Radhakrishnan Chonat, Director, AlphaStreet
Today, we have a very special guest in our Insight Series. I have with me Anil Ghelani from DSP Mutual Fund. Anil has been with DSP Group right from 2003, he is sort of a career veteran at DSP. He has about 20-plus years of experience and he served as the CEO and Chief Investment Officer at DSP Pension Fund Managers earlier. Right now, Anil manages or is the Head of Passive Investment Products at DSP Mutual Fund.
Anil, thanks again for joining and talking to us.
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
Hi. It’s great to be with you guys here at AlphaStreet. Thanks for having me here.
RadhakrishnanChonat, Director of AlphaStreet
Great.Anil, let’s sort of start with your personal journey before we get into the stock-specific or fund-specific questions. So, we know from your profile that you are a CFA holder, you are also a Chartered Accountant. Sort of tell us your life journey and how finance became something of interest to you?
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
Earlier in my career, while I was a young professional, I was very fascinated with the way in which logic and science and numbers work and interplay with each other. So, I was naturally drawn towards a career, which was relating to numbers, financing, accounting. So, I’m a Chartered Accountant first by background education and along with that profile, I got a lot of understanding about the company, company balance sheets, business environment in which companies are operating. So, I was into like auditing business like auditing practice rather. So, after I finished my CA, I was into auditing. It was a great experience. I was working with one of the Big 5 in those days, in today’s world what we call as Big 4 large auditing firms.
And sometime during my career, I decided to make a career shift. There was a specific event which happened in the global markets, many of you might be aware, there was Enron collapse and what happened at that point of time that the company who was once upon a time one of the largest listed entity in the US market it suddenly collapsed and they said that they were involved in some accounting fraud or accounting irregularities. And auditor of that particular company they had tosuddenly get fired, that person had to go to jail, and that overall business suffered significantly. And sitting here in India as a young professional in that field, I was thinking to myself that maybe this is a some type of area, which I will not be able to do very well in. So, I decided to change my course and at that point of time, asset management as a segment of the industry was very recently opened up for private sector.
In 1996-’97 was when first private sector mutual funds were initially set up. So, I thought that maybe it will be good to grow with a growing type of industry. So, I shifted into the asset management industry. I at that time joined a company which is today not in existence, IL&FS Mutual Fund. I was there for a short time and then I joined DSP Mutual Fund.And why I am describing this is that sometimes people want to understand how career shifts or career progression happens. So, I’m just highlighting this to especially discuss with younger professionals and very often you can get such opportunities for career pivot. So, from auditing, I joined asset management. Within asset management, I was — being in accounting and auditing background, I joined fund administration or fund accounting in the mutual fund division.
It’s not like suddenly I came in, I started managing funds or doing research analysis. Then gradually from that, some expertise is gained, some extra knowledge enhancement was achieved. I pursued my CFA program, got that additional knowledge enhancement and qualification, which gradually led me to some other role. So, sometimes it’s a way in which you need to work towards some of the goals and try to take different paths, sometimes don’t be hesitant to take a career pivot. So, that is broadly how my professional journey has been.
RadhakrishnanChonat, Director, AlphaStreet
That’s very insightful. And I’m sure it’s going to be very helpful for all our audience, especially youngsters looking at jumping into the fund managing. So, Anil is a great example. He has grown. He has seen all the back-office, front-office, you call it, and right now he is managing funds.
So, you have been part of the mutual fund industry right from the time as you said privatization happened, other than UTI, we had all these foreign funds as well as Indian banks setting up mutual funds. Sort of some insights you have on what sort of investors did you had earlier and what kind of change has happened in the investing landscape in general, if you can throw some light on that, that will be excellent.
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
See, I think to a great extent you mentioned correctly that of course there were some so-called I mean, asset management industry was in India since like 1960s, like Unit Trust of India as a separate entity was there and then gradually it started up for private sector. So, in the early days, like the mutual fund industry had a lot of knowledge enhancement, which was going on. People were getting to know about mutual funds. So, whenever initial meetings used to be done by sales people, it would be starting with what is a mutual fund? It’s a pooled vehicle, etcetera, etcetera.
At that point of time, structurally, the largest quantum of funds as well as the number of investors used to be corporate investors or asset treasuries, large companies. If I fast forward to today, like now today, you don’t really need to speak about what is a mutual fund. You can clearly discuss about what strategy and how it aligns with your overall portfolio allocation.Like let’s say in early 2000s, people were not even yet familiar with these kind of concepts. So, over the period of about two decades or beyond, this kind constant knowledge enhancements by everybody, by platforms like AlphaStreet, by various asset managers or fund management companies like ours, various distribution partners, financial advisers as well as by industry bodies and regulators, the awareness has been significantly enhanced.
But I always keep telling to my colleagues in the company or even outside in the industry, today, we’re still very nascent, yet I think. Fine, okay, we can say that okay, we are about 37 lakh crore to 38 lakh crore, 40 lakh croreindustry. But if you look at it in terms of the penetration.Just hitting some data points. We have about 2.5 crore unique investors in mutual funds, that is very small. So like I keep telling like how in Amitabh Bacchan’s famous show, [Foreign Language] okay, reached till one this stage. [Foreign Language] the next milestone is like today.
