RBI may cut rate by at least 25 bps in next 6 months, says Mirae Asset’s Swarup Mohanty

Mirae Asset Investment Managers entered India at the fag end of 2008, just as the global financial crisis took hold. Between 2008 and 2011, its assets under management (AUM) saw little growth, even as 12 major foreign players, including Standard Chartered, AIG, Fidelity, and Morgan Stanley, exited the market. However, since then, Mirae's AUM has surged to nearly ₹2 trillion as of 31 August, marking a significant turnaround.

The fund house is betting big on exchange traded funds (ETF) and believes it has the strongest back-end to be the best in this space. In an interview with Mint, Swarup Mohanty, vice chairman & CEO, Mirae Asset Investment Managers (India) discussed upcoming RBI policy, GDP growth, changing risk profile of investors, plans in GIFT City, and the use of artificial intelligence in the fund management industry. Here are the edited excerpts:

Do you expect the RBI to cut interest rates in the upcoming meeting now that the Fed has reduced rates?

The Reserve Bank of India's last available guidance indicates that there is no urgency to cut interest rates anytime soon. Fed earlier this month kicked off the rate easing cycle with a big cut of 50 basis points. India is integrated with the global economy and perhaps cannot continue to move in the opposite direction for very long.

Globally, inflation is easing after rising in the last few years. First, the services-related inflation rose in the aftermath of covid-19 followed by a sharp rise in food and energy prices following the Russia-Ukraine war. However, inflation has seen a strong downtrend recently with the easing of commodity prices, especially oil, even as the geopolitical situation remains very volatile. Today, one sees no structural drivers that may push inflation higher in the near term.

India's growth story is very strong. If global interest rates are softening, then it’s fair to expect that the RBI will also continue to reassess the latest developments and change its stance, even though it may take a little longer. We expect at least a 25 bps rate cut happening in the next six months.

What is your economy and market outlook for the medium to long term?

The GDP figure for the first quarter of the financial year 2024-25 has been disappointing, but one should not read too much into it. That was genuinely a combination of excessive heatwave in the summer season coupled with Lok Sabha elections. The second quarter will be better. The global environment, too, is returning to normalcy with the ease in interest rates. India is poised for over 7% growth in the medium to long term.

So far as the stock market is concerned, the valuations are not cheap but reasonable. Banking, mass consumption and metals are not expensive. Only certain pockets which are narrative-driven, such as capital goods, defence, manufacturing and industrial, are where valuation multiple has expanded. We advise to avoid them.

In aggregate, even from these levels, if one is to invest lumpsum, 12-14% of return could happen in next five to six years. Invest for the long term via systemic investment plan.

With the global interest rate environment turning supportive and inflation stable, we expect a rate cut over the next few quarters, which will support the economy's growth and valuation.

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The fund house is betting big on the ETF growth. How do you differentiate yourself from others in the ETF business?

We would like to be the most efficient on the ETF side. The innovation in ETFs is not about the product but how well you adapt to the capital market trends. It requires liquidity, reducing tracking error and the lower impact cost. We have our in-house market maker Mirae Asset Capital Markets for the liquidity and also tied up with a couple of others. Our global presence enables us to incorporate ideas ahead of time. We see our ETF business grow faster, thanks to the strong back-end that we have created.

What are your plans for GIFT City?

We believe GIFT City will be a phenomenal force to attract inbound and outbound investors. We are the first company in India to have received the registered FME (fund management entity) retail licence. We opened our first branch in Dubai with a long term vision to showcase our brand capabilities in the region. We have our Mirae Asset India Equity Allocation Fund running live for inbound investors (NRIs, foreign nationals and corporates). Outbound product is under discussion.

The risk profile of products being launched there is aggressive, but that is fine because it is a global platform where investors are aware of market risks. The sooner we launch competing products at GIFT City, the better it will be for us to attract investors.

What is the update on the new asset class about which the Sebi had released the consultation paper?

We are looking forward to it. The whole objective is to legalise a big part of market operations that are happening outside the purview of Sebi. It gives existing fund houses an opportunity to launch differentiated products for aggressive risk profiles. It will be a good shift from unorganised to organised, as many fund managers are already offering these products outside the purview of Sebi.

We would love to explore these products if they get launched. We need to understand that a shift towards riskier products has already started. Young investors are looking for new products. Taking a motherhood stance of risk profiles for the young could prove detrimental. We should explore the possibilities of riskier products. It is up to investors to decide.

Globally, markets have evolved far quicker than us. In South Korea, the market penetration is 90%. We consider thematic investments risky, but they are looking at megatrends to make money. We, too, need to do the same. Industry offerings so far have been lower on the risk profiles, which may change going ahead as demand for riskier products rises.

Mutual fund houses have been talking about using artificial intelligence in fund management. How will it be different from quant or smart beta strategy?

Quant is a rule-based investment, while AI is about learning the nuances of that rule. AI keeps adapting to different rules. The difference that I see is that quants are static and when you put predictive AI on it, it will incorporate future changes and trends from already existing algorithms. Since running continuously, it can catch changes far quicker than humans. 

We hope to launch India's first AI-driven active mutual fund. We have hired our AI head, Nishant under whom we are building the team. Our AI is aimed at being the back-end for Mirae Asset global.

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