Debt Fund Manager - Mr. Ritesh Jain

Mr. Ritesh Jain

Chief Investment Officer (CIO)

BNP Paribas Mutual Fund

Mr. Ritesh Jain has been appointed as Chief Investment Officer (CIO) of BNP Paribas Mutual Fund. In this role, he is responsible for leading a team of investment professionals managing a wide range of funds across different asset classes. Mr. Jain has close to 20 years in the Financial Services Industry and has held leadership positions in various Asset Management Companies. Prior to BNP Paribas Mutual Fund, Mr. Jain was the Chief Investment Officer at Tata Asset Management. Mr. Jain is a forward - thinking leader with a passion for growing businesses in a dynamic market environment. His experience and expertise have entailed significant portfolio growth and development. His investment philosophy is characterized by a long-term view and he believes in a participatory approach to leadership coupled with cross functional collaboration and strong team work.

Mr. Jain is a keen follower of current affairs and his articles regularly feature in leading financial publications such as Economic Times, Mint, The Wall Street Journal et al. He is also the author of a weekly column in ET markets, “What I read” which has a readership of over 50000. Academically, he has completed his Master of Business Economics in 1997. He has an active interest in travelling, playing squash and keeping abreast with local and global affairs.

Q. A big debate on demonetisation followed the disclosure from RBI that 99% of all currency has returned to the banking system. As a fund house, what would be your take on the net merit or demerit of demonetisation?

Answer: We will have to see Demonetisation in a broader context and in light of the stated agenda of the government to clamp down on the parallel economy. Government has initiated various steps to reduce the size of the parallel economy and widen the Tax base and demonetisation had been a very important and strong step in this endeavour.

One can argue that a strong step like demonetisation has costs which exceed the benefits and probably it is true for the short term, but the jury is still out on that and one has to wait to see what follow-on actions government takes and the results it yields to take a final view on demonetisation

Q. The government has been making policy and regulatory changes to ensure greater recovery of NPAs including power to banks to initiate recovery proceedings. As a market player, how do you feel these initiatives will impact the markets?

Answer: Banking sector credit growth has hit multi decade lows and for the overall sentiment to improve the credit environment is very critical. As a result of the lingering NPA issue, the burden of financial intermediation is increasingly falling on the non-banking segment of the financial market i.e. NBFC’s and Mutual Funds which also means that the risk is getting transferred from one segment to the other and at a pace which is probably not good.

So both from the perspective of enhanced risk taking in the non-banking segment of the financial market as well as for the credit environment to improve , the success of these initiatives is very critical for the long term health of the financial markets.

Q. Recently RBI reduced the policy repo rate and reverse repo rate by 0.25% to 6% and 5.75% respectively. Please explain why and how does these policy rates impact investor returns in debt funds?

Answer: The bond markets had already factored in the rate cut by RBI and we have seen the returns of debt scheme improving even before the rate cut announcement by RBI. Generally as the interest rates come down, debt funds with longer duration tend to give higher returns because of capital appreciation as bond prices rise with lower yields. RBI Policy rates, to a large extent, determine the overall yields in the bond market and hence any movement in Policy rates becomes important for investors in Debt Funds as they are the signal given by the RBI regarding interest rates in the economy.

Q. A recent study suggested that farm loan waivers could reach Rs.2.7 lakhs across India by 2018. While this might help increase consumption to some extent, it also increases the borrowings of the states. In your view, how does loan waivers impact the economy in general and what does it mean for the debt markets?

Answer: Farm Loan waivers are negative for the debt markets as they increase the supply of state development loans (SDL) in the market and the higher borrowings increase overall interest rates. It also crowds out the private sector investments increasing the funding cost for the productive sectors of the economy.

It also leads to moral hazard and spoils the overall credit culture in the economy and is not a good policy measure to alleviate rural stress.

Q. What is your take on the interest rates going forward? Accordingly, what is your fund house' duration / investment strategy?

Answer: We believe that Interest rates have bottomed out and we are unlikely to see any further reduction in the policy rates by RBI as we expect Inflation to move higher incrementally. The August CPI Inflation has come in at 3.36% and the core Inflation has shot up from 4.1% to 4.6%, which is worrisome and also the fact that monsoon has not been good with spatial distribution being quite skewed. Globally commodity prices are rising, which does not augur well for Inflation. (Source: CEIC)

The central government fiscal environment is challenging with fiscal deficit already reaching 94% of the budgeted amount. State finances are also likely to deteriorate with the spate of farm loan waivers announced and all this along with an uncertain global environment, we believe that it is better to consider investments in low duration funds like Short Term Income funds and accordingly our approach would be to reduce risk both in terms of duration and credit.

Q. What would you suggest to a long term investor following an asset allocation strategy and thereby investing in debt?

Answer: Investor could consider short and medium term debt funds in the current environment to a long term investor from an asset allocation perspective.

The material contained herein has been obtained from publicly available information, internally developed data and other sources believed to be reliable, but BNP Paribas Asset Management India Private Limited (BNPPAMIPL) makes no representation that it is accurate or complete. BNPPAMIPL has no obligation to tell the recipient when opinions or information given herein change. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. This information is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. Except for the historical information contained herein, statements in this publication, which contain words or phrases such as 'will', 'would', etc., and similar expressions or variations of such expressions may constitute 'forward-looking statements'. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. BNPPAMIPL undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date thereof. The words like believe/belief are independent perception of the Fund Manager and do not construe as opinion or advise. This information is not intended to be an offer to sell or a solicitation for the purchase or sale of any financial product or instrument. The information should not be construed as an investment advice and investors are requested to consult their investment advisor and arrive at an informed investment decision before making any investments. The Trustee, Asset Management Company, Mutual Fund, their directors, officers or their employees shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages arising out of the information contained in this document.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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