Last year’s, if you look at that number of individuals who have filed the income tax return, something like 6.5 crores to 7 crores, something like that, means approximately 7 crore individuals have filed their income tax return, means they are having a salary of minimum let’s say some amount and they are disclosing that salary and filing income tax return. So, can we not approach to each of those set of people, hey, boss, start investing something for your long-term future for your some financial goals, maybe even INR5,000, INR10,000, INR1,000, gradual SIP you start it, but start investing. That is our first next milestone.
And last one point, sorry I’m digressing into numbers because this is a very important area to discuss. The second number is let’s — these are statistics available pan-India in terms of penetration of different let’s say two-wheelers, let’s say air conditioners, let’s say cars, so like that lot of details available. So, I just picked up on one particular data, let’s say penetration of two-wheelers. So, there is about 11% penetration of two-wheelers or whatever you call, scooters, motorcycles, nowadays electronic vehicles. And as per the regulations in India, each vehicle on the street has to have compulsory general insurance, means, insurance has to be there.
It means those people are compulsorily so-called financially involved.They’re logging in every year, selecting some insurance product and buying it for their scooter or bike. And they’re having some revenue, right, they’re feeling controlled, they’re maintaining their bike. So, can we not approach them, okay, you start, at least with INR500 monthly SIP, equivalent to, let’s say one time your fuel tank being filled in your bike, but that will help you in your long-term financial planning and creating a wealth for yourself or for your family.
So right now, I feel that we’re still at a very early stage.Though AUM is rising gradually, we need to increase the number of people also participating and maybe to start with some of these investors can get initially on-boarded with simple, low-cost products like ETFs and index funds or what you mentioned or I’m doing currently in terms of managing passive investments where you don’t need to really highlight that this is a particular thematic fund or this fund manager went overweight on some sector and hence it is underperforming, don’t worry about that. You’re broadly tracking the Indian economy and seeing where the broad capital markets are holding. Your fund has moved and given you return and risk in similar character — in similar fashion. So, that is how I feel is the next maybe one or two decades of this industry, huge potential for penetration to be increased, large number of Indian investors to get on-board.
[Video Presentation]
RadhakrishnanChonat, Director, AlphaStreet
That’s an interesting point that you raised Anil, I know 20 years back when we used to say mutual fund [Foreign Language] What is that? Stocks? Oh, no, no, that’s like no [Foreign Language], it’s gambling, we don’t — today, thanks to advertisements from AMFI and all, you know, mutual funds [Foreign Language]. But like you said when it comes to indexing, passive investing, [Foreign Speech], right? So I think we are at very, very early stages of indexing trend in India.
And I’m glad that you’re focusing on that at DSP with lot of funds. Indexing is definitely something that’s not expensive from a cost point of view. But also, you don’t have to worry about how you’re performing your stocks. You don’t have to look at the portfolio every day. JohnBogle, probably, did it best back in the 60s or 70s with Vanguard, do you see a Vanguard moment in India coming soon, where most of the funds look at this seriously, and look at coming out with more indexes outside of the top 100 companies and stuff?
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
Structurally I would feel, we’re already seeing quite a large number of funds which are being introduced, we don’t have like just focus only on top 100 like Nifty 50 or Nifty Next 50 like very recently, we’re discussed, we came up with the fund to focus on mid caps, let’s say about 10 years back even I was very strong proponent that in mid-cap small-cap don’t do passive, because you need a little bit pulse on ground connect company to company management meeting etc.
But gradually as the things are changing on ground as the way in which more and more sophisticated methods of tracking financial reporting and data points and absorbing the data points and churning it and using it for your analysis and your benefits are increasing, I feel that we will be able to reach this kind of a passive investing rule based, bond based, factor based investing, so, let’s say one way is the purest form of doing passive investing is it buy the whole market, when you say you want to buy the whole market, suppose you buy let’s say the top 100 companies as you said, you are covered with broadly about like, you know, 75% to 80% of the entire market and you are sorted, basically okay, as a basic allocation to equities.
So what we suggest to investors or based on their risk and return profile, that maybe some allocation of your equity can be to this core equity, which will be in the top 100 companies, buy one or two index fund or ETFs and pack your debt allocation, then for the balance like sort of satellite allocation, you take some exports, maybe sometime can be tactical to some particular sector ETF or it can be to some actively managed very small cap kind of fund, going down even below mid caps, see, mid caps today in our Indian context still have like a size of about 10,000 12,000 crore like this fund which I mentioned the DSP family, one vehicle, one ETF we launched.
In that we have close to about INR20,000 crores to INR25,000 crores as a average market cap size which is quite large, I mean it’s not sort of like very small cap, but in small caps, which are ranked number 251 and beyond, there I still feel we’re still early to go fully passive and one can continue to have active management over there.
