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INDIAN WEALTH MANAGEMENT - ISSUE 2, 2017 71
DELIVERING PERFORMANCE
According to Naren, in the short run,
an increasing number of funds in India
will under-perform benchmarks.
Over a longer time period, however, the
fact that India lacks an efficient market
means that active fund managers are
more likely than in developed markets.
to deliver alpha over a cycle. “One thing
to keep in mind is that we have to create
a portfolio different from the bench-
mark,” he adds.
More broadly, adding more depth to
India’s asset management industry is an
important part of ensuring capacity
going forward. Yet Naren believes his
“If I start getting money in a thematic
category that has done well then I will
have something toworry about,” he adds.
He also remains unconcerned about
capacity constraints in the Indian market
over the coming years given that small-
and mid-cap funds are not seeing large
inflows as of yet.
In terms of numbers of funds, Naren
says that ICICI Prudential Asset Man-
agement needs the number of strategies
it has at this point of time. In fact, he
adds, there is potentially a need for
more funds in the industry as a whole,
given the significant growth in the local
market over the last decade.
India lacks any kind of US-style, 401K-
type pension system to force people to
think of investing in a mutual fund with
a 20- to 30-year view. “If this were to
[happen], then people would become
more solution-oriented,” adds Naren.
The current situation therefore also
calls on advisers and wealth managers
to spend time managing their clients’
expectations. “Towards [the top of the
market] people forget that there is
something called ‘asset allocation”,’
says Naren.
“Our entire goal has been to convince
people that they should not forget
asset allocation as a concept as the
market keeps going up.”
Although he doesn’t see any signs at
this stage to suggest that nearer-term
returns are at risk, it is more that when
investing in these kinds of markets, the
longer-term returns require substantial
moderation, he explains.
“The big problem in bull markets is the
fact that investors don’t focus on asset
allocation,” he adds. “Behavioural finance
forces them into a greed situation… and
once the market crosses a certain level,
people forget about the risk.”
“We need more types of strategies to
grow the market from where we are at
the moment.”
KEEPING ASSET ALLOCATION
IN MIND
A key aspect of thinking longer term is
keeping asset allocation in mind, with
advisers able to play an important role
in terms of staying focused on manag-
ing client expectations.
To help its investors in this way, the
thought process that ICICI Prudential
Asset Management implements for its
dynamic asset allocation category has
been one of a solutions-based ap-
proach. This way of thinking is a bit
different to howmany domestic inves-
tors view their portfolios, given that
“We need more types of strategies to grow the [mutual
fund] market from where we are at the moment.”
firm has done a lot to contribute in this
area by promoting a dynamic asset al-
location fund category.
This involves various funds – including
equity, income, balanced advantage,
balanced –which can move into equities
as the market falls and move out from
equities as market rallies.
“My belief is this category lends itself to
a situation where we have lesser liquid-
ity issues because the automatic nature
of these funds is to raise cash as the
market goes up and put money into
equities as market falls,” he explains. And
as long as the bulk of the increasing flows
into the firm go into its dynamic asset
allocation and closed-end funds, this will
not present an issue for Naren.
Finding value
In Naren’s view, there will be
value over the next 12 months
in infrastructure-related
stocks – plus, potentially,
some areas of financials.
Over the longer term, he sees
healthcare as one of the more
attractive sectors.