Earnings in downturn; FPI inflows unlikely in short-term: TRUST MF CEO

With the Reserve Bank of India (RBI) lowering its inflation projections and Indian households increasingly shifting their savings from bank deposits to equities, the country’s investment landscape is undergoing a transformation. In an email interview, Sandeep Bagla, CEO, TRUST Mutual Fund, tells Sirali Gupta about the implications of these changes, the resilience of domestic flows, the outlook for corporate earnings, and how artificial intelligence (AI) is reshaping the mutual fund industry.

 

What does the RBI’s move to lower inflation projection mean for the market?

Headline CPI numbers will be quite low for the next few months as food inflation has been low, and there is a favourable base effect. RBI pointing towards stubborn and rising core inflation is concerning and tells a different picture from that portrayed by the falling headline numbers. It is clear that the RBI will not ease the policy rates unless growth tapers off significantly in the near future.

 

 

The RBI Governor in the MPC said that household savings are gradually shifting from bank deposits to equities. What is driving this behavioural change?

Indian investors have understood that equities/mutual funds are the best way to beat inflation and participate in the structural growth story in a tax-efficient manner. Government is also happy, as mutual funds are an efficient way to convert savings into productive investments. The trend of savings converting to equities is a megatrend and is likely to gather pace with time. The growth of the SIP book is encouraging, as it implies widespread risk dispersion and sharing.

 

How do you view Indian equities compared to global peers?

Indian equities have always been optically more expensive compared to other markets due to a superior and diversified structure in terms of conventional valuation ratios like price to earnings. Over a long period of time, the demographic dividend and governance framework should result in a long runaway of growth for the Indian economy. Short-term corrections may offer attractive long-term investment opportunities.

 

FIIs are pulling out of Indian equities. Is this a short-term trend or a strategic shift, and how long can domestic investors hold fort?

Globally, central banks have been resorting to mild quantitative tightening, reducing the supply of money. As a result, money has dried up and is being allocated selectively across riskier asset classes. The threat of higher inflation has led to spiking bond yields and higher gold and crypto prices. I am not counting on a structural inflow from FPIs in the short run. The domestic flows are likely to continue. More than the flows, a pick-up in earnings outlook would help boost market prices and sentiment.

 

What is your outlook on corporate earnings? Which sectors do you expect to lead the rebound?

We are experiencing a cyclical downturn in earnings. Interest rates have been reduced, and government capex has been frontended to a great extent. Low food inflation could bolster earnings as well. A few niche sectors like hospitality, could do well in the near future.

 

How do you view the primary markets? Are they experiencing a rebound?

Primary markets remain strong, though many new listings have underperformed. Still, companies will continue to tap the market, offering investors opportunities to invest in promising franchises over time.

 

SIP flows have remained resilient despite market volatility. What’s your advice to investors using systematic investment plans in the current environment?

A weak market lets long-term investors buy equities at lower prices. Staying disciplined with SIPs and seeking advice from a qualified distributor can help select the right funds and benefit from compounding in Indian equities.

 

AI is beginning to reshape many aspects of the mutual fund industry. How is your firm embracing this shift?  AI is a powerful productivity tool, and I’m amazed by the constant stream of new use cases. We have adopted emerging technologies while prioritising compliance, cybersecurity, and integrity. Beyond internal benefits, I’m optimistic about the productivity gains and investment opportunities AI offers our investors.