So, I feel that in some way, the so called alignment towards passive funds like index funds ETFs have started early today as we speak we’re close to what INR4,00,000crores of ETFs and about INR50,000 crores of index funds, so INR4,50,000 crores of passively managed funds out of total industry size of approximately INR38 lakh crores and INR39 lakh crores, INR40 lakh crores approximately. So, around 11% of the total mutual fund industry in India is now passively managed, which is broadly in line today with global trends globally also it is about 10%.
Now, what I believe that by 2025 that means another three to four years from now — three years from now approximately, and not just my belief, but what we read in many global consultant reports is that the entire asset management industry like how I said in India we have INR40,00,000 crore, like if you capture what is there in Japan, in U.K., in U.S., that entire pool of money, which is like professionally managed assets is approximately $102 trillion roughly, thereabouts, latest data, I don’t have like previous year and number, of that about 10% is passive funds. And by 2025, it is expected to grow to about $150 trillion through large growth and ETF and index funds are the passive block will become about 25% to 30% of it. So from the current scale, it will probably be one of the biggest driver for enhancing the participation and penetration of professionally managed money like mutual funds [indecipherable]. So I feel it’s a very interesting time right now.
And like what you’re saying that moment has already come we are in that already. And not just India, but world over, we will see this trend where about there are, we are currently about thereaboutsof 10% and it will possibly grow about let’s say 20% to — 25% to 30%, depending on whichever consultant’s report you believe, but I feel definitely about 20% to 25% in India, it’s very easily achievable.
RadhakrishnanChonat, Director, AlphaStreet
I actually, you know, I’m myself surprised, I didn’t realize that this 11% of penetration for passive in India. So that’s a standard even I’m surprised because you know, back of your mind, you still think passive is too early in India, not many. So and you mentioned briefly about launching a mid cap index ETF, can you briefly touch upon what are the highlights of it and what the investors should be aware of those who are already into passive, but sticking to Nifty 50, Nifty Next 50, what does mid cap offer?
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
Sure, sure. Yeah, Structurally, I just highlight one thing that you know, when you look at your overall asset allocation in some component can be very useful to having mid cap stocks as well. Structurally, if you see from a long term perspective, if I look at let’s say Nifty 50 returns, and I look at let’s say Nifty Midcap 150, which is a broad universe of 150 stocks, today, mid caps are defined as ranked number 101 to 251. So a block of about 150 stocks.
So historically, I’m seeing from about let’s say, 2005, where the data is available means about 15-odd years, the Nifty 50 TRI, the total return index would have given about a 15.5% CAGR returns and the mid cap 150 that is a block of mid cap securities would have given about 17.5%, approximately 2% higher return, but with high risk return potential, risk is also relatively higher. So when we have seen some drawdowns, like during 2008 global financial crisis, you know, Nifty 50 fell by about 59% and Nifty Midcap 150 it fell by approximately 72%. Likewise, in the like pandemic crisis, at the start of the crisis, in February of 2020, February, March of 2020, Nifty 50 fell about from the peak till the bottom it was down about 38%. And Nifty Midcap 150, the whole universal mid cap stocks was down about 43%. So it’s a large drawdown also which one has to be ready to accept with the potential of hitting the upside also.
So what we did is that when as I was saying, like, in the passively manage, we wanted to apply certain features before we select entire universe of mid cap stocks because that could be a little bit difficult, so we said okay, when you’re looking at mid caps, the first and foremost thing you want to see is quality. It has to be good quality companies, the rest of it like momentum, or growth, value that can follow. These are the lightest little bit like you know, let’s say if I was to invite you to sort of be, things are reopening next time you are this side of town.Let’s have lunch together,come to my office, I’m at Nariman Point, [Foreign Language] Nariman Point [Foreign Speech] and used to streetfood, it was fun, taking for street food.
So when I would take him for streetfood, I have to be very careful of the quality of the food first, you should not fall sick [Foreign Speech]. So I will focus on my attention there, okay, there is a line of street food vendors, out of that, three or four vendors I have always seen that they carry those big Bisleri bottles are coming, there’s some free flowing water. So we go there, first, quality is taken care of then whether you want Chinese one of the desperate — sorry, one of the store will have Chinese, one will have [indecipherable] whatever is your choice, we’ll pick it up.
But first and foremost quality I’m focused on likewise, my new as I said streetfood, suppose you would have comes simply I want to have some good meal, I will take you to either Oberoi or Trident or Taj then so called connector [Phonetic] with I’ll ask you, then I don’t have to worry about the quality, [Foreign Speech] I’ll go to that restaurant at a row. But in mid cap first focus on quality, then taste, cuisine Indian, Chinese whatever that is separate. So likewise in mid caps is quality is the base.
So we, when we launched this ETF with focus on mid cap, we did it with the quality focus. So the index that is being used is Nifty Mid Cap 150 quality 50. So from those 150 mid cap stocks, which is a broader universe, only the good quality stocks are picked up. So like I was saying the number like probably historical period Nifty 50 has about say 15% return, Nifty Mid Cap 150 has about 17% return right CAGR so about 2% higher, and Midcap Quality 50 index Nifty Midcap 150 Quality 50 index that is given in the same [indecipherable] CAGR of about 21%.
