The pressure will be on Pranab Mukherjee as he rises to present the fourth budget of his life on Monday. I am writing this piece after reading the pre-budget annual Economic Survey.
The document often expresses goals and intentions that are clearly not palatable politically. I think it is safe to take it as a statement of what the government would have done had there been no politics.
As such, the references made to the mutual fund industry in the survey were short on insight. The chapter on financial markets says, “Assets under management of mutual funds declined sharply from Rs. 5,49,936 crore at the end of 2007 to Rs. 4,13,365 crore at the end of 2008. A perceptible shift was noticed from growth-oriented schemes to income/debt oriented schemes.”
The ‘perceptible shift’ that the survey sees in the figures doesn’t actually exist. The relative decline in equity AUM is a result of the fall in the market value of the assets and not of any shift in investments. As a matter of fact, throughout the financial crisis and its aftermath, actual redemptions were more in debt funds than in equity funds.
All the tedious narration of fund data in the survey reflects little more than the change in the market price of the underlying assets rather than any shift in the industry’s dynamics or investor behaviour. The survey’s lack of touch with reality is underscored by the curious references to UTI as if it was still distinct from the rest of the mutual funds. Its tabledivides the industry into three categories, public sector, private sector and UTI.
Beyond the usual exhortations, there is little vision of any larger role for mutual funds. That’s a disappointment in a document that is so forward-looking on many other aspects.
(The author is Kumar, Managing Director, Value Research)