First 100 days crucial; initiatives in green energy, semiconductor space likely: LICMF CEO Jha

Investors may need to be vigilant and cautious given the concerns around elections in the US, and ongoing geo-political conflict, says R.K. Jha, CEO & MD, LIC Mutual Fund.

Back at home, the first hundred days of the new government are crucial, he said. Besides the infrastructure push, the government has promised solar rooftops for 10 million households. He expects additional initiatives in the green energy sector along with increased focus on the semiconductor space. Edited excerpts:

What is your current assessment of the market?

Though the market is a bit volatile at this point, those who adopt a long-term perspective are likely to see good returns and achieve significant wealth creation for themselves and their families.

Additionally, after analyzing the last eight elections since 1991, I have observed an interesting pattern: there's often a feverish speculation among investors about the election outcome. However, in the long term, the market stabilizes based on the financial performance of companies, macroeconomic factors, and turning points of sectors. Therefore, it is important not to speculate too much and instead focus on long-term investing.

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With the election verdict settled, which sectors do you think will benefit moving forward?

With policy continuity, this government has given significant support to public sector undertakings (PSUs), infrastructure, defence, electronics sector, and electric vehicles. So, this government has taken numerous initiatives, including production linked incentive (PLI) schemes and we are optimistic about the long-term benefits of these events on development of infrastructure and defence companies.

Another factor is that consumers now prefer luxury or premium products, which are considered discretionary by the consumer.

Besides, there are people staying in tier-2 and below cities who have aspirations to seek better products. It has been recently reported that people in rural areas are purchasing sport utility vehicles (SUVs), indicating that the purchase or consumption of premium, luxury and valuable products is increasing in the rural segment. So that would be another area to watch out.

How do you see the markets in the near term?

When investing in the markets, investors should look at the long term. The long term story of India is positive. In the near term, there may be volatility but if one is investing for the long term, this near-term volatility may not be significant.

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Hereon, what are the most important aspects to watch out for?

The first hundred days are one of the most important when the new government will take new initiatives. Besides, the infrastructure push, the government has promised 10 million households for solar rooftops. Moreover, I feel that the government may announce a few more initiatives particularly in the green energy space. The government is already ramping up focus in the semiconductor space. So that sector can take off.

Having said that there are a few concerns such as elections in the US, and geo-political conflict going on. So, we may need to be vigilant and cautious.

What kind of investors is LIC MF inclined more towards—retail, HNIs, or institutional?

It's a blend of different investor types. Out of our 39 schemes, we have 14 schemes in the equity category, 6 in hybrid category, 10 in exchange traded funds (ETF) and index funds, and 9 in fixed income debt funds including overnight, liquid, and low duration funds.

In terms of investor distribution, corporates primarily make up around 90% of the investments in fixed income schemes, while on the equity side, approximately 90-95% of the investments come from retail investors, with the remaining 5-10% consisting of other investor types like provident fund (PF) trusts.

These PF trusts need to maintain a certain rate of interest declared by Employees' Provident Fund Organisation (EPFO) and may invest in both fixed income and equity segments to achieve returns higher than the government-declared rates. This strategy aims to ensure consistent returns above the government-declared rates, such as 8.15% or 8.25%, by investing in a mix of fixed income and equity assets.

In the schemes you've mentioned, where are you seeing the highest traction?

The retail investing space is undoubtedly seeing the most traction, particularly Systematic Investment Plans (SIP). In terms of fund size, LIC MF has around ₹19,000 crore in debt oriented schemes and ₹14,000 crore in equity-oriented schemes out of a total AUM of around ₹33,000 crore as on 31 May 2024.

Nevertheless, SIPs have exploded in popularity and are currently the mutual fund industry's hero product. Investors using the SIP channel are now reaping the rewards of compounding's magic.

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Apart from SIPs, what is the sentiment for active equity funds?

There are about 22 active equity-oriented funds at LIC MF. Active equities funds are doing well overall, but outperforming the benchmark and producing alpha may be challenging. That is dependent upon the fund manager's aptitude and expertise in generating alpha.

Since you have been in the industry for quite some time, any observations?

Firstly, SIP assets under management (AUM) was roughly ₹2-3 trillion, while the entire AUM, say in FY19, was around ₹22 trillion. SIP contribution was 10.73% of the industry's total AUM in FY19.

So as of April, the SIP AUM has increased to ₹11.26 trillion, 4-5 times greater than what it was. The total AUM of the mutual fund (MF) industry is ₹57.26 trillion. This means that the SIP ratio which was 10% earlier has now risen to 20%. This indicates that Indians are beginning to understand the advantages of SIP and furthermore, it does not pinch one’s pay.

Secondly, since December, there have been more than 3 million demat accounts opened each month, bringing the total number of demat users or accounts to approximately 155 million. The mutual fund industry's unique permanent account number (PAN) is estimated to be worth ₹4.5 crore. In my opinion, individuals are currently investing directly in equity stocks, but with time, they will come to understand the advantages of mutual funds due to their professional fund management. This will help them to achieve their varied financial objectives.

Does that mean you see substantial inflows in the mutual fund industry going ahead?

MF AUM was approximately ₹39 trillion as on 22 November 2022, and it reached ₹50 trillion in December 2023. Thus, in just 11 months, it has surpassed ₹50 trillion. Therefore, it is anticipated that this will easily reach around ₹100 trillion in the next 4-5 years.

So, any new fund launches that you're going to do?

This year, we have planned 3-4 new product launches on the active equity side. In ETFs, based on market feedback, we will do at least one, if not two.

Are you noticing a preference among customers for passive funds, equity-based funds, or debt?

Investors are more inclined towards active funds. As regards debt funds, we know that last year in March, following the budget, the indexation advantage was withdrawn. As a result, interest of investors and corporates to invest in debt schemes has come down to some extent.

Is there any advice for investors?

Cycles shift and some Black Swan events may occur after 7 to 10 years. There may be some sort of event. Having said that, people either take out their money or lose trust. Rather, they should stay invested in those times. They should invest more so that when the stock market returns to stability and position, they will be in a better position to achieve their financial goals.