The euphoria caused by excessive liquidity can be scary
The euphoria caused by excessive liquidity can be scary
Sandeep Bagla, CEO of Trust AMC

The Trust group is the largest debt syndicators in the non-banking sector in India.

It has the highest NFO collection of all time in the ‘Banking and PSU Debt Fund’ category at Rs 580 crore. “We are the only non-bank in the top five. We are the only non-bankers in the big boys’ club,” stated Sandeep Bagla, CEO of Trust AMC. “In the last three-four years, I have only seen ICICI, HDFC, AXIS, and SBI in that list.” The company is the largest underwriter/ syndicator and, for the last 10 years, it is among the top five in corporate bonds, as per reports.

Trust AMC is run by the Trust Group which was started by Utpal and Nipa Sheth. “While Utpal Sheth has a mentorship role in all the business, Nipa Sheth runs the day-to-day operations.” The group has been advising or managing Rs 25,000 to Rs 30,000 crore worth of assets across equity and debt. “The problem with Portfolio Management Services (PMS) is the ticket size for investment is very high. But if you want to take it to more people, then a mutual fund is an option.”

The group recently ventured into mutual funds, a natural extension to its existing financial services. “We have started with fixed income offerings,” stated Bagla.

The AUM of the Indian MF industry has grown from Rs 7.85 lakh crore as of April 30, 2011, to Rs 32.38 lakh crore as of April 30, 2021 -- more than a four-fold increase in a span of 10 years, according to AMFI. Commenting on the growth, Bagla stated, “The penetration of mutual funds among Indian investors has been lower compared to evolved markets like America, even the Asian peers. That means India can only grow.”

With more and more liquidity in the system during the COVID times, Bagla stressed all those monies will find their way to banks, corporates and mutual funds.

The market has done well during COVID-19 times -- be it equity or fixed income. But he asserted that the euphoria in the markets is counter intuitive. “Liquidity overshadows all rationality,” he explained.

The present approach towards liquidity by central bankers is a cause of concern. “Due to excess money printing, the cycles are becoming shorter,” he says. This is true for interest rates, equities, commodities -- it is scary.

Bagla cautioned it is difficult to differentiate the effect of liquidity and other effects. But sooner or later, the regulators will have to find a way to let go of the effects of liquidity.

This excess liquidity in the system has allowed assets like gold, cryptocurrency etc to grow. Even though gold prices are unpredictable, with more money printing, more and more people will start to lose faith in fiat money, explained Bagla.

Anand Nevatia, Fund Manager for the TRUSTMF
Anand Nevatia, Fund Manager for the TRUSTMF

Adding to it, Anand Nevatia, Fund Manager for the TRUSTMF Banking and PSU Debt Fund and TRUST MF Liquid Fund stated, “There is a lot of talk around cryptocurrency. But the fate of cryptocurrency is something we would learn over time.” Meanwhile, Bagla stated, “Cryptocurrency is more like a threat against the printing of currency. The more you print, people will look for other alternatives like cryptocurrency.”

Going back to the mutual fund industry which is still nascent, Bagla stated, the industry is just 20-25 years old and it is a far better industry now compared to what it was in the past.

It is easy to convince corporates and rich people to invest if they are ensured that their corpus can grow. But the difficult part is to go after the middle class and millennials. “The middle class is sitting on cash as it fails to have a risk appetite. Over time, more and more people will come to mutual funds and stay with them.” Bagla added, “It is getting rationalised and volumes are also growing.”

There will be significant growth among the middle class and millennials with technologically savvy people coming in. “I am bullish about the deep-pocketed technology companies coming in and if they are ready to invest more money then things will change. Technology is a great leveller.”

Adding to it, Nevatia explained that with the ease of transaction going up significantly, the growth is poised to take place.

The Trust AMC is expecting growth – just like like others in the mutual funds' arena. Bagla belies that this confirms that India’s growth story is intact.

The company invests only in AAA-rated companies, even though it means options are limited. “It reduces the universe where we can invest but it makes our portfolio more liquid and stable in terms of credit quality. It becomes the large-cap of the liquid fund,” declared Bagla.

When quizzed about the failures like DHFL, IL&FS that were also AAA-rated. Bagla says that the market never believed they were AAA. He added his company never had them in its portfolio because it felt their spread with maturity and rating was not in line. He explained that these companies evolved to hide facts and it is difficult to find the truth. But Bagla believes that the market speaks when there is something wrong. It is as if the market knows…

“We have tried to make the whole process as objective as possible”, even if it is an AAA-rated company, stated Bagla.

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