2020 was a roller-coaster ride for mutual fund industry

Assets Under Management (AUM) of the Indian mutual fund Industry as on March 31, 2021 stood at Rs 31,42,764 crore. The AUM of the Indian MF Industry has grown from Rs 5.92 trillion as on March 31, 2011 to Rs 31.43 trillion as on March 31, 2021, more than 5-fold increase in a span of 10 years. All that's fine. But how has the Indian mutual fund industry performed during the pandemic, that is, in 2020,

which was an exceptional year on many counts. And more importantly, how does the future look like? Speaking to Bizz Buzz exclusively, Ravi Singhal, vice chairman, GCL Securities Ltd, shares his analysis and thoughts on what's in store for the Indian MF industry

As we all know, the year 2020 was an exceptional year in more senses than one. It was during this year that the Covid 19 pandemic hit hard economies and industries all over the world. How was the year for the Indian capital market?

The year 2020 was an exceptional year in recent history. We witnessed many abnormalities such as negative crude oil prices, the steepest decline and the fastest recovery cycle in the equity market, and complete lockdown by the central government in the wake of the coronavirus pandemic. These were just a few challenges amongst many others.

If we talk about the equity market, more than one crore new Demat accounts got opened in India in 2020, and whoever invested in this year in the equity market has surely got tremendous returns out of it. However, when it comes to equity or stock market investment, it is always advisable to go through the Mutual Funds (MF) route because these funds are skill-fully managed by highly qualified and experienced professionals.

How was it for the MF business? How has the Indian MF industry performed?

The MF industry has recently crossed a total Asset Under Management (AUM) of Rs 32 trillion, and it is increasing every year. There are 41 Asset Management Companies (AMCs), and more than 1800 Funds fall under the purview of various Equity, Debt and Hybrid categories. Therefore, it is difficult for auser to select the right MF among so many options. Although it is very difficult to predict which sector will perform the best in the coming year, we can only analyse past data and current situation and make an investment decision to invest accordingly.

But does it guarantee a bright future? Does it guarantee similar future results?

Although the past performance of a mutual fund never guarantees similar future results, we can take reference of the data for analysis purpose. Almost every category in Equity MFs has performed well this year; however, IT and Metal in the sectorial funds and Small Cap in the capital segment have outperformed.

Now coming to domain-specific performances, how has the Information Technology (IT) sector performed?

BSE IT index has given a 101 per cent return in the last one year. Owing to the Covid-19 pandemic, IT stocks were in favour, as these companies are getting mammoth deals.

Owing to reasons such as an increase in the work from home (WFH), change in business tactics, use of Artificial Intelligence (AI), cloud, online advertising and social media, increase in internet consumption and many more, the IT sector remained an outperformer. Looking at these factors, IT stocks will remain agile during the pandemic.

Another sector, which comes to my mind is the metals sector. What do you think- how has metals sector performed and why?

BSE Metal Index has given an outstanding return of 182 per cent in one year. Due to the low-interest rates, metal demand has increased significantly across the world. As per recent data, the home sales in the US remained the highest since 2007. Moreover, rising housing and infrastructure demand in China will further augment the metal demand. These factors are helping the metal sector to outdo this excellent performance for one more year.

Is there any other sector, which has registered similar good or better performance during the period?

Yes. If you look at the small-cap segment, the BSE Small-Cap has displayed a fairly good performance of 99.51 per cent in one year. Due to the Covid-19 challenge, a limitation in boundaries is helping the small caps companies. Owing to a new taxation system, small companies are finding it easier to fight with large companies. On account of fewer imports from China due to the cold war situation and border tussles, small cap companies are immensely benefitting.

Therefore what do you conclude from this analysis? What is the key takeaway?

It is clear that if you had invested in the above MFs last year at the end of April 2020, your fund would have been doubled by the end of this month. These kinds of opportunities come once in ten years. After the great recession of 2008, few MFs have displayed a similar kind of performance in 2009. Otherwise, in general, one should not expect more than 15-20 per cent yearly return from the stock market.

How have the returns been? Were they satisfactory? Can you throw some light on this?

Here is a snapshot of few mutual funds which has given more than 100 per cent return in the last one year.