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August 1 last year wasn't really a propitious day for the mutual fund industry—with entry loads getting banned by the market regulator from that day. But A Balasubramanian walked into his new office that day taking over as the CEO of Birla Sun Life Asset Management. With global assets flowing into the country through FII investments, he is now building global footprint by setting up shop in Singapore and Dubai to tap institutional money initially and later target retail investors of the Asian region including Japan. In a freewheeling conversation with Chirag Madia and Muthukumar K, he spoke on various issues—from market valuations to cities that are looking up for mutual fund investments. Excerpts:What's your outlook on the Indian equity markets?We are quite bullish on the equity markets. There are two things in our view which could happen; one is more reforms and other being that of improvement in the corporate earnings outlook. Telecom reforms are already taking place, with 3G auctions getting over. PSU divestment has already started while reforms in the field of education and healthcare will soon see results.Our economy is on a recovery path and during such phases, earning outlook catches up. In our view, the March 2010 quarter corporate earnings will be encouraging with a topline (sales) growth of around 18-20%. However, the margins will be under pressure following rise in commodity and agri-commodity prices. Yet, the absolute profits will also be higher (than the previous quarter). Till date, the results declared have been positive. If we look at IT sector, Infosys, TCS and Wipro have given good guidance to the markets for the year ahead. From here on, the question is whether we would have positive or negative surprises. In our view, the markets will remain bullish on the back of more positive surprises.In the past few months, the rally in the Indian markets has been supported not only by strong FIIs inflows, but also by positive earnings outlook on the back of expected recovery in the economy. Central bank is also talking about revival in economy. However, one has to closely watch the onset of monsoons and its impact on the economy. If monsoons are good, then the agri commodity-led inflation could cool off. This, in turn, could bolster the confidence of the government and propel it to fast-track reforms. Then, we also have to have an eye on oil prices. If it remains in the $80-85 per barrel range, it isn't worrisome.Don't you think the Eurozone crises could reduce FII inflows into India?I think Indian markets will not be affected much. On the contrary, the crises witnessed in Europe probably may bring more money into Asia, including India.Birla Sun Life recently opened offices in Singapore and Dubai. What motivated you to go there?We are building our offshore capability. Global asset is coming into the country through foreign institutional investors (FII) investment. At the same time, India is also becoming one of the attractive destination-with its economy growing at a rapid clip.The main idea behind setting shop in Singapore and Dubai was to bring in money from institution as well as retail investors into our existing mutual fund products. We also invest in global equity markets and eventually, it will be managed by the team sitting in either Singapore or Dubai office. We are specifically targeting large institutional investors who outsource the investment activity for India specific fund. We will first target the institutional and later the retail investors of the Asian region.By going to Dubai, we will also be able to tap into some of the sovereign funds of GCC (Gulf Cooperation Council) countries. Our next destination could be Japan in order to make our presence felt there to tap into pension funds, among others.But why Singapore, and not Hong Kong?It doesn't make much of a difference. Our main focus is to increase our presence. Also, the cost of operation is relatively low in Singapore compared to Hong Kong. Most global investment managers do have office in Singapore as well as in Hong Kong.The latest data of the Association of Mutual Funds shows the retail investor base has improved marginally in the last six months. Your comments?From now on, the retail investor base is likely to surge ahead. However, the penetration still remains low. We only talk about 5% of people investing in capital markets including mutual fund investors.In our opinion, the higher inflationary scenario is likely to prod investors to buy mutual fund products to earn inflation-beating returns. Once invested, retail investors usually have a tendency to stay invested. It is the high networth investors who keep moving in and out of investments. In the last few years, equity markets have corrected and then bounced back sharply. But many investors missed the rally. So, investors have to stay invested over the long term in equity markets to earn inflation-beating returns.After the entry-load ban, retail money is not coming into mutual funds. Online transactions are also not picking up and exchange platforms are getting lukewarm response from investors. What's your view?Our conviction is that the advisory model has to pick-up; retail investors cannot overlook the role of an intermediary. Retail investors will not mind paying for advisory services as long as they get a good advisory service. This model will be a game-changer years from now.What initiatives AMCs have taken to improve retail penetration?Rather than just focusing on boosting sales, we have been conducting roadshows calling the independent financial advisor community and banks to create awareness about products and concepts. Recently, during the launch of our capital protection scheme, we did about 54 investors meets across the country in a single month. Here, we educated them about the importance of mutual fund, asset allocation to a pool of investors comprising 100-150 people each.Which are the Tier-2 and 3 cities that are witnessing a pickup in mutual fund activity ?Some of the small cities like Nashik, Kolhapur, Chandigarh and Patna are picking up. Households in the Tier 2 and 3 cities comprising the semiurban economy have more wealth. And with land prices going up, some have sold them off and are freshly looking at opportunities to invest this money.Any new fund offer in the pipeline?We are planning to launch an 'Indian reform fund', as we believe reforms are a must for the Indian economy. The question is that of speed at which it will flesh out and which sectors will benefits from it. Without doubt, the reforms are going to change the lifestyle of the people. We believe that sectors like infrastructure, education, healthcare and agriculture would be the beneficiaries of such reforms. We are already running this portfolio under the PMS umbrella.
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