At a time when mutual funds are facing a trust deficit after a slew of defaults by corporates towards interest and principal re-payments leading to a sharp fall in net asset value of many debt funds, Mahindra Mutual Fund remains unfazed by the events over the past couple of months. Ashutosh Bishnoi, managing director and CEO, says the crisis could have been averted had fund managers looked at balance sheet numbers and not gotten swayed by the big names. He says his funds had no exposure to these companies because his credit team was focussing on numbers and not on names. "Numbers were there to read," he emphasises.
"We stayed out of the crisis not by accident but by choice. At that point, we did not know it would come to this, but we made our choice as our credit team said the numbers didn't add up. We are a small fund house so we cannot afford to take a risk," says Bishnoi.
Mahindra is a relatively new fund house with over three years of existence and its main focus is on investors beyond the top 20 cities, which make up for most of the mutual fund investments currently.
Did the recent turmoil in debt funds make it difficult for it to crack small town markets it is eyeing for? Bishnoi says the default crisis was mostly limited to fixed maturity plans (FMPs), credit funds and to some extent liquid funds. "Retail investors rarely invest in these funds, and in any case our focus is on equity funds because we think good returns in the long-run can be made only from equities," he says.
But with the liquidity crisis spreading across many NBFCs and corporates, does this limit the mutual funds' avenues for investing in quality debts? Bishnoi says that with the Reserve Bank of India mandating that corporates cannot raise more than 25 per cent of their funds from banks, a lot of quality corporates are looking for money. However, he admits that in today's market managing a large chunk of money has become a problem.
"My risk norms do not allow me to give money to one corporate, I have to give it to 10-20 corporates. Therefore, I have to pick up risky debts," he says.
While most others have reacted negatively to the recent Budget announcement, which urged SEBI to increase the minimum public float from 25 per cent to 35 per cent, Bishnoi welcomes the move saying that the market needs it.
"You remember valuations of shares in 2016-17 when mutual funds were getting lakhs and crores of money. We were worried where to put money as more money was coming. The move to increase public float by 10 percenatge point would bring Rs 4-5 lakh crore of additional investible market cap, which, in today's scenario - between FPIs, insurance companies and mutual funds - will get lapped up in six months," he says.
On 20 per cent tax on buybacks, Bishnoi says that buybacks are fundamentally a bad idea as the company (opting for buyback) is sending the market a message that it has run out of the ideas to invest its money.
"What most buybacks do is to support the price of the stock in the short-term but as a shareholder I want the share price of the company to grow through new businesses and not buybacks," he says.