Suranjana Borthakur, Head – Distribution, Mirae Asset Investment Managers, says as a fund house, they are not very comfortable with too much sectoral play. They look at decadal themes and think the consumption theme is at a very sweet spot. The entire discretionary space is looking at a comeback, which is where they are positive on consumption as a theme. They are also positive on the banking financial theme as well as the healthcare theme. Every thematic segment may have a representation in the portfolio, but overloading any of the segments may not work well. Also, a 50% largecap and 50% in mid and smallcaps could be a good allocation to have in the long-term

How should one read into the AMFI data? We are again seeing very healthy, record high SIP inflows.
Suranjana Borthakur: It is very encouraging that in spite of market volatility, the SIP numbers have remained intact. In fact, they are reaching new highs of Rs 26,000 crore and above. It shows the confidence of the retail investor for a long-term wealth creation in India and despite the volatility, the conviction is very high. The good part is, from one year back, the SIP book has grown almost 50%. It was somewhere around Rs 17,000 crore about a year back, and now it has grown to about Rs 26,000 crore. When you look at the flow pattern, one of the categories which is seeing a big jump is the sectoral funds and it continues to get good inflows.

Almost Rs 15,000 crore of inflows are there and quite a few NFOs have also taken place in this period – about 12-13 NFOs – and about Rs 11,000-12,000 crore has flown in through that route. But in small as well as midcaps, the flows have been stronger. Our reading is that going forward, there has been some return to the mid and the smallcap segments. A lot of times, investors invest looking at past returns. Maybe once that tapers down, there could be a little bit of slowdown in flows. Our request would be for investors to always look at forward returns and not so much on the returns which have already happened.

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In the long-term India story, enough allocation in mid and smallcap remains a recommendation, but obviously flexi-cap, multi-cap categories are also getting decent inflows and that trend will continue now. This may also be a year of hybrid products because the asset allocation story will play out this year because in hybrid categories, the debt side, which was just doing the cushioning job, may be able to generate decent returns and also the commodity part, which is mostly gold, with the continuing volatility in global markets, is expected to continue to do well.As you said, this could be a year of hybrid funds allocation given that asset allocation is key. You also touched upon the fact that the SMID space may see healthier inflows compared to largecaps. What is your take on that particular segment going ahead?
Suranjana Borthakur: A lot of times, flows in the market are determined by historical returns. When we look at portfolio allocation in any client’s portfolio, each of the segments – large, mid, and small – have a role to play and it will be as per the risk appetite of the client. But when we look at the long-term growth story of India, we believe that the mid and smallcaps have to have enough participation in the portfolio to be able to generate wealth.

So if a person has a time horizon of three to five years. But yes, the thought process of the investor should be to look at not just the historical return but the potential of each segment on how it should play out for the longer end and therefore even flexi-cap, multi-cap categories could be great categories to look at at this point in time.

That will give enough allocation in all three segments and larger mid also continues to be an attractive category. If an investor does not have enough standalone mid and smallcaps, this is a good time to take a call in this segment with a time horizon of three to five years.

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We saw an increase in sectoral fund flows as well in December compared to November. It was a very substantial increase, at least double. How should one play this particular theme? Any sectors that you think will look attractive in the next two to three months given that the Union Budget is also around the corner?
Suranjana Borthakur: The spike seen in sectoral funds is a function of the recent NFOs. What has happened in the market in the last few months is that a lot of new ideas have come in this thematic space and have been invested into by a lot of new investors. Our thought is that when an investor has a core portfolio and a satellite portfolio, usually thematic funds are a part of the satellite portfolio. When people chase returns or just a novel idea, a lot of times this may become a part of the core portfolio which may be something that investors may want to watch out for. There is definitely a requirement for thematic products as a satellite portfolio, but it should not become a very large part of your core portfolio.

We feel that from here on, when we look at themes, as a fund house, we are not very comfortable with too much sectoral play. We look at decadal themes which is where today when we look at the market we feel the consumption theme is at a very sweet spot. We feel the entire discretionary space is looking at a comeback, which is where we are positive on consumption as a theme.

We are also positive on the banking financial theme as well as the healthcare theme. These are some of the themes that we are more positive about from a fund house point of view. But like I said, every thematic segment may have a representation in the portfolio but overloading any of the segments may not work well.