Despite Finance Minister Arun Jaitley’s assurance to allay fears on Monsoon deficit report, the mutual fund industry is sensing that the fear is still in the air. Experts in the fund houses feel that low rain fall will lead to inflationary pressure, followed by no further rate-cut by Reserve Bank of India (RBI) until December, thus making the investment scenario dim in almost all schemes throughout the year.
Indian Meteorological Department (IMD) recently revised its forecast to 88 per cent from 93 per cent long Period Average (lPA), with North-West region of the country expected to be hit the most. The IMD’s forecast has made the situation worse, leading the benchmark BSE Sensex down and continued to remain in the negative zone for several days. Meanwhile, the RBI also cut the repo rate by 25 basis points to 7.25 per cent, leaving the prospective investors with disappointment for the MF sector too.
“In case Monsoon really fails, then it may lead to inflationary pressure and which may finally result in no rate-cut by RBI until December,” lIC Nomura Mutual Fund Chief Executive Nilesh Sathe says, adding that inflation will be eased when the Kharif crop are ready for harvest by November.
However, the report of Association of Mutual Funds in India (AMFI) shows that the net inflows in the first two months (April and May) this year has already slipped to Rs1.12 lakh crore from Rs1.46 lakh crore in the same period last year. Experts also feel that the downward movement could be due to the poor corporate earnings and rise of bad loans in the fourth quarter of last financial year.
“Corporate results for the fourth quarter of the last fiscal were not encouraging and banking stocks have also slipped significantly due to the rise of bad loans and poor results in almost all banks,” says Sathe. However, Sathe believes that it is good time for investors to put in money in the mutual fund schemes. “I think this is the right time for the investors to put in their money in the capital market as every correction one should enter the market,” he adds.
According to the Moody’s Investors Service report, “A weak Monsoon is credit negative for India because it lowers agricultural output, increases food inflation and adds to the Government deficits.” Government officials, however, say that the most damaging impact of monsoon deficit may be felt in three key crops - pulses, oilseeds and coarse cereals. Worse, states in the north-western and central regions - as bracketed by the IMD - are among the largest producers of these items. So any sector, including mutual fund, may be affected too,” says a Government official.
The fund managers also believe that if the Government is able to manage food inflation well then inflation can also be managed too. “There may not be uptick in inflation in case the Government was able to manage food prices well,” Kotak Asset Management Company Chief Investment Officer lakshmi Iyer says, adding that the correction in market is always a good opportunity for investors to put in their money in either equity or even in debt schemes.
However, a section of the industry experts has advised the investors not to take any impulsive decisions. “Investors should not take any knee-jerk or impulsive decisions. We should wait for the market to stabilise. Right now, it seems to be over-reacting to different cues,” says Edelweiss MF Chief Executive Vikas Sachdeva.
Amit Nigam, Head, Equities, Peerless Mutual Fund, however, disagrees on the industry’s speculations. “If monsoon is deficient, it is going to hurt the economic growth, and thereby the consumption as well. Currently, agriculture constitutes 17-18 per cent of our country’s GDP. As the growth of agricultural economy has been lesser than that of growth of services (55 per cent) and manufacturing (27 per cent), hence I do not think that the deficient monsoon will affect the investment scenario much”, adds Nigam.