So, even better upside, but yes, no doubt again, as I said being mid cap, there will be certain periods where it has even underperformed the broader universe of mid caps like what we are seeing very recently in the period of 2020 after the upside to started that time people are not focused on even quality, everything was rising, it was a broad based rally. So in fact, more than the quality good quality stocks, everything was rising. So in that part of that mid cap quality index suffered and it was an underperformer.
So there will be certain such periods where it will underperform, but over longer periods of time, what we have seen in the history, it has done much better and you feel much more comfortable in owning quality stocks in the mid cap space. So, that is how, you know we have tried to position our this mid cap offering in the passive space. That okay, you know, come feel free, I mean, you know, I will take you for lunch, we will go to the roadside food, but I will take you only to those five, seven, roadside stalls, which I know at least with some good quality ingredients, then taste in all is secondary, you don’t worry about that. By and large, we feel get that we’ll be serving you in a good way only.
[Video Presentation]
RadhakrishnanChonat, Director, AlphaStreet
That’s a great analogy and anecdote to use. Anil Bhai I’m going to hold you to that promise. Next time, I visit you, definitely, you have to take me to a nice street food joint. So no using the same, it cannot be just fill it forget and shut it [Foreign Speech], right, great.Sticking to the indexing here. Now, as an investor, right, I am presented with multiple funds, multiple choices, Nifty 50. What are some of the criterias that I need to do? So expense ratio is something that I think most investors are aware of. But often what doesn’t get mentioned is a tracking error, right? Is there anything else that, investors should filter before deciding on which fund to pick up? Which index to one invest in?
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
Yes, it’s a good point. I think to a great extent, yes, expense ratio is important. But by and large, I will say by and large all the funds, which are in that category are all low cost funds, everybody’s expenses, plus minus few basis points. Okay, so let’s say unless you are advising a large corporate or you are running a large treasury and you want to elevate large chunks of money for your tactical allocation, then you can say, okay, even if 10 basis point, 5 basis point cost differential is very relevant and important for me.
But if you are, let’s say allocating for long term, overall asset allocation, then the [indecipherable] on cost will not be too much of a difference cost is important. I am not saying that, but not to a very great extent. So you have to go with the assumption that by and large, all asset managers, they are also tracking the cost of the competitors, and it’s broadly in law. So, but yes, as an investor, or as an analyst, or advisor suggesting investment, but you should definitely look at the expenditure that is very crucial. Other part you mentioned, like for example, let’s say tracking error.
Now, in my view tracking error is important no doubt. For me as a manager and my team every day, it’s a daily number, we track very closely, most of our tracking error, comparative tracking error everything. But for the entire investor or like HNIinvestor, it’s a statistical method. It’s like a scientist number. It’s basically a, went to the street food joint and now from there basically, what is the source of the potato that you’ve got and whether the potato was produced using some what type of soil it’s like that? What I mean by that is, what is the formula of tracking error? Tracking error is simply put away, it’s the standard deviation of the daily dispersion of your return versus the benchmark return.
Now, while speaking, I can explain to you and spoke to you. If you have to write the formula, [Foreign Speech] we do it, but it’s like sigma of like, x by x bar divided by like, I mean, sorry, I don’t mean it literally, but it’s a difficult formula to calculate and it needs minimum, as a best practice at least three years data for it to — for the data set and the analysis to be relevant. So, you are looking initially 3 year data and calculating daily dispersion and then trying to come to some conclusion, oh, this fund has a lower tracking error, this fund has higher tracking error, fine, okay. It’s important, you should do it.
But otherwise, by and large, you should go ahead with the overall comfort of the house, overall comfort of how they’re, that particular fund has been operating in the past. Look at certain other aspects like soft aspects like see when you go to buy or sell that fund, whether what kind of comfort you get, whether there is an online digital way to enter or exit. Just example, I’m saying it’s like to be very honest, it’s like saying, sir or madam, where you have a salary account? You say, oh, well, I have in Kotak Mahindra, some will say, I have in ICICI Bank, some will say ABC. Oh, why you have in Kotak sir? Why not in Axis? Well, because no reason. In my office building, there is ATM. [Foreign Language] Because, all other things are broadly similar.
I will get ATM card to withdraw money. I will get a checkbook facility. I’ll get a credit card, whatever, what else. So, like that, somebody can say, no, I like to invest only in DSP funds,why, because I think there is a dedicated investment team. Anil, you are there and you have a team who is dedicated only for ETF, I feel comfortable. Okay, thank you, very much. Somebody will say, no, I prefer XYZ,how is ETF or index fund. Why? Because their office is right opposite my grandfather’s house in Kanpur. Sorry, I do not have my office over there. Okay, [Foreign Language].What I mean is that some of these softer aspects also are very important more than this kind of statistical measures, which are also relevant.
