‘MFs in much better shape than they are made out to be’

Rajan Ghotgalkar, MD, Principal PNB Asset Management Company speaks to DNA

When do you see recovery in the market?
In India, it is more of the sentiment that has been hit. There is huge amount of pessimism. But this will come down once the global market recovers towards mid -2009.

What is your forecast for corporate earnings in the new year? Which sectors are likely to do better than others?
It is widely expected that corporate earnings will be lower on a year-on-year basis. It may be difficult to guess the impact at this stage in finite terms, but reasonably they could be about 25% lower. It will be difficult to take a call on sectors at this stage.

Where do you see the market in 2009? Will the Sensex regain its 2007 peaks?
In the near-term, markets will continue to operate at levels similar to the ones we are currently witnessing. We at Principal continue to have faith in the India growth story. My belief is that, with the developed economies now in reverse gear  and India projected to grow at least at 5-6%, there will be considerable reduction in the gap that currently exists between these economies.

India will, therefore, be a better place competitively when it comes to being an investment destination. Thus, there is great potential for  the Indian economy, especially in  the next 2-5 years. Principal will  definitely be around to reap those benefits.

“Nice office sir,” I compliment as Rajan Ghotgalkar, MD, Principal PNB Asset Management Company, invites me into his chambers in the NSE’s Exchange Plaza that overlooks the greenery along the Mithi river.

“Yeah, but sitting here has not been all that nice in the past two months,” RG, as he is fondly known by colleagues, says referring to the redemption pressure and liquidity crisis that hit the mutual fund industry in October and November.

Ghotgalkar, an Economics (Honours) graduate and a Chartered Accountant, started his career in 1982 and has worked for ANZ Grindlays Bank, Standard Chartered Bank, National Bank of Dubai and most recently IDBI Bank.

Like most MFs, Principal’s assets under management (AUM) have dipped considerably over the past year — from nearly Rs 15,000 crore to Rs 6,183 crore at the end of December. Falling equity markets and the relentless redemption pressure through the post-Lehman crisis have eroded the corpus.

“But good ones have come unscathed,” he adds quickly. “In Principal’s case, our conservative approach to investment and emphasis on safety of money has helped,” RG says.

He maintains the industry is in a much better shape than what it is made out to be in the media. “If you look at the AMC businesses, most of them are arms of big financial conglomerates around the globe. For them, the few million dollars they have invested in the MF is not a huge investment. Just because of drop in AUMs due to market conditions, they are not going to shut shop. They look at this as an asset.”

Even the domestic mutual funds are part of big business groups. “I am ready to buy. But show me a seller. There are no sellers,” Rajan says, when asked about his recent statement in the media about Principal looking for buyouts in the MF space. He is confident newer players will enter once the market stabilises.

On Principal’s ongoing partnership with PNB, Rajan says, “There are no talks of exit now. But if PNB wishes to exit, then Principal will buy it out.”