Rajiv Deep Bajaj, VC & MD, Bajaj Capital, spoke to Moneylife’s Sanket Dhanorkar on the plans that his company has to increase its client base
Sanket Dhanorkar (ML): How is the distribution business working out for Bajaj Capital? What are your growth expectations in terms of revenues? Rajiv Deep Bajaj (RB): Bajaj Capital has always had its core strength in distribution. Our mission is to create one crore crorepatis across the length and breadth of India and thus our branch network will be spread accordingly. We are already catering to around eight lakh investors in the country and intend to increase our client base year-on-year, both through combination of new clients and retention of existing ones. We also have plans to spread our services to Tier-2 and Tier-3 cities and districts and would be following four broad approaches for distribution which would be branch networking through investment and insurance centres; resident representation, stock-broking dealing offices and exclusive wealth cafes for discerning high net-worth individual (HNI) Investors to discuss Investments over a cup of coffee. We will maintain revenue growth at not less than 30-35% on an annual basis.
ML: What is your sense regarding current trends in the equity markets? How do you see the markets going from here? RB: 2010 is likely to be a year of reality check, a year of adjustments and a year of grind. 2009 has been a year of recovery with the markets almost doubling, led by a jump in earnings growth, rise in risk appetite, return of investor confidence and robust liquidity flows. The performance in 2009, both in terms of earnings as well as price growth might not be repeated in 2010 as businesses adjust themselves to higher interest rates and higher input costs. With markets trading in the fair value plus zone, chances of a significant re-rating from these levels are pretty low as businesses sit on some stupendous ‘cost rationalisation’ led bottom-line growth, which might not be repeated in the near future. Rising interest rates have the potential to increase the risk premium for equities, a fact that must not be overlooked at a time when inflation is threatening to go out of control.
Hence, at best, the markets are likely to remain range-bound in 2010. In such a scenario, taking bets on the direction of markets might turn out to be more risky. Rather, a more stock-specific approach, focusing on fundamentals of a company, has the potential to do better. With the situation expected to improve in 2011, investors should, however, endeavour to position their portfolios so that they are able to reap the benefits of a fresh bull run that might start in 2011.
ML: What is your view about the rampant mis-selling of products, which is a direct outcome of the commission-based structure of the industry?
RB: Mis-selling is unfortunate and is strongly condemned, given that we are in the business of enabling wealth creation for investors. Our first duty as an advisor is to do no harm. Hence, advisors should first seek to preserve the existing wealth of investors before going about enhancing it. The only way to prevent this is to enforce more regulations around "Licence to Advisors" before meeting their clients. Certifications from IRDA, AMFI and Financial Planning Standards Board should be mandated for advisors to start advising investors, and regulators must enforce discipline like say a traffic controller enforces for driving without a licence. Investor awareness needs to be enhanced especially in Tier 2, 3 towns and they should be encouraged to read and understand the fine print. Investors should also exercise restraint and never invest on tips and hearsay. One should never invest without the assistance of a professional financial planner.
ML: What is your view on the current regulatory tussle between SEBI and IRDA on the issue of Unit-Linked Insurance Plans (ULIPs)? What needs to be done to level the playing field between such investment products? RB: It is beyond our mandate to comment on who should be regulating ULIPs. As a financial planning company, our mandate is to ensure that our investors’ money is managed well and that they get good customer service. Both SEBI and IRDA are very astute regulators, as they have demonstrated in the past, and hence whoever regulates ULIPs, we have no doubt that the interest of our investors will be protected.
ML: What is your take on the high redemptions in mutual fund schemes despite a booming market (every month from August to March, except for February, saw redemptions outstripping purchases)? RB: If you follow the fund flow trend within asset categories in mutual funds over the last seven-eight months, you’ll find that long term categories like ELSS and conservative categories like income funds have been getting continuous positive flows.
Also, periodic outflows from liquid and money market funds should not be construed as indicator of the net sales in the mutual fund industry. Yes, fund flows were visibly negative in open-ended equity fund categories but primarily due to profit booking, following the almost 80% rally, and for rebalancing for capital protection and asset allocation, a learning for the investors from the fall of 2008. Fixed income instruments like company FDs, with good yields/interest rates, and capital protection oriented structures from mutual funds also attracted funds. This is really a healthy trend for the industry where real retail money is coming in the form of long-term assets and it is spreading across the asset categories, thus highlighting the ‘asset allocation’ approach being followed, which is the ‘core’ of financial planning.
ML: What is your experience with retail investor participation in your products? RB: Bajaj Capital is an ‘open architecture’ independent financial planning company. We do not have any products of our own, but we choose from a wide range of products like mutual funds, life insurance, general insurance, company fixed deposits, bonds, pension schemes, etc to create the portfolios of our clients. We also keep rebalancing them from time to time. Our products suit all classes of investors, including senior citizens, doctors, lawyers, architects, young professionals, defence service officials, etc. Our experience has been that while there have been few people who are self-motivated to plan well for their future financially, many people have to be motivated and educated by advisors through one-on-one interactions. They usually get motivated by case studies of successful investors who have amassed great wealth by disciplined, long-term investments. To serve the purpose, we keep on holding investor conferences in different cities at regular intervals and we have been getting a good response so far.
ML: Any new product/service launches in the pipeline? What are your expansion/diversification plans for the future? RB: While Bajaj Capital offers a wide range of products ranging from mutual funds to life insurance, general insurance, company fixed deposits, pension schemes, bonds, stock broking, etc, we are planning to package all of this together and start by opening a common account for investors, where they can avail a ‘bundle’ of services. We are continuously working on service innovation to enhance convenience for our investors. Some initiatives in the pipeline include a wide range of products around retirement solutions like the New Pension Scheme (NPS) and enhancement of features of the online investment platform to include a wider spectrum of products.
ML: Can you elaborate on your 360-degree financial planning initiative and online platform, ‘Just Trade’? RB: We at Bajaj Capital provide financial planning and need-based advice to our clients. The planner’s final recommendations to clients are based on his understanding of their personal situation, scientific and logic-backed processes and research outlook. Product selection is an outcome of this exercise, which we call as ‘360-degree financial planning’. What the client gets as output is a complete life ‘snapshot’ on a single sheet with advice for implementation of the same. More than 1 lakh investors have benefited from this service so far.
Our online platform is now robust—we have doubled our client base since our inception two years back. We continue to believe that in the years to come, the online investment platform would be a complete solution to investors who wish to operate at their convenience and from the comfort of their home. From a business perspective, the focus would be to lower the cost of distribution, which can be achieved through the online route. Just Trade has now partnered with Axis Bank for an additional payment gateway. Other initiatives like beefing up the MFSS platform are underway.