Industry's growth will be faster going forward: Milind Barve of HDFC MF

In a Q&A. the outgoing MD of one of India's largest and most profitable fund houses shares his key learnings and challenges over the past two decades

Milind Barve will retire as managing director at HDFC Mutual Fund next week. In an interview with Chirag Madia, Barve, who was instrumental in setting up one of India’s largest and most-profitable fund house, shares his key learnings and challenges over the past two decades. Edited excerpts:

You are retiring at a time when the industry has achieved the milestone of Rs 30-trillion in AUM. How soon do you expect next Rs 30 trillion to come?

The MF industry is far better placed today in terms of awareness of products than it was 5-10 years ago. Given the combined efforts of the industry and support of the distribution community, the pace of growth will be much faster going forward. I do not want to put a target on the number of years.

As the head of a large fund house, you have seen many ups and downs in the market. Which have been the most distinct ones?

When I reflect on the many years in the market, there have been very distinctive phases in the market. In 2000, when we started, debt was more favourable compared to equity as the 10-year yields were in excess of 10 per cent. Between 2003 and 2008, equity markets gave outstanding returns. Later there was a huge slide triggered by the Global Financial Crisis. Another event I can recall is the taper tantrum in 2013, which led to a lot of turbulence.

And finally, the ongoing pandemic. Though this has been more a health crisis, it has impacted the financial markets. Initially, people did not know the severity of the pandemic and how to deal with it. But as you have seen markets have surprised us with the sharp recovery, both in the macroeconomic indicators and corporate earnings.

The asset management industry has evolved over the last decade. What are the most striking changes?

Over a period of time there has been significant improvement in standard of disclosures and in every area. We now have a much stronger regulatory framework. All this has made investing in mutual funds safer and more transparent. I would give Sebi a lot of credit for this. The changes in the regulations are centred around building investors’ confidence and safeguarding investors interest. The more we do it, the more investors will get the confidence in buying our products.

What has been the most testing phase during your tenure at HDFC MF?

I do not want to remember those phases (laughs). But looking back, the global financial crisis in 2008-09, which impacted India as well as the world economy. Though the crises did not originate in India but we faced a collateral impact, particularly in the debt markets. It was an extremely difficult time in handling outflows and inflows in liquid funds. Eventually, as an industry we came out stronger and I think we learnt some important lessons particularly in how liquid funds were managed.

Navigating the corporate debt stress has also been a challenge. What are the key learnings?

Unfortunately, after the fall of certain non-banking financial companies (NBFCs), the exposure to this space has come under focus. The market started to differentiate between strong NBFCs and less strong ones. This has led to differential pricing. It was evident in the way NBFCs raised funds from the market. This did create a bit of concern over our exposure to NBFCs. But with quick measures taken by the regulators and improvement in liquidity conditions, things have changed in a short time. It has increased the confidence that NBFCs will survive. The key learning has been that if you are borrowing from NBFCs, the focus should be on the asset quality but even greater focus should be on their asset-liability mix.

Talking about last year’s crisis (Franklin Templeton), it did create a degree of panic. The industry tried its best to assuage the fear of investors towards credit risk funds. Thanks to the prompt efforts by Sebi and RBI, the situation eased. The high redemptions pressure, felt in the month of May, ebbed very quickly and now things got back to normal. However, the assets of the credit risk fund did shrink from Rs 80,000 crore to Rs 30,000 crore.

Passives are giving a tough time for active fund managers. Do you see the active-passive asset mix shifting significantly?

I think both active and passive will remain part of investors portfolio. I do not think rise of passive funds will happen at the cost of active investments. Investors will invest in index funds or ETFs, but certain segments like midcap and small cap do not have index funds as impact costs are high. So, if investors are keen to invest in those sectors they cannot invest through passive funds. There is enough room for both active and passive funds to coexist in India.

What are the plans for retirement?

I plan to get involved with something in the advisory field. Also, philanthropy, an area very close to my heart for the past 10 years.