Consumption accounts for almost two-thirds of the Indian economy, and the consumer goods – both discretionary and non-discretionary, are expected to drive the economic recovery in the long run, said Bharat Ravuri, MD of Principal Asset Management.

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In an interaction with CNBCTV18.com, Ravuri talked about the impact of the COVID-19 pandemic on assets under management (AUM) of the Mutual Fund industry and what lies ahead for various sectors.

Q: What has been the impact of COVID-19 on business on the local level and how has pandemic impacted your AUMs?

A: Like with all other Asset Managers in the country, our AUMs are impacted with market corrections, and reduction in flows as most investors are concerned about their investments and continuity of their financial plans. This is a natural reaction where people want to reassess, in times of uncertainty and that’s actually a good thing. As investors were able to grapple with the situation, we are now seeing confidence returning in conversations, though they still need to translate into an increase of inflows.

As a business, we have an A+ team and they were able to quickly adapt to the uncertainty and work from home. We continue to see high levels of productivity from our teams as they are focused on delivering better service and solutions – both to our partners (distributors/financial advisors) and investors.

Q: The market is down nearly 20 percent from peak levels, what are you advising your clients? Is it a good time to invest now? And what recommendations you have for investors to tide the volatility?

A: We always believe in ‘time in the market’ is better than ‘timing the market’. And when you spend time in the market, it is but natural to see both peaks and troughs. We always advise investors to stay focused on their goals and what they want to achieve in the longer term. It is proven from many market researches available that staying invested in the equity markets for longer-term may yield good results. So, it is better for investors to keep focus on their goals than market levels.

Given that markets are down significantly from their highs, where people have savings/surplus, it is good to invest now as the valuations are still attractive but we advise them to do so through STP (system transfer plan) over the next 4 to 6 months.

Q; What are the recent trends in SIP? Are there any withdrawal pressures?

A: We are going through unprecedented times. All of us, across the world are experiencing the uncertainty at the same time (not happened in over a century), and we all are trying to determine what a new normal would be. In such times, it is but natural for some investors to reassess their financial flows due to uncertainty of their own income. We need to be supportive of such decisions by the people. Our general message to everyone, including our investors is to stay put with your SIP as these are the times where SIP works in your favour and get you relatively higher units, and hence, higher returns in the longer term. We need to be empathetic to the situations of customers, understand them and support them.

From our business perspective, we have seen both sides – while a small number of our investors have stopped their SIP, many others have newly signed up for SIP.

Q: What sectors do you expect to perform well?

A: We think the economic recovery will be gradual as a result of caution on part of the consumers, weak business balance sheets for several companies, and the possible lingering threat of the ‘second wave’ of infections.

Consumption accounts for almost two-thirds of the Indian economy, and we expect consumer goods – both discretionary and non-discretionary, to drive economic recovery in the long run.

Change in consumer preferences, post-COVID, may drive growth for select companies in automobiles and auto ancillaries, chemicals, telecom, insurance and consumer discretionary sectors.

In addition, across sectors, those companies that have strong balance sheets and a good market share will further consolidate their position as many other companies struggle to bring back their operations to normalcy.

Q: What about bond/debt markets which were typically well yielding investment? Do they continue to provide good returns?

A: We think that fiscal worries remain on anticipated stimulus measures and slowdown in tax revenues. The Reserve Bank of India (RBI) measures should act as counterbalancing force and keep gilt prices at short to medium end supported. The credit environment will remain fragile on uncertainty of revenues and cashflows due to the lockdown, which is gradually opening up.

Debt funds are suitable for investors seeking to generate income from a portfolio of lower risk assets. It is important for the investor to check the credit quality of the portfolio before investing in the funds, to ensure that it aligns with their objective and interest. Debt Funds may provide an opportunity for investors to generate returns commensurate to their risk profile and investment goals. Given the uncertainty in the market, we also advice investors to park money in debt funds and STP into equity over 4 to 6 months.

Q: The NBFC sector faced liquidity pressures. Have the conditions altered? In this context, how do you manage to circumvent the scenario?

A: The environment for Non-Banking Financial Companies (NBFC) continues to be challenging despite a series of RBI measures to provide liquidity and ease pressures on them in the current economic scenario. While high quality NBFC and those which are part of a large corporate group continues to raise money at reasonable levels, raising money has been a challenge for many others. Our portfolio primarily constitutes of companies that are high-quality large cap with proven track record and strong financials. We think mid-sized NBFCs will take some time before they reach the earlier pace of growth.

Q: You have been recently appointed as the Managing Director of Principal Asset Management. What are your plans for Principal AMC in India?

A: Principal is a 141-year old global asset manager, serving more than 35 million customers across the world. Principal is extremely focused on India and we would like to promote financial inclusion and prove better access to financial products and solutions for our customers. At Principal AMC, we want to build a customer-centric company – focusing both on our partners and investors. I am personally enthused on the opportunities available for Principal AMC to grow in India, and we are entering into an exciting phase of our journey.