Take advantage of high volatility’

BNP Paribas Mutual Fund MD Nikhil Johri says investors will do well to follow a disciplined approach to systematic investing.

Managing Director,BNP Paribas Mutual Fund,Nikhil Johri feels that the next leg of growth in India is likely to be driven by investment/capex cycle revival by both private and government sector. In conversation with Ritu Kant Ojha of The Indian Express,Johri says that investors will do well to follow a disciplined approach to systematic investing. The aim should be to take advantage of the high volatility,that has come to be an inherent characteristic in a world that is far more coupled where dissemination of information & subsequent price action is almost instant,he says. Excerpts:

With the BNP Paribas parting ways with Sundaram and taking over Fortis AMC which had overtaken ABN AMRO AMC in past are you looking for a Indian JV in near future for the AMC business?

The changes you have mentioned were an outcome of development in global markets. We are,however,very optimistic of the latest changes due to which BNP Paribas has acquired 100 per cent stake in the Indian asset management business. BNP Paribas is seriously committed to the Indian business and is focusing on transferring global knowledge and experience of best practices to India. BNP Paribas Investment Partners is one of the top ten global asset managers and thus has big ambitions for a leading emerging market such as India .

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What is your view on the Indian equity markets? When do you see stability returning to the stock markets?

Indian markets have risen 17 per cent in 2010 driven by corporate earnings growth and robust domestic consumption. The valuations (15x FY12e) have significant headwinds in terms of heightened inflationary expectation and rising cost of capital. Foreign portfolio inflows were a large driver for the 2010 rally as allocation to India went up for most global investors within the emerging market basket. With the increasing confidence on economic recovery in the US,flows are expected to moderate,going forward. The next leg of growth in India is likely to be driven by investment / capex cycle revival by both private and Government sector.

We believe investors will do well to follow a disciplined approach to systematic investing. The aim should be to take advantage of the high volatility,that has come to be an inherent characteristic in a world that is far more coupled where dissemination of information & subsequent price action is almost instant.

How can an investor make the most of the market volatility?

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We like most other asset managers encourage investors to regularly invest through the Systematic Investment Plan (SIP) route. Such an investing style has proven to be a wealth creator across volatile markets and also takes away the unnecessary burden of timing the markets.

Do you think FMP as a product has revived again?

FMPs become attractive when market yields rise and tempts investors to lock in their investments for a fixed horizon. This has been the market situation recently,which is why we are witnessing several FMPs being launched.

How is the China-India Fund doing in terms of AUM? Do you plan to launch any more global funds?

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The AUM in BNP Paribas China India Fund is around Rs 62 crore. The fund will outperform other international emerging market equity funds in the time periods when both Chinese and Indian stock markets perform well. The funds performance is tilted towards Indian equities much more than Chinese,since it invests 65 per cent of its assets in Indian equities under normal circumstances. Yes,we do plan to launch a few global funds which are being selected from BNP Paribas best performing fund range .

With the expectation of the interest rate going up,the investment in Debt Funds look attractive. Do you plan to launch any new debt product?

The interest rates have risen sharply in the past few months on the back of tight liquidity and rate hikes by RBI. We expect RBI to increase rates by another 75 100 bps through the year to control the inflationary expectations in the economy. Along with a tight liquidity situation,these hikes are expected to translate into higher market yields. Hence,investments in debt funds may be an attractive option for investors. However,we suggest that investor invest in debt funds at periodic intervals over the next few months with an aim of optimizing returns. Our range of debt funds on offer is quite comprehensive already and hence we do not plan to launch any new debt product immediately.

This is the January,February,March season where people make tax saving investments. Do you see with ULIPs becoming more attractive it will be a serious challenge for the tax saving mutual funds?

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Tax saving funds have begun attracting better flows with the beginning of January. ELSS funds,such as BNP Paribas Tax Advantage Plan (ELSS),offer investors an opportunity to benefit from capital appreciation along with tax savings. Since the investments in these funds are locked-in for 3 years,the fund managers have greater flexibility in investing in long-term,high conviction ideas and themes. ELSS funds offer a cost efficient vehicle to achieve the above objectives.