TER,yes, total expense ratio, you should see and later on if you have time, I will also try to cover another very interesting point over here that in normal mutual funds, you look at TER. In the ETFs, we should look at TCO. So, TER as a concept everybody is familiar with, the total expense ratio. TCO is something different, which is the total cost of ownership. So, total cost of ownership what it does is, it calculates the TER plus all the other explicit and implicit costs attached, especially for ETFs, because see when you are buying ETF, you have to buy it on the exchange. There will be broker involved. Some small brokerage will be paid. There will be GST on the brokerage. You will hold the ETF in a DMAT account, small DMAT cost will be put, annual cost. It will be all small, small cost.
But today, when an TER of ETF let’s say 50:50 ETF, like there is a Nifty 50 ETF we run, we charge TER of 7 basis points. So in that if you add up all those small, small, the TCO might come to, let’s say, 12 to 15 basis points, but it’s important, each of those 1, 2 basis points add up. So, as investor and as a advisor suggesting to your clients, you should try to start enlightening and focusing on TCO, total cost of ownership. So, world over, whenever you’re looking at ETFs, typically, people look at TCO as a concept rather than TER.
In normal mutual funds or even index funds, yes, TER is perfect because that is what number you see and that is actual cost year-on-year, which you are paying. But, over year, TCO is a useful concept you have to look at. So, look at TCO, look at your tracking error, look at various other parameters like softer aspects of the fund, how is the comfort that you derive, the pedigree about the fund house and based on that just go ahead with the decision because broadly your strategy is fixed that okay, I want to go passive. I want to buy broader market, keep my core allocation more, I want to do some factor investing or some midcap investing with low cost. Yes, go for it.
Radhakrishnan Chonat, Director, AlphaStreet
And stick to the asset allocation?
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
And stick to the asset allocation. That’sthe more crucial part. Yeah, yeah, yeah.
Radhakrishnan Chonat, Director, AlphaStreet
Great, great, Anil, great example and TCO, I am sure not many of us would have heard about TCO and broader in the ETF space. So, great insight. Thanks, Anil.
Let’s shift gears a little bit. Let’s talk about the elephant in the room here, sort of, the geopolitics or what’s happening around. A lot of investors in our community, we constantly get messages because they see their portfolio going down. What should I do? Should I sell? Should I stick to it? So, most of us are aware of the seen issues, but what are the unseen benefits or unseen issues that can come out from your perspective, sort of your mental models on the geographic upheaval and what from an investors’ point of view should I or anyone listening to this should be aware of?
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
I think whenever there is any this kind of a geopolitical tension, which leads to some kind of a physical on ground conflicts, it’s very challenging, very upsetting. To be very honest, personally, I never expected such kind of outcome of whatever the geopolitical tension is building up. It is very unfortunate and we all hope and pray it will resolve very fast. But from the point of view of capital markets, one needs to very alert and very careful. See, there’ll be multiple areas where this will have an impact. Some of it will be direct impact to us. Some will be indirect impact, which we’ll see later on.
So, direct impact will be let’s say for example, what we are seeing in terms of the effect on commodities, the way in which we are seeing crude oil rising sharply, crossing $100 also was a very big deal . We have not expected it like let’s say six months back, this kind of numbers, or crossing now let’s say even 10% beyond that $110 is like, is very alarming and all other commodities. As those commodities raise, the immediate impact will be on the raw material or the input cost of the various businesses, various manufacturing setup and in that time, in fact, the impact will come on the inflation. So, as we start seeing this kind of multiple layer of impact, one will have to be very cautious in terms of how the policymakers will react, what will the impact be on the fiscal policy and monetary policy?
Now today, we are not in a position where Central Banks and Central Governments are sitting with their powder dry to take care of many things. Of course, they are sitting with a very strong vision and very strong foresight and managing everything in a very prudent manner. Only thing is that they have been managing another crisis since the past about 20 to 24 months, which is the pandemic crisis world over. All Central Banks and Central Governments from somewhere during March of 2020 have been doing coordinated efforts, both Central Government and Central Banks. Central Governmentfiscal stimulus,Central Banks monitory stimulus and that has been going on.
And in fact very recently now, many of them have started thinking of ways of gradually reducing them. So, now suddenly if there is another demand that one needs to enhance the stimulus is going to be little bit delicate situation how and what all measures will be used, so which is very interesting one needs to watch out for and try to keep a very close judgment on that because one area will lead to dis-balance in the other.
Suppose if there is a way in which some kind of fiscal stimulus is going to continue, then there will be some kind of dis-balance, what will happen when the fiscal deficit goes up. There will behigher borrowings. That will impact your monetary policy, the Central Banker’s area. So, it’s very sensitive and one needs to watch it very carefully.
I will try to summarize and close out this point with another very interesting observation or number crunch analysis that we are doing. Very unfortunate situation, but this particular country, which is under the spotlight right now is Russia and Ukraine. Now if you go back, like I am remembering, like what we are discussing early days of my career, you know in 2000, early 2000s, there was a terminology, which was coined as BRIC. Very often, nowadays, people might have almost started forgetting it, but it was Brazil, Russia, India and China. The so-called 4 countries, which at that point of time were perceived that there was a very popular person, Jim O’Neil [Technical Difficulty] and this will be the fastest growing global economies. And it was very true.
From the share of about 10% of the global GDP, these 4 countries by FY 2010 means, about like that 10 to 15 years later on were close to about 30% like of the share of global GDP. So, they were very fast growing countries. And now what happened gradually, lot of funds since you’re talking about passive funds in ETFs, I would like to just highlight this aspect because it’s very much important to track how it will impact global flows. So, there were many BRIC funds, which got launched, BRIC ETFs, BRIC Index Funds, which are large exposure to these 4 countries.
On a hindsight, little bit fortunate that last decade, they lost little bit charm, that instead of BRIC let’s expand a little bit and make it emerging market product, not just BRIC countries, larger economies. So, many of the BRIC ETFs got either closed or they converted into emerging market ETFs, which has many more countries. As of now, there are only two or three BRIC ETFs left, small ETFs, may be 250, 300 billion, which is good. But now this emerging market ETFs, there is close to about last estimate, last week we are seeing is close to about $950 billion, $900 billion to $950 billion worth of ETFs running on emerging markets.
Now, emerging markets include exposure to India, Russia, various countries in the emerging market space. Now $950 billion like as I was saying, if you look at it in context from Indian markets, almost 2 times the entire mutual fund industry we spoke about it, right? Indian mutual fund industry about 40 lakh core and this is like almost 2 times of that by about, I mean in terms of dollar/billion. So, if now as the trend is changing that all of these indices will soon eliminate Russia exposure from their infusion because Russia market is now no longer accessible for foreign investors to buy new shares or sell shares technically, trading into Russian country.
So, the weightage of Russia, which is close to about 2.5% to 3%, we suddenly have to get taken out. So, what will happen is that this entire 3% of the money, which is invested into this securities will get realigned other markets, which includes India, China, Taiwan, wherever. So, India we see expected approximately $1.8 billion to $2 billion worth of fresh flows, because all these emerging market ETFS will have to do rebalancing their portfolios and increase the weight of India and reduce the weight of the other, I mean, proportionately, I mean, change that.
I mean, no doubt, today’s world, I mean, in Indian context, $2 billion is not a very big flow, from foreign it’s quite okay, welcoming. But just I’m trying to highlight these are some of the ways in which there will be impact on how the foreign investors, especially passive funds and ETFS will be taking their investment decisions based on this current situation that is emerging.
Radhakrishnan Chonat, Director, AlphaStreet
That’s a great insight that, you know, sure, none of us would have thought about the BRIC and the fallout of the emerging market. So, thanks for that. And this is a developing situation, so…
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
This is a developing, very sensitive and yeah, sometimes very difficult to go into second layer of depth of which stocks or which sectors or how it will impact. But I think I like one of the things you said earlier that once you have as an investor consulted your advisor and planned your life goals, aligned your financial goals to them and decided some asset allocation, then don’t worry about such issues and events.
Of course, you have to be alert and review, but otherwise broadly by and large stick to your asset allocation. That should be the important thing as a takeaway. I’m not saying just sit and do nothing. Keep alert, keep a watch on it. If need be, do a little bit tweak, if it is misaligned with your goal, but otherwise try to by and large stick to asset allocation.
Radhakrishnan Chonat, Director, AlphaStreet
That’s a great point and if you are in your 20s and 30s and your life goals are still far away, stick to your guns. Stick to your guns at this point literally, quite literally. Let’s try to understand, you know, you a little bit more. So, Anil pre-COVID and Anil post-COVID, what are some of the life lessons that you learned, if you can just briefly touch upon?
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
Life lessons? Well, of course, one of the main life lesson everybody learned was that your health is a true wealth. One needs to be very, very careful about health. So, for me personally, I have done one slight tweak in my daily life routine. Many of friends who might be knowing me or have seen me or met me before, I have lost a little bit weight. I have always been on the lean side, but not much to lose, people will be laughing at me, maybe, but some of the so-called bad weight, like I had a habit of having 4, 5 cups of tea in the office. It’s natural thing. I mean, so, no other like things like zero alcohol, zero tobacco, but tea is one of my weak point, and when you are in the office and we have a nice cafeteria or whenever even if I — because people knowing that they know, okay, if Anil is coming to my office, I need to make sure there is good tea available.
But that increases your sugar intake, various other things. So, in a way, during the lockdown, well offices and all were shut, external meetings were shut, by default it came in control. So, now I maintained that. So now that is one good thing. Connecting to the original point what I said is that health is a true wealth, one needs to be very careful of that.
The second and the important part, which is that is about, how you come into the world of investing and financing and personal finance is about how you need to plan for such kind of instances. No, I mean it’s a cliché dialogue if I say, yeah, you should keep some safe money everything. In this last two years, everybody and anybody has spoken about it and read it newspapers. So, fine, I appreciate that. I just wantto highlight one thing which I found a little bit from my experience is that especially for many of us, friends who are in salaried roles, like for me also like, I have been salaried employee since the beginning of my career. So, I always used to feel that my company is there and taking good care in terms of very, very prudent and very good insurance policy in terms of health and life cover, which is great. No doubt.
So, very often one tends to ignore buying separate cover like a term cover or a medical insurance cover. I am not saying everybody should start running and immediately going and buying it, but I urge you to do one review of it first with your trusted advisor or your family friend or whatever and review some of that. It is very important, because no matter how much ever well-planned you are with your employers, medical policy or life policy, some bit of additional personal policy is very important, especially if you are going to be in a like place where you change your job or if you at some stage moveinto an entrepreneurial role.
I strongly feel I had personally underestimated the need and the power of this though I mean, little bit embarrassing while speaking I am realizing as a financial professional, but I should have been also aware and dong this much more in advance. But doesn’t matter, that is one important learning I would like to share with everybody.
Radhakrishnan Chonat, Director, AlphaStreet
So, we all ask this question at the end of our interview. Recommend three books for our listeners from your personal collection or the ones that is top of your mind?
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
Sure. So,in fact, good one. I will highlight one particular book, which is top of mind. A very new book. In fact, I just also recently called for it. It is called Gorillas Can Dance. So, Gorillas Can Dance is about how larger corporations especially in the big tech space like recently all these fang and fang names and different, different terminologies, which had got coined. They can be defined as so called gorillas. There is this author called Shameen Prashantham. I do not know pronunciation, Prashantham. He has written this book and it is about the interplay between this kind of large so-called gorillas and the various startups.
Today, if you think of Microsoft as a large startup and some of the various, I’m sorry, the large gorilla and some of the smaller startups who are may be using some or they are part of Microsoft and then doing, trying to do something very disruptive, very different. At one point of time, all of these gorillas were also small startups, but now they have to be careful of this also. So, it’s a good book in terms of the interplay between these two and how the gorillas also will have be nimble, agile. It’s a very recent book, so, I just read about it and planning to read it. So, I urge you, I mean, your listeners to try and get a hand on it.
One more is, so this is not about anything about specific asset management or finance or whatever. I will come to that also in a minute, but this and another book called Small Actions. Small Actions is a book by an author Eric Sim. Eric Sim is also very known person to me and he has one of the largest following on LinkedIn, like he has got some 3 million followers on LinkedIn,amazing, I mean, I cannot even think of that kind of a following. And he has written this book from his practical experiences. Like how he was earlier a street food vendor and from there, he was MD in one of the — one or two of the large global investment banks and then now he is doing his own entrepreneurial journey, an author and trainer and all that.
So, from his journey and learnings of small actions like how some small actions can lead to certain big career changes. Very interesting book. I have read it and in fact I urge you, I mean everybody to try and again, recently, it has come out and soon it is going to be launched in paperback edition in India also. Right now, it is available online. Another very interesting book because it is a third one, this is about capital markets and learning. It’s called Trend Following. Slightly old book. Many of you might have already read it.
But it is very good book. Michael Covel is the author. Trend Following is a very nice book and where in certain way,it’s a way how in friends in developing markets like India, one of the main factor, which always works well is momentum or in that sense like trend follower. If you are — you can either be a trend follower or a believer in revision to mean. So, this book highlights how this kind of trend following investment strategies can be beneficial which can enable you or of course not enable but it can guide you one of the alternative to make money in Bear market, Bull market, and Black Swan market.
People say, in bear market, I can make money, bull market also, yeah, I can make money. But sudden Black Swan type event and all, not very easy. But some of these elements which he has outlined is very useful. So, I urge you try and read it. So, this is the third — three books.
I will take thirty seconds more. Very interesting one book, not about this finance or learning and all. Sometimes, I also personally like to read fiction books, story books [Foreign Language]. So, there is this book I read recently. It is called Heads You Win. It is by this very famous author, Jeffrey Archer. [Foreign Language] popular author. [Foreign Language] Heads You Win was I think a little bit old but I pulled out from somewhere and read it. It was published in 2018, almost 4 or 5 years back and it rewinds back 50 years ago from 1968 and it talks about in that period there was Leningrad, which is a city in Russia. Howthe hero of the story or like whatever, one of the character was in Leningrad in Russia and how the interplay between Russia and some other countries and how they show about their story and later on, he grows up into like and very interesting twist and turns from Russia to US and UK and very interesting way, in which the entire time and history of Russia in ‘60s and in the ‘90s, then like how the after the Soviet Union changed its structure. Of course, nothing directly connected to the current escalation and the situation, but something unique, it brings to light, which is technically fictional, because author has taken liberty to write as a story book. But some of the things is actual. [Foreign Language] This was the port. This was this like broadly. It was very interesting, I found it useful, I mean, it’s fun reading. If somebody is fond of reading, you can try it. Heads You Win.
Radhakrishnan Chonat, Director, AlphaStreet
Heads You Win from Jeffrey Archer. Great set of recommendations. We asked for three, you gave us four. Thanks, Anil bhai. We have a request from some of my followers on twitter. This is my last question. So, lot of our audience, subscribers are youngsters pursuing their finance, CFA, or — they want to know what’s a typical day of a fund manager? How big is your team? What do you do on a daily basis? These are for aspirants and I believe you are pretty active in CFA India Society also. So, anything for youngsters will be greatly appreciated.
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
Sure, sure. See, you know, you are right, absolutely. So, I am a volunteer in CFA Society India since the past more than 12, 15 years. And it is very interesting, you try to engage with lot of people and create a platform for networking, engaging, knowledge enhancement and career progression.
In terms of how my day or day of like a portfolio manager or fund manager would be like, structurally, you need to be very alert and you need to be very aware of how your surrounding is changing. So, like as I mentioned, you need to be constantly things that okay, what if something x is happening in some country or in some jurisdiction or in some segment, how it can directly or indirectly impact your portfolio or your companies or how it can impact people’s reaction to it or how it can impact some particular policy making decision.
So, you need to be constantly thinking and trying to connect dots, somethings just sitting in the blank. For some people, it can be very interesting. For some people, it may sound very good, but when you actually sit on it, it might not be good. So, I have met with many young professionals who feel that this is very aspirational things, I want to be a fund manager. I want to be research analyst and some people say, okay, now I got this opportunity and like you know when I sit on my desk, like my team, I just this is my dealing room, just across the class cabin, and so there are –there is one Reuters terminal, one Bloomberg terminal, and we are tracking markets and we are tracking portfolios, not in my team, but just example I am saying that particular person whom I am referring to. So, she said, sir, I am sorry, but I am just not able to — when I am sitting in front of the screen, during the day, [Foreign Language].
Sometimes, one needs to be very careful in deciding a career path. Do not go by what your hearing of some other people but be very careful. Make your own decision. Make sure you try to fine tune that 10 years later what your role would be like and what the world will be like. So, I always tell people that look at let’s say the future 2030, then try to see that what type of role will be there and what you feel like doing in there. Only then, you go for that career. Otherwise, don’t.
So, typical day is like very sometimes very relaxed, sometimes very hectic. So, like for example,today, my day was very hectic because like just after the market shut, we had this session. Just during the day, lot of volatility with some news flow was coming. At some point of time, you need to be little bit on the edge of your seat. Sometimes, you will end up having a relaxed day. So, you are having lunch with your team. Today, I mean, I do not know whether this is live or later on, but on 4th of March is like what we call as World Appreciation Day.
So, from morning, many people were just dropping a line or coming to wish in person that you know today is Appreciation Day and nice to be great working with you or like certainly in the morning, the day started with a very light and fun day. Somebody sent some chocolates, some body sent sandwiches, my team members some small note. And then, by afternoon, suddenly we are struggling and like you know hardly I got time to grab a quick lunch and then back at my desk and like. So, it’s a very dynamic day.
But as I said in the beginning, as long as you are passionate about that, you feel that, okay, by doing this, it’s not I am doing this job for my personal goal or my personal satisfaction. Of course, it is there. But, if you are aligned with this by doing my job, when I hit my desk in the morning and leave in the night, even if I have a rough day, I want to come back fast next day because what I am doing is going to make a difference to a large set of like 30 lakh investors who are investing with my fund or with my fund house or whatever I am just saying and it is my action is if some small way helping that individual or that corporate entity to meets its own investment objective or its asset allocation and move one step closer to their life goal or their financial objective of that company. If that drives me pleasure, then it’s the job for you. Then, you will not feel upset. You will not feel bad even if you have had a rough day at work and you have reached home at middle of the night. At 7 in the morning, you will be up and rushing to the office before 9 and you will be at your desk live and active.
So, that’s key I would like to highlight especially for professionals who are going to choose their way. And the last point you said about my team, passive investing, structurally we are amongst the few people whoever dedicated investment team, which is in line with global best practices like at that point of time, we were part of a joint venture with one of the world’s largest asset manager. So, they had a very clear cut segregated investment team separate from the investment team, which manages active funds. So, we also treat it like that. Team is very small, only 3member team.
In fact, I am hiring right now. So, my first vote of a call, since you mentioned about the CFA, we have a CFA job career portal, so I posted my requirement over there. I am interviewing people right now. So, little bit but small 1 person, 2 person, we are hiring. Like team is very lean. Very small team and you know day is like very fun, very interesting day only if you, as I said, are aligned with what you are doing. Otherwise, day can be very rough, very hectic, very boring, very tiring,so it’s stressful job. You do not know fund manager job. [Foreign Language] If you are aligned with what you are doing and you are enjoying it, everything is fine. You are enjoying.
Radhakrishnan Chonat, Director, AlphaStreet
Find your purpose in life and passion is never a problem.
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
Exactly.
Radhakrishnan Chonat, Director, AlphaStreet
I appreciate you, since it’s World Appreciation Day for taking the time out of your busy schedule and catching up with us. It’s was a great session with you and I look forward to that vadapav when I am meeting in person.
Anil Ghelani, Head of Passive Investments & Products, DSP Mutual Fund
I look forward. Thank you, thank you, very much.
Radhakrishnan Chonat, Director, AlphaStreet
Thank you, Anil bhai.
Anil Ghelani, Head of Passive Investments & Products,DSP Mutual Fund
Okay, thank you, bye. Good day.