We expect hybrid funds to probably attract more flows this year: Mahesh Patil

“I think we have been seeing that not only debt but the returns across asset classes are in a very narrow range whether it is debt, whether it is expectation on gold or real estate and as a result investors will probably look to diversify across asset classes and try to really reduce the overall volatility,” says Mahesh Patil, CIO, ABSL AMC.

The fact that we have seen that underperformance within the broader markets, what is your outlook? Is there more downside in store?
We have seen some kind of correction in the market primarily because the fact that the outlook on interest rates after the recent Fed minutes, it seems that rates could inch up a bit higher than what we were expecting.It has impacted the sentiment because that could further impact growth and that is what the market is slightly worried about. But having said that I think overall at least from Indian market perspective we are not seeing any major impact on earnings growth.

We have seen this quarter go by and while the results were a bit mixed, we saw some slowdown in a few sectors but by and large the earnings growth outlook even for FY24 still looks to be fairly healthy in the double-digit range and as a result of that I think the markets while the sentiment has weakened a bit, but we do not see much of a downside over there.

Market will probably remain a bit range-bound and try to consolidate and look for further cues before it starts to move up. So, I would say we are in a phase where market is trying to readjust some of the valuation premium which was there in some of the sectors and try to correct that, but the medium, long-term outlook for Indian markets and the economy still looks fairly resilient.

There are lot of sectors which are now coming up and doing reasonably well and as you look into the earnings for next fiscal year it is a pretty wide range. It is not like a few sectors which are driving their growth, but it is across sectors, be it the banking sector, the industrials, the capital goods sector, the auto sector and even the IT sector for that matter which is expected to probably face the brunt of the US slowdown.

Again, there also the growth for next year still looks to be, at least the profit growth looks to be still in double digits. So given that I would say that the market should probably while it might not go up in a hurry, downside seems to be limited.

Also wanted to understand given the kind of returns that debt and fixed income is giving right now and are you seeing more allocations to your balanced funds?
Yes so this year I think we have been seeing that not only debt but the returns across asset classes are in a very narrow range whether it is debt, whether it is expectation on gold or real estate and as a result investors will probably look to diversify across asset classes and try to really reduce the overall volatility.

But on the debt side with interest rates now or rather some of the funds giving around 7.5% to 8% kind of a return there is some amount of flow or interest coming back into fixed income and we see this year where retail money into fixed income can go up significantly. Also, we would see allocation shift a bit from equities into fixed income and within the overall basket some of these hybrid funds which are the balanced advantage fund or the multi-asset fund or the aggressive hybrid funds could see more interest because the debt part of the component will start to yield now a reasonably good return. So we expect the hybrids to probably attract more flows in this year.