Anupam: Hi listeners, we at Aditya Birla Sun life mutual fund have come up with a special podcast series called MF 101 in collaboration with Bloomberg Quint. MF 101 is an informative series that will help you understand the recipe behind mutual fund investments and what’s more? It’s coming from the chefs of the mutual fund buffet table. From the very own fund managers and analysts who are the manufacturers of the funds that help you realise your investment goals.

Hi I’m Anupam Gupta, B 50 on twitter and in this episode we are going to discover the recipe behind risk management and mutual funds from our guest chef Mr. Milind Bafna, who is the fund manager at Aditya Birla Sun Life mutual fund.

Milind, welcome to the show!

Milind: Thank you! Morning friends!

Anupam: First of all, tell us about your background, what got you investing or what got you working in the stock markets?

Milind: I am basically a chemical engineer, I started my career in my field and so worked over a decade being a chemical engineer then moved from plant to operations and R&D business and strategy, I joined Motilal Oswal as a research analyst and then with Birla since last six-seven years so this was more of a professional journey from being an engineer towards probably a stock market investment manager.

Anupam: Fantastic! A lot of our listeners and even me, because I have invested in a lot in mutual funds and we see these ups and downs ok? Even If I have an SIP and suddenly I find that the value of my instalments is just at cost ok? 2017 was really good, 2018 was really bad, umm you said that you know, that investors usually get this entire cycle wrong, they tend to invest at the top and sell at the bottom, can you talk to us about this behaviour, you know what have you seen and what does that tell you?

Milind: See, what exactly happens and probably it was true for me also, when I was investing probably just out of the college and trying to invest and getting stock markets, so what we tend to do, as investors we tend to invest when there is complete clarity in the stock markets so when the macros are good and global scenario is good, money is flowing in the country, domestically you have got a strong government, you tend to feel “wow! Everything is really worth investing and I might get 20, 30 or 40% over the next few years and irrespective of valuations, you just enter the stock markets, so essentially the same thing happened last year in November-December when global cycle was really going good, your inflation was benign, your crud was benign, so crude oil is helping your country. In such scenario what happens, investors feel “yaar now everything is going good” but they tend to forget that price is already building that good so anything negative coming in the valuations or earnings, that is probably not looked by investors and this is where they go wrong. So whether it is in the top of the cycle or whether it is in the bottom of the cycle so now when you see that everything negative is happening, trade war is coming through crude oil price is going up, you are also seeing that the rupee is going to depreciate, people will talk of petrol will go to century or rupee will go to century and today you will find people talking of only, be in NIFTY or be it your own business! (Continued below)

Anupam: Haha*

Milind: Something like stock market is not good for you! There they make mistakes and so whether investors or traders, you tend to overrule what market is showing you and you tend to believe what you are thinking.

Anupam: So that’s psychology right? I remember December 2017, look at the whole of 2017, you could just not go wrong if you kept buying , each and every month the stock market is just going up and up and I’m getting SMS’s buy this stock, buy that stock, trippler, doubler “iska bhav aisa ho jayega”. One year later everything’s you know….i still see the same amount of people in the mall but I’m not getting any SMS’s so what you are saying is absolutely right in terms of psychology. Psychology and investing ok? They are co-related right? That’s the first thing takeaway that we have out here. When the going is good, you should be cautious and when the going is actually not good, you might want to reconsider, is that right?

Milind: yes, absolutely correct, so that’s actually the way by which one can try to control his emotions and invest gradually, invest systematically so the first thing what one should always do is, if he is not an expert in say any of the fields whether it’s the stock market or his own business, he should first consult the person who has an expertise in that particular field , that is the reason, when we talk of the mutual funds and the institutions, what they exactly do is, they turn down the volatility of your investments and give you a gradual upside over your investment cycle.

Anupam: So 2018, I think that NIFTY at one point of time fell about 15%, of course now recently, it’s had a recovery, I think the mid cap and the small cap industries, at an industrial level are still about 20-30% down, somewhere around that. With all this correction already happening behind me, what should be my approach now to equities? What do you think?

Milind: This is the time when people should again go back on the desk and try to identify, “is there growth in this country?” if the answer is yes, then forget about valuations, forget about political risk, so valuations will follow the earnings and earnings are going to come back from whatever things you consume. In all those, I would say sectors or mutual funds or asset classes, where you would see a decent upside in the next one year or two years.

Anupam: ok, so in specific advice ok? Yeah. Should I stop my SIP?

Milind: That is the worst probably that any of the investors do. So I just want to compare, today and ten years back in 2008 or so, when there was a global meltdown and people actually went out and stopped their SIPs, thinking that the world is going to end. So, SIP is something which is called as systematic investment plan and what people do is that they withdraw it lumpsum, so I would say that you should not withdraw it.

Anupam: first thing is that you don’t panic!

Milind: yeah and just keep investing, it’s probably a very good time to invest.

Anupam: I mean that’s what an SIP is designed for, these are what? Atleast ten year products, typically you should and you will go through these journeys, right? I have two SIPs right now so your advice would be don’t panic, stick with the SIP, SIPs are long term. Let’s look at something lumpsum ok? How should he invest this in the stock market, what do you think should be the right way to do this.

Milind: So lumpsum return, whenever it comes. Whether it is from the same asset class or some different asset class, one should again re-invest gradually. So what happens, let’s say you sold some asset class, let’s say you sold land and you got the money and you invested in stock markets, stock market came down by 20% and you tend to feel that “oh stocks are not good for me I got 20% wrong” but then you tend that your land prices would’ve gone down by 20% but since you sold that you tend to feel an inclination that “no I should’ve bought land again” so that’s a mistake that most of the people do, so selling is one part, when you’ve sold something, that was probably good for that asset class or this asset class also, hence whenever you’ve got this lumpsum amount, just hold on, invest it in different asset classes, for example you invested in debt also, park some amount in FD also and say some portion of it, let’s say in today’s period you invest 30% of your some amount in equities and rest you do through SIPs so better invest it gradually in 5 to 6 months because these 6 months are completely uncertain, no one knows what’s going to happen but one thing Is sure, consumption is going to happen so just invest in six months, you will probably reap the benefits in the next 2 or 3 years.

Anupam: You spoke about consumption, ok? Can you tell us about your outlook on this one sector and why you think that this is a good place to be in?

Milind: See consumption, as such for India we are 16% of the world’s population and when your per capita income is going to around $2000. In such scenario, your consumption will simply go up plus things which that are helping you to consume are more of your aspiration levels, today as your Disposable income is going up, you tend to consume more and more, whether it was a wedding that we saw last week haha.

Anupam: We’ve seen this entire year, I don’t know how many celebrities have been there.

Milind: Yeah and the best part of weddings in India is, the money goes towards smaller segment of that particular society. What happened in china, so China in 2002 - 2014 was on a consumption spree, so they made a lot of money in the previous decade to that. They started consuming from 2002. Go to the world, any part of the world, you always see Chinese tourists, same for India also, now we are probably one decade behind China. We are going towards consuming economy. Now how would you play this consumption? So, either you play through direct investment, for example I’m consuming a lot of biscuits, the way people are consuming biscuits, I would invest in a biscuit company. So when you just go back home, start your television, watch those serials and everything magnanimous over there, what you tend to feel is that you also want to live the same life, this is what is driving the consumption, and you should invest correctly. Let’s say, if we are seeing online shopping going around by those paper companies or making those cardboards, so if you see their aspiration levels to have three spectacles or four spectacles, there is some company which will make those glasses, if they tend to say that black colour is becoming the new look by the company which is making black colour, say if you see this smart phone is penetrating the lowest end of this society by your personal grooming products because more and more selfies are going to be clicked, so that’s the way consumption is getting spread and hence I feel, for the next three years, five years down the line, consumption is something which will really drive the earnings.

Anupam: Sure

Milind: And it will drive the earnings for the second derivatives, third derivatives also.

Anupam: There are so many aspects to consumption right? First there is a first order of consumption which is the penetration angle when someone actually uses something for the very first time ok? First time car buyer and then after five years, he actually buys a better car, so there are various aspects to this consumption right?

Milind: Correct.

Anupam: ok, folks! So that is a wrap on this special episode on risk management and investing in mutual funds, we spoke about four aspects out there right? What investors get wrong at the top and at the bottom, what should be the approach to equities and what should you do when you have a lumpsum gain from sale of an asset and finally how do you invest and the consumption sector as a test case or as a case study for investments. I hope you enjoyed that, more such interesting know how’s continue listening to our podcast MF 101 or simply follow the blog page of Aditya Birla Sun Life Mutual Fund, Bloomberg Quint, IVM podcast or wherever you get your podcast from, if you have any queries or some specific subject you want us to talk about, with regards to mutual fund investment, reach out to us on our Twitter handle @ABCABSLMF. Thank you for listening to this podcast.

Mutual fund investments are subject to market risk, read all scheme related documents carefully.

The views and opinions expressed herein are personal and do not necessarily reflect the views of Aditya Birla Sun Life AMC Ltd (“ABSLAMC”) /Aditya Birla Sun Life Mutual Fund (“the Fund”). ABSLAMC/ the Fund is not guaranteeing/offering/communicating any indicative yield/returns on investments.