Credit risks have increased manifold in the debt market on account of the financial crisis. Many Indian companies have overstretched themselves and they may now have to resort to high leverage to fund expansions and acquisitions.
In an interview to Vikas Srivastav, Bajaj Allianz Life Insurance chief investment officer Sashi Krishnan says as a debt investor, his company will now exercise extreme caution in the credit market.
Excerpts: ¦ In the light of the Satyam fiasco, how do you expect the market to react over the next few quarters?
Market sentiment will take a big hit on account of the fraud. More importantly, this incident raises questions on the level and efficacy of corporate governance in India, specifically the technology sector. Another issue that now comes to the forefront is the role of independent directors on the boards of Indian companies. A lot is going to be written on the Satyam saga over the next few days and months, but one thing is certain — the markets will not forget this very soon.
Equity markets are jittery also on account of expecta tions of weak GDP growth. While there is little doubt that we will not be able to avoid a slowdown, India will definitely recover ahead of the rest of the world because of a couple of reasons. Our growth is largely a function of domestic consumption, which still remains intact.
Domestic consumption will get a further boost after the interest rate cuts and injection of fresh liquidity into the system. Large spending on the infrastructure front will also cushion the fall in growth.
Mutual fund and insurance companies are investing big money in the debt market. Do you see safe and steady return from the debt market?
Credit risks in the debt market have increased manifold on account of the financial crisis. Many Indian corporates have overstretched themselves and they may now have to resort to high leverage to fund their expansions and acquisitions. As debt investors, we would exercise extreme caution on the credit front. As regards risks, interest rates have fallen significantly, causing yields to fall. This has led existing debt fund investors to see an appreciation in their portfolios. Given that the monetary policy is now biased towards a further drop in interest rates, we can expect yields to soften further. We manage our debt funds with a credit view that is biased towards the ultra conservative and we manage our debt fund portfolio durations after taking an active view on interest rates.
Banks in India are now increasingly focussing on HNI wealth management. Is Bajaj Allianz also focussing more on HNI wealth?
We strongly believe that we need to be with an investor through his life cycle. With this in mind, we offer products that suit various needs within a life cycle and funds that cater to all kinds of requirements for asset allocation. Asset allocation is the primary determinant of risk and return in a portfolio. Portfolio returns are not determined by market timing or security selection, but by asset allocation decisions. Realising the importance of this, we now offer all our retail and HNI investors an Asset Allocation Fund and a Wheel of Life portfolio strategy. Small investors and HNIs then benefit from strategies that take advantage of movement of asset prices, resulting from changing financial and economic conditions. In the Wheel of Life portfolio strategy, assets of every individual policy holder is reallocated among equity, debt and cash assets in a proportion based on the individual’s outstanding years to maturity and the policy term chosen. This ensures that the level of risk that an individual is exposed to is optimised and his return maximised. ¦ How have your funds performed last year? Our cash, debt, equity and asset allocation funds have outperformed the benchmarks and have delivered superior performance for our investors.
Your advice to investors for this year?
Long-term investors need to keep a few simple mantras in mind. First, invest for a long haul. An investor who is patient and remains invested over a long period of time will reap the benefits by earning significantly better returns. This will ensure that the power of compounding will help you build your wealth. And last but not the least, start investing early.
