzing promoters from different individuals. I have learnt a lot in the last 20 years by interacting with different market participants. There are so many gurus who we don’t even meet. You get to learn from them just by reading them or listening to them on television. So I pick up traits from people rather than just blindly following a particular person.
How are you planning to increase equity assets?
We have to reach out to investors and explain to them that equity is a long-term wealth creation story. We have to teach investors about how to invest in equity without worrying about corrections and when corrections happen, what they should be doing. Investors need handholding during bad times. We have to explain to investors about market corrections, volatility, importance of staying the course and why it is necessary to invest more during market corrections. Investors who have made money in mutual funds are our brand ambassadors. If we have 100 satisfied customers, they’ll give us another 1000 customers.
We are reaching out to investors through
multiple channels like one-on-one meetings, and through media. We are educating
investors through our website. We give presentations to IFAs. We have written a
book about how one should make investments. We are throwing darts in all
directions hoping that the signals which we are sending will eventually be
picked up by investors. We can bring horse to the water but you can’t make the
horse drink water. We are doing our best so that the horse starts drinking
water and not just reaches the water.
According
to you, what steps should SEBI and AMFI take to rope in more distributors in
the industry?
SEBI has created a safe structure for
investors. We have seen many fund houses exit the industry but there is not
even one precedence of investors losing money. Our industry is very strong
structurally.
We need to engage with investors and
convert them from savers to investors. There has to be a push and pull to
ensure that we have a coherent eco-system whereby there are more distributors
selling mutual funds and more investors are looking to invest in mutual funds.
How do
you engage with distributors?
We actively engage with distributors. We
send our distributors a note about markets on a daily basis and a presentation
on a monthly basis. Also, we circulate some interesting articles which we come
across every day. This is something
which is very well accepted by the people. More than 17,000 distributors get
this presentation. We hold a conference call on a monthly basis with distributors
where they can ask any questions related to markets or about our fund
performance.
Then we send them a quarterly newsletter
explaining about the markets and the performance of our funds. On a monthly
basis, we send our distributors a factsheet. We also conduct training programs
for our distributors. We also engage with them through our reward and
recognition program.
Do you
think commissions should be regulated?
This new structure has been designed after
a lot of deliberations in the industry. Now, let’s just experiment with this
proposal and then see how it moves forward. It will be reviewed after three
months.
You
had filed offer document to launch a closed end fund but you haven’t launched
it so far…
We have got the approval from SEBI and we
are waiting for the right time to launch it. It’s a three-year closed end fund
because our call is that in the next one year, equity markets will be a bit
volatile. In the next three years, we are very bullish on equities.
We think earnings growth will be
back-ended in nature and FY16 is not probably as attractive from earnings
growth point of view as FY17 will be. FY16 earnings growth can be between
10-15% whereas in FY 17 the growth would be upwards of 15%. So we want
investors to lock in for three years.
What
is your outlook for the market in 2015-16?
Debt
We believe interest rates will continue to go down and there will be 50-75 basis points rate cut over the next 12-18 months.
Equity
Corporate India is suffering multiple
headwinds - lack of equity, lower capacity utilization, higher working capital
cycle, high interest cost, inventory losses due to drop in commodity prices.
So, essentially the situation is not so rosy. But we believe that in the next eight
quarters, capacity utilization will start inching up, lower commodity prices
will be reflected in lower raw material prices, the working capital cycle will
come down, interest rates will come down and all these factors will result in
better earnings.
We believe that FY16 earnings growth will be 10-15% and FY17 growth will be in upwards of 20%. The market returns will be driven by earnings growth rather than PE rerating. Last year the PE moved from 12 to 16.50. The PE can go up from here but it won’t reach 20-25. We are expecting earnings growth of 30-35% in the next two years.
