Until three years ago, funds were flowing into products that were majorly linked with equities. But now interest rates have risen, so traditional products with guaranteed returns have become more popular, he told CNBC-TV18 in an interview.
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Below is the edited transcript of Puneet Nanda's interview with CNBC-TV18
Q: How much have investments in equity, some of these equity products fallen in the last three- six months or so and what are the popular products that investors are blocking their money into nowadays?
A: Products that customers buy, depend on whole host of factors driven by their risk profile, their goals, their horizons, but macro environment plays a key role. Until maybe three years back a bulk of new flows were coming into linked products with equity being the major component. However, over the last two-three years, the risk appetite has fallen and important interest rates have risen.
The traditional products where there is some element of guaranteed returns have become more popular now. So, on and overall basis, if you have to look at it in terms of new flows, today for the overall industry about 65-70 percent would be in traditional products and about a third would be in unit linked products.
Q: What is your sense about your own preference as a fund manager? Do you have to be in equities over the next six months or would you prefer non-equity instrument if you had the choice?
A: It all depends on the horizon. However, for us it is not about asset management. For us it is about asset liability management. The nature of liability is very important so affectively it means what is the product that is being sold and accordingly the asset management strategy is put in place. So, from a short-term horizon given where interest rates are perhaps there will be higher weightage to that.
But from a longer term perspective and that is where most of our customers come in, we always says irrespective of market conditions actually from a longer term perspective some sort of a balanced asset mix is always good. Within that tactically one can chase, for example, if one is bullish on equity, one may want to keep 60-70 percent equity, if one is not that bullish then may keep 50-60 percent. But from a longer term perspective, you do need assets which can potentially beat inflation in the long run.
Q: At the moment since we are getting down at some points beaten on valuations and at some points stratospheric valuations what interests you, stocks or sectors?
A: It is a bit of a fact to say that it is a bottomup or topdown kind of a market, the reality is that any point of time one does have to look at from both perspectives. Today, the overall environment is clearly challenging; growth is slowing, financing cost is high, the input costs are high and all that is known and it is sort of to some extent already priced in. That is why you do see some sectors being expensive and some sectors which potentially do not deserve to have been beaten down that much are not doing so well. So, from our perspective it is a larger call in terms of where we think the valuations are today and more importantly where we think it is going to be.
The fact is that today we are sub-5 percent kind of economy but that is not the potential. If we get our act right and all that has been spoken and the steps that Governor, Raghuram Rajan has taken have given more elbow room to the government to take some good structural steps. So, if we are able to do something around that then from a longer term perspective it is still good to focus more on valuation and buy what one believes will deliver returns in the long run. Though honestly at this point of time, the short-term outlook does remain murky and one has to be brave to take those kind of calls.
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