Investors May Look To Invest In Debt Schemes - Prathit Bhobe CEO and Managing Director Tata Asset Management

Taking stock of the current financial situation where the economy and the equity markets seem to be moving in different directions, Prathit Bhobe, CEO and Managing Director, Tata Asset Management, provides some guidelines for the way ahead

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After witnessing respectable inflows in the month of April 2020, equity mutual funds saw a sharp downfall in inflows in the month of May 2020. How do you read these numbers?

The redemptions in equity funds in the month of May could have been driven by a combination of factors, namely, rebound in the markets and the present economic situation that has increased the need to raise cash, especially for the smaller businesses and self-employed segments. There is some scepticism seen in this rally. With the power of hindsight, it can be said that some of the fall in March was exaggerated and hence the rally in such pockets as select banks is somewhat justifiable. We are not out of the woods yet, and the speed of the rally has surprised many. Investors have also been circumspect and they may have adopted a sell-on rally approach.

Do you still see some pain points in debt funds? From the third quarter of 2018 we are witnessing events that are denting confidence for debt MFs. Do you think that some regulatory changes are required?

The Indian economy has been facing challenging times from 2018 onwards. Profit as a percentage of GDP, which was around 7-8 per cent in 2007-2008, has fallen steadily and went below 2 per cent in 2018. Some companies which are leveraged found it difficult to service their debts. Since mutual funds are part of the financial system, some of the debt funds got affected. Due to the corona virus-related lockdown, we might see the credit matrix of corporates, banks and NBFCs deteriorating further. Investors may look to invest in debt schemes which run high-quality portfolio.

The economy and the stock market are moving in the opposite direction now. What explains this phenomenon?