People are not just chasing past returns but looking to diversify across caps: Sunil Subramaniam

Sunil Subramaniam, MD & CEO, Sundaram Mutual, says “balanced advantage, aggressive hybrid as well as equity savings and then multi-asset funds are gaining popularity. They are essentially balanced advantage plus gold or silver or other commodities. All of these are replacing the erstwhile debt segment in an individual investor's mind and I would see them gaining traction over the next few months also.”


SIPs have topped Rs 16,000 crore for the first time. Are you fairly excited?
Yes, absolutely. It indicates that the savings mentality is deeply sinking in. SIPs are growing popular by the day and given the volatility in the markets, this is the best way that first time investors also should experience the market. So it will give a very smoothened out experience and it is a healthy sign for the market that people are willing to put in through SIPs because most people's incomes are monthly and this tallies with it. Congratulations to the entire industry and to the distribution community which has been marketing SIPs as a tool.

It seems like that flows in the smallcap fund have moderated a little bit but not going to the largecaps as well. Where is the strength shaping up?
Since the valuations of one year forward PEs for the smallcaps and the midcaps are running at 12% forward PE and premium over the largecaps, the earnings potential right now for the next one year is roughly the same for the small, mid and largecaps. It is only over a three to five year timeframe that smallcap and midcap EPSs will outbeat the largecaps in terms of the performance.
So the rush of money which is coming to small and midcaps is because investors have generally seen the good returns and now obviously distributors are getting cautious because as things stand, with oil prices going up and the new war on the horizon, there could be volatility in the market in the coming few months and investors should not get unduly shocked by the higher volatility that small and midcaps will experience compared to largecaps.

The distributors are now actively advising investors to move into flexicaps and multicaps as opposed to pure smallcap, mid cap schemes. It is a healthy sign that people are not just chasing past returns and are also looking to diversify across the caps.

Are you seeing people are going for more balanced hybrid funds?
Yes I think that is a good sign because debt today does not carry a tax benefit at all and hybrid schemes and balanced advantage are the only way to participate in any kind of debt rally with a tax benefit. It is not just the fact that overall equity valuations are worrying some people and making them allocate to hybrids, it is also that people who historically allocated to debt are also now saying can I take it into a hybrid so that I am not taking an entire equity risk? But at the same time, I see that debt is going to give me good returns and I can get a tax benefit through hybrid schemes. So balanced advantage, aggressive hybrid as well as equity savings and then multi-asset funds are gaining popularity.

They are essentially balanced advantage plus gold or silver or other commodities. All of these are replacing the erstwhile debt segment in an individual investor's mind and I would see them gaining traction over the next few months also.