Salary, Wage, Fee, Consumption, Investments, Redemption words enough describes the link. The recent data of AMFI speaks loudly that the investors are holding on to the decision of investments and waiting for the rainy days to be over. The investment has now turned out to be a consumption type theme where people are cutting back. MF now seems to be on par with consumer good goods. Jobs have been cut, salaries are halved and the outlook for the month of July and going forward seems that more cuts are on the anvil. Just think about those IFAs who are B-30 focussed business. Where they will go and survive? We are not thinking about large one's -they can cut cost and they can manage but what about those who are small and medium scaled.
Where the investors did go? They invested in safer assets like RBI taxable bond of 7.75% which got closed in May 2020 last week and they got significant inflows. Even as the post-tax returns were low as compared to PSU-debt, experts say investors rushed for it as they saw it as the safest investment instrument available. Did investors turned risk-averse from the Franklin Fiasco. Even Direct Scheme promotion bifurcating or challenging the distribution network also failed. Even investors pulled out from ELSS schemes which have completed 3 years. This means the huge demand for liquidity and also the risk-averse attitude of investors towards the capital. Direct equity became the biggest challenger where MF is no longer a attractive for the investor to invest. They have F/O to play where the Average has surged to 41% compared to 31% in FY-19. The more number of trading accounts opened are the real challenges. People prefer direct management of funds post-Franklin Fiasco. The Knowledge level of the investor has gained significantly. They know that from March 2020 markets fell like anything post-Yes Bank fiasco. Hence as prices came down investor invested and started making direct equity as investment option. MF was bound to fall.
In today’s time every corporate at his own level knows the risk he carries of any default or crisis. One knows very well where they have leveraged and the depth of the crisis. Then from where they will be doing investment. HNI & Retail would prefer holding in cash or protection of capital. The risk is more now of AUM to come down in the next few months based on the near term outlooks. Forget about B-30 they are not going to come to invest in MF post-Fraklin Fiasco. Trust and faith are earned after lot of hardship.
In the next couple of month we will witness outflow of money as people will sell an investment for the indefinite unlock and lock game. In many cases, investors have sold investments and cleared their loans. That means no one wanted to carry liability and better paying the same from investments to have full sleep night.
From corporates to individual all are simply holding investments and every penny decision as no one knows how long the liquidity will be required for the rainy days. The SIP pause has been activated significantly. This also proofs that mere online will not save industry growth. You need a sales team to pull money at your end. The hopes of the industry are not over until now. You need human-based interaction to get business. Mere suggestion or online platform is not enough.
If we look at the job market details we will get a clear idea about the hypothesis that how deep is the market problem in terms of employment. The job market weakness will keep people to redeem their investments as they have to manage with job cuts and pay cuts and tweaking of their fixed salary into the variable component.
The economic condition of employment is one of the worst and we are going to witness one of the toughest days. Many surveys and govt numbers have shown that employment is getting back. Well, the gimmick is that it’s not the nature of job additions and the wage growth dynamic that accompanies it. 70% of non-farm jobs are created by micro, small and medium enterprises (MSMEs). They are also the backbone of migration from farm to non-farm sector in the economy. This segment is massively destroyed. In the Indian employment structure, it is being found that only 23% of the workforce is salaried. Distributed differently, agriculture and MSMEs engage 44% and 39% of the workforce, respectively. An urban worker who lost his job under lockdown may be back at work in rural (farm or MNREGA). But what about that fellow who belongs to the salaried class segment? There is no MNREGA for them. Now let’s come to the self-employed segment which belongs to professionals.
Similarly, a self-employed person may be back at work as lockdowns are lifted (unemployment goes down), but could be working with much lower earnings given weak footfalls/demand. Self-employed getting back to work may not be the same earning. This will be killing on the behavioural aspect of a family. Lower paying jobs, less productive–farm over non-farm, self-employed/MNREGA work over salaried. Recovery of jobs might happen but will not be with the same salary or fees or wages. CMIE estimates 27 million young people have lost jobs in April. Media, Aviation, Travel, Hospitality, Start-ups and Restaurants will see meaningful job cuts as well. Retailers Association of India (RAI) had conducted a survey of 768 retailers, which employ 3,92,963 people across India, to gauge their view on the impact of Covid on their business and manpower. Small retailers are expecting to lay-off 30 per cent of their manpower going forward, this number falls to 12% for medium (sized) retailers and 5 % for large retailers
45% of the labour force is employed in agriculture, whose productivity is half of the construction work and nearly a fourth of manufacturing. Both these industries are now going to take more than 6 to 2 years to get back. The pay scale or wages all depends on the macro front. As long as India struggles with CAPEX and credit cycles which remain depressed then these jobs will not be back. Hence it’s clear to find where the road heads in the near term. Those who have been daydreaming that once lockdown is over despite Covid will get consumption back well please note that Indian consumption was dependent on borrowed capital hence we are depending on terms of borrow and payment. Banks have reduced credit card rollouts as well as limits. These limits are the key to consumption.
The fall of MF business in June also raises the eyebrow towards the small and