Bank stocks attractive, says HDFC MF’s Prashant Jain; finds D-Street valuations reasonable now Bank stocks are now looking attractive with multiple falling below the long-term average for the sector, said Prashant Jain, ED & CIO, HDFC AMC. In a webinar, Tuesday evening, Jain said that he now only finds valuations attractive for the banking space while adding that banks could benefit from the rising interest rates cycle. The fund manager stated that loans will be repriced faster than deposits and inflation will lead to better margins and also help credit growth. “Banks should see a good increase in loan books because of the composition of assets,” he said while adding that NPAs are now at a low level and predicting that provisioning will not be too high. Further, the HDFC Mutual Fund CIO advised investors to increase their equity exposure, saying that with the recent correction valuations have become far more reasonable for investors than they were some months ago, helped by the time correction seen by Dalal Street. “Market capitalisation to GDP is now coming down and because there is a reasonable time correction, markets are now more reasonably valued than they were some time ago,” Jain said. Sensex and Nifty are down 10% so far this year. Although stock markets are battling headwinds, Prashant Jain believes these could hover around for some months but in the next six months, risks might start abating. Jain also added that the massive selling by foreign institutional investors (FII) could also slow down in the next six months, considering that foreign funds have already sold large quantities of Indian stocks so far this year. “Selling by FIIs should abate in next 1-2 quarters or earlier. The next 3-6 months could see uncertainty, but after that, some risks will be clarified,” Jain said. He added that investors should now start increasing allocation to equity. “If there are dips, take advantage of that,” Jain added. Apart from banks, the fund manager is bullish on large-cap stocks. Even amid the current uncertainty, Jain is advising investors to stick to large-caps. Meanwhile, consumer stocks are a space that Jain terms as expensive despite the recent correction. Further, the HDFC Mutual Fund CIO said that India’s growth story remains strong and he expects India to retain the fastest-growing economy tag this decade. “Despite inflationary pressures and higher interest rates, the outlook on the economy and profit growth is steady. In the past, India’s interest rates have been as high as they are today and India has done well even in those periods,” Jain said. He added that rising interest rates are just a normalisation process which is not a surprise for markets.
Also read: Petrol and Diesel Rate Today, 11 February: Fuel prices steady; Check rates in Delhi, Mumbai, other cities
In its consultation paper, Sebi has suggested that trustees of mutual funds should focus on market abuse by AMC, its employees and mis-selling by the AMC to increase the asset base.
Also, trustees should be responsible for fairness of fees and expenses charged by the AMC, compare its performance with peers and ensure that AMC’s sponsor is not getting any undue advantage.
In addition to the core areas, the trustees should be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.
Further, Sebi has suggested that trustees and their resource persons should independently evaluate the extent of compliance by AMC and not merely rely on AMC’s assurances.
To facilitate trustees’ supervision, AMCs should provide them with analytical information.
Presently, the trustees primarily rely on the AMCs for ensuring compliance with the applicable rules.
Under the rules, trustees hold the property of the mutual fund in trust for the benefit of the unitholders. The trustees appoint an AMC to float schemes for the mutual fund and manage the funds mobilised under various schemes, in accordance with the investment objectives.
“In view of the increasing scale and reach of the mutual fund industry, trustees’ role in respect of unitholders’ protection assumes even greater significance,” Sebi said on Friday.
Also read: Adani shares continue fall amid MSCI review
Over the past decade there has been a five-fold increase in the size of the mutual fund industry. The assets under management (AUM) has surged from Rs 7.93 lakh crore in November 2012 to Rs 39.89 lakh crore in December 2022.
To ensure that trustees devote time and attention to their core responsibilities, Sebi has suggested that for fulfilling other responsibilities, trustees may rely on professional firms such as audit firms, legal firms, merchant bankers for carrying out due diligence on their behalf.
The Sebi also listed some duties trustees can delegate to AMCs. This include ensuring that all systems are in place prior to the launch of any scheme by the AMC, and calculating any income in the mutual fund due to the fund and any income received in the mutual fund for unitholders.
The regulator has proposed to provide a one year time to existing trustees with board of trustee structure to convert into a trustee company, from governance point of view.
Presently, two structures for trustees are permitted — corporate and board of trustees structure. Moreover, there are a few mutual funds which have the board of trustees structure while the trustees of all other mutual funds have adopted the structure of a trustee company.
Considering the enhanced role of trustees over the period of time, Sebi has suggested to increase the minimum number of trustees to adequately perform their functions. Presently, the minimum number of trustees prescribed is four.
Also, it has been proposed that the chairperson of the trustee company should be an independent director.
Sebi has suggested that apart from the meeting of the audit committee of AMCs and trustees (which mostly comprises of independent directors), the board of AMCs and the board of trustees may be mandated to meet at least once a year to discuss the issues concerning the mutual funds.
The regulator proposed that the existing MF Regulations on AMC and its obligations may be amended to include additional clauses with respect to the obligations of the board of AMC.
The proposed amendment may include a clause which casts an obligation on the board of AMC to ensure that all the activities of the asset management company are in accordance with the provisions of these regulations.
The Securities and Exchange Board of India (Sebi) has sought comments from public till February 24 on these proposals.