Fund manager economic survey

Year 2014 has been historical in India with the formation of a full majority government after a gap of nearly 30 years. The last seven months of the new government has seen many actions and initiatives but there are expectations for even more actions. There is a visible change in the industry confidence levels and everyone is hoping for better times ahead.

Given this background, no doubt there is some anxiousness and questions in our minds. These resonating questions have found their place in form of a survey questionnaire and in a first of its' kind exercise, we presented these questions to some of the leading fund managers in India. Their replies helps have helped us to decipher and measure the perceptions and expectations that delve in our minds. As part of the exercise, we presented 7 such relevant questions and asked the participants to respond objectively by either rating or by choosing the options. Here is our analysis on the survey results.

How do you rate the overall performance of the Central Government on meeting expectations of the investors?
With the completion of nearly seven months in office, this is a pertinent question to ask at the start. Interestingly, results show fund managers are split in rating the performance with half saying it has exceeded expectations and the other half believing that it was satisfactory. Not surprisingly though, not a single fund manager rated the performance as below satisfactory.

Voting on Overall Performance:

How do you rate the performance of the Central Government on the important agenda /issues given below?
To further examine performance perceptions of the government, we asked fund managers to rate the performance on specific areas. As the results show, the most admired performance of the Modi government is seen in improving India's image and brand globally. Inflation control, which has moderated to 5% in December 2014 after averaging 8.98% from 2012 until 2014, is undoubtedly also seen as a big achievement. This was closely followed by governance and then reforms. While the government has got good ratings on all parameters, it does show that still there are higher expectations on reforms progress, revival of economic growth, employment generation and in fighting corruption.

Perceived Performance Score:

How confident are you on the performance of the following sectors in the next 3 years?
With a lot of sectoral action happening on the ground, we asked fund managers on their assessment for the near future performance – i.e. for next 3 years on the major sectors of the economy. The results show a majority of them expecting Banking & Financial Services industry to outperform others. This is followed by Automotive, Capital Goods and Consumer Durables sectors. The Retail & Real Estate has been the least confident sector followed by, not surprisingly, Oil & Gas and Power sectors. For other sectors, the performance is seen to be normal, without major deviations on either side.

Confidence level for performance in next 3 years:

What economic growth do you foresee for Indian economy in FY 2015-16?
There have been many reports on the economic growth expectations for India for the next fiscal year and these have been in the region of 5-6% to 6-7% for year 2015 and 2016. Clearly, as figures in recent quarters suggest, the economy has on a revival mode. The World Bank too has predicted a handsome 6.4% economic growth for year 2015. We asked fund managers for their view on the growth for the coming year. The results show that all fund managers are confident of growth in the range of 5.50% to 6.50%. Clearly, there is a welcome and visible improvement on this front compared to the economic mood felt in the past recent years.

Voting on Expected Economic Growth:

What quantum of interest rates cut do you expect RBI to make by March, 2016?
There has been a long wait for key policy rates cut and now that the inflation has moderated, there is a strong demand for rate cut to push the economic growth. There are two aspects to the cuts – the timing and the quantum. Most expected the rates to be cut in the next review meet but RBI surprised with a 0.25% cut in key lending rates, now at 7.75%, on January 15th, indicating the start of a likely downward trend.

We asked the fund managers, the total quantum of the cut they were expecting in the key lending rates to be made by end of FY2015-16. Results show that around 75% fund managers are looking forward for cut of at least 50 bps with most expecting it to be between 50-75 bps. 37.5% of the those participating believed it to be at least 75 bps.

Voting on Expected Rate Cuts:

At what levels do you expect the forex rates to stabilise by March, 2016?
Exchange rate for India has been relatively volatile for 2014. With falling crude oil prices and expectation of investment inflows into the economy, expectations are high for a stable INR. We asked the fund managers for their view on the levels at which the INR will stabilise till FY2015-16 end.

The results show equal expectations for the INR to be in range of Rs.57 to 60 to and 60-63 per USD. The remaining 25% expect the rupee to be in range of Rs.63-66 per USD.

Voting on Expected Currency rates US$:

What major risks to you foresee for the economic growth in the near future?
With a strong recovery being expected and desired for the economy, there does exist some risk factors to the growth potential. We asked fund managers to assess the risk perception on 6 parameters. The results show that the contributing factor to the growth – the reforms progress, is also the biggest risk. This shows that the expectations & appetite is still high for more action. This was followed, by some distance, with concerns on global economic growth and oil prices. Not surprisingly, inflation was the least worrying factor along with political environment.

Perceived Risks Score:

Summary
The fund managers survey highlights a significant change in perception to what we used to have in past. Clearly today, there is strong expectations of economic revival by nearly 1% in less than an year since the new government has assumed office. The performance till date has been seen as exceeding expectations and being satisfactory by everyone. But there are still higher expectations for drastic reform oriented decisions to be taken in good pace indicated by the pace of reforms progress being voted as the biggest risk. On a policy, action front, the government's foreign policy initiatives and action has been given a thumbs-up by everyone. Going forward, the economy is expected to grow over 5.50% for FY2016. The budget session is something which will be closely watched as it is the first full budget being presented by the new government. We have covered that part in an another survey in this issue.

We are thankful for the whole-hearted participation of the fund managers from the following AMCs in the survey: (1) BNP Paribas Mutual Fund (2) Canara Robeco Mutual Fund (3) HDFC Mutual Fund (4) ICICI Prudential Mutual Fund (5) LIC Nomura Mutual Fund (6) Mirae Asset Mutual Fund (7) Sundaram Mutual Fund (8) TATA Mutual Fund.

Methodology:
For Questions 1, 4, 5 and 6, objective Yes /No where taken against choices and then totaled against universe for taken percentage figures. For Questions 2, 3 and 7, ratings against choices were taken on scale of 1-5 (5 is highest), summed up and then converted into percentage figures.