There’s significant fall in discretionary investment, SIPs up: Aashish Somaiyaa

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“Towards end-2021, when things were really looking great in terms of historic returns, in certain good months, we saw Rs 60,000-70,000 crore of gross domestic inflow and out of that, SIP was Rs 12,000 crore. If that is removed, then monthly, discretionary investment or lump sum investment was north of Rs 50,000-55,000 crore in a month. Today, Rs 65,000-70,000 crore inflow has dropped to Rs 30,000-35,000 crore and SIP number is more like Rs 13,000 crore,” points out Aashish Somaiyaa, CEO, White Oak Capital



It has been reported that the bulk of FII flows which have come into India are from sovereign wealth funds. In fact sovereign wealth funds’ holding of Indian assets have hit a fresh high. White Oak also has business associations with overseas investors. What is so amazing about the Indian market that sovereign wealth funds, which are much more long-term sticky money and not hot money, are now positioning in the Indian market like never before?
There is also another piece of data which is very important. The Economic Times report does mention that 14-15% or may be 16% of all FPI money which comes into India is related to either sovereign institutions which are more than 75% owned by some foreign government or a central bank of a foreign government or a sovereign wealth fund itself.

That number has gone up all the way to 16% but where is the other 84%? That is where the insight lies. The bulk of the money which was coming into India till recently was coming through a basket like the global emerging markets funds or some BRICS fund or some Asian equity fund etc.

Global emerging markets was the biggest block and within global emerging markets, a $2 trillion asset class, India would have been say 15-18% allocation on an average. In the last one year, global emerging markets as a basket or as an asset class is kind of broken because within that, whether you take China, Taiwan or Russia, Turkey or Brazil, multiple things have happened whereby almost 40-45% of the allocation in a global emerging markets basket has been under severe duress.

Obviously within this, India has been an outperformer and has demonstrated significant potential which is widely agreed upon now. But the point is if you are invested in a global emerging markets basket, if 40% of that basket is in trouble, having 15, 18, 20% in India does not really help. Now the question is that people need to be a bit more discerning.

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So the trend going forward hopefully should be that instead of putting money as a basket, they should be willing to put more money into India directly as a single country. So to contextualise what the article says, obviously sovereign wealth funds or large institutions will be a bit more nimble footed, a bit more agile and they are more likely to be directly registered in India as FPI on their own right.
They can very quickly increase allocation to India as a single country but high net worth investors, retail investors, family offices, private bankers, wealth managers from all over the world who have been investing through global emerging markets, for them to change allocations which identify India as a single country, identify the right manager or the right way to participate may be takes a little bit longer.

While in a year like 2022 also our net flows are positive, the point is, one would expect that institutions can be a bit quicker in changing how they allocate versus people who invest through these retailish funds and they would find it that much more difficult to recalibrate.

Lately we have also seen that the Indian market held on at a time when the world was melting – especially the US was almost 30% down from top and Chinese stocks even more. But these markets have also made a comeback in a nice manner. In the medium term, could this pose competition for markets like India? Can global capital find these two areas much more attractive on valuations versus India?
It is always difficult to take a macro or a top down call. If there is a relief rally in China in case they withdraw their Covid protocols or a bounce back in US stocks from the bottoms where people think that at some point in time, Fed will pivot, I would not lend much credence to any of this bottom fishing or a temporary bounce back or a relief rally out there.

Personally speaking, I would not even extrapolate our outperformance. There are a lot of moving parts right now. Large parts of the globe are in some or the other kind of economic or geopolitical or interrelated situations.

One can mathematically argue and draw various correlations or levels of isolation from the western world but I do not think that stock markets can be fully isolated. Maybe, we can fall less for some time, maybe we can outperform for some time but if some risk were to precipitate in any of the external markets, I would find it difficult to make a case that we will just come out scratch free.

Right now there are many things which are not in the right shape. I would be hesitant to lend any credence to a relief rally in other parts of the world and would also be equally hesitant to keep extrapolating our outperformance in future.

Your fund is growing well and there is good news on that front. Investors, distributors across the country are achieving a very reasonable size in the industry in the last couple of years. Domestic flows are at a record high, the SIP flows are at Rs 13,000 crore. If we only look at the SIP and the stickiness of it, what is the sense you are getting from all types of investors, the mid income, lower income and HNIs. What is the feedback on ground?
People’s willingness to stick to systematic investing is clearly there. There is resilience and sustainability out there. From any data or any interactions I have no reason to believe that there is going to be let up or that there is any disillusionment or there is any tentativeness as regards registering new SIPs or continuing with the whole SIP way of investing. This is because of two things: one, it is a great way to accumulate savings every month. Two, any which way, the investing journey takes very long.

Arithmetically reaching that level of equivalence between lump sum and SIP sometimes takes five or seven years. For example, if you invested in lump sum in October 2021, from that level, some people have not made money in one year; but if somebody has been persisting with SIP, chances are that by the time the market makes a new high, their SIP has started to turn positive.

So, there are multiple reasons why we always tell people that SIP is the way to go. I do not see any let up in that adaptation. But frankly, the bigger thing which I would read into right now is the salience of the lump sum flows.

The other part which you mentioned and just to give you a sense of numbers, let us say October 2021, September 2021 or any part end of 2021 when things were really looking great in terms of historic returns, in certain good months, we saw Rs 60,000-70,000 crore of gross inflow and out of that, SIP was Rs 12,000 crore. If that is removed, then monthly, discretionary investment or lump sum investment was north of Rs 50,000-55,000 crore in a given month.

Today, that number has dropped, that Rs 65,000-70,000 crore inflow has dropped to Rs 30,000-35,000 crore and SIP number is more like Rs 13,000 crore.

So, the discretionary flow has gone down quite significantly in the last one year. I am not counting ETFs that have a lot of institutional flows. The retail participation is widening but right now, I am taking more of the active equity, hybrid and balanced fund segment and I can see clearly that the flow has declined in the last one year.

Maybe in some way, it is compensated because we are seeing institutional flows in ETFs or some retail flows, etc, but whichever way you cut the cake, the discretionary flows have slowed down quite significantly. This is evident in mutual funds, AIFs and equity also.

Given that the last one year’s return is practically zero or tending towards negative in some cases, plus the heightened perception of risk, poor external environment, lots of news flow in the markets all put together has resulted in some slowdown or tentativeness as far as making fresh investment is concerned.

This will not get reflected in SIPs because the thought process of investors is different but the mood can be gauged from the discretionary investment. That is where we are seeing a significant reduction.



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