‘Many triggers for volatility; prefer stability of large caps’

NIMESH SHAH, managing director and chief executive officer of ICICI Prudential MF and the newly elected chairman of Association of Mutual Funds in India (Amfi), shares his views on how the MF industry can improve its risk-management practices against the backdrop of the IL&FS default. In an interaction with Jash Kriplani, Shah touched upon redemption pressure the industry is facing and where debt and equity investors can put their money in the current scenario. Edited excerpts:

How do you see the equity markets doing?

very conservatively. A portfolio mix of credit risk funds and the balanced advantage scheme may prove to be a good investment strategy.

Which sectors look attractive in the equity markets?

Given the prevailing uncertainties in the market, we prefer stability that large-caps offer. With a weakening rupee and a high current account deficit, export-oriented sectors look attractive. In addition, we also prefer power utilities and select oil stocks.

Does the MF industry need to work on its risk-management practices?

and Exchange Board of India (Sebi) also lay down how fund houses can manage liquidity in their funds. Since 2008, there has not been any major issue on the liquidity front.

What about credit risk?

As far as credit risk is concerned, fund houses need to be more careful and improve their risk management practices. While regulations allow a mutual fund scheme to invest up to 10 per cent of its net assets in an individual security, a fund manager need not go up to 10 per cent even in a AAA-rated security. It may be prudent to take exposure up to eightnine per cent to ensure liquidity. For AA or A-plus rated papers, the exposure can be kept even lower.