Debt Fund Returns ‘More Than’ Compensating Their Risk, Says Aditya Birla Mutual Fund’s Mahesh Patil

Returns from debt funds are more than compensating for the risks they pose, according to Mahesh Patil, co-chief investment officer at Aditya Birla Mutual Fund.

“This is the time when you are getting good yields to compensate for the risks. A lot of the portfolios, if you look at the overall yield on that, is much better compared to where inflation is,” Patil told BloombergQuint in an interview.

This comes even as two mutual funds were unable to make complete payment to investors of fixed maturity plans due to their exposure in defaulting companies. While Kotak Mutual Fund said investors of its FMPs may not be able to redeem their entire amount because of its exposure to debt-laden Essel Group, HDFC Mutual Fund has given its investors the option to rollover the scheme or extend the maturity of one of its FMPs.

Patil said “now is a good time to invest in some of these funds and lock in the higher returns”, which probably will normalise as things settle down and risk appetite comes back to the market”. Despite the couple of defaults seen, he said, it is important to look at the overall performance of these funds and in the last three years. They have been able to deliver the targeted returns, he said.

Here are the other key highlights:

On Crude

• Crude is touching $75 per barrel, beyond which it starts to be painful.
• We are still okay in terms of macro managing on current account deficit or BOP because we've seen good capital inflow.
• If it goes above $75 or reaches $80-or so, there will be some kind of nervousness.
• Don't expect crude to stay above $75 for too long.
• One could see mild correction in the market with crude oil worries and elections.

On Earnings Growth & Sectors

• Earnings forecast shows 20 percent plus growth for 2020 driven by the banking sector.
• Looking at a 14 percent growth for the balance sectors (excluding banking), which is decent.
• Will see some recovery in auto sector going forward.
• We might see strong earnings growth despite GDP growth remaining constant or meandering around these levels.
• The liquidity-driven rally has clearly gone away.
• Market has been punishing companies with weaker management and corporate governance practices.
• Low base to aid pharma space
• Good growth coming back in consumer discretionary space
• Apart from banks, overweight on consumption discretionary, capital goods and infrastructure
• One should expect average returns from this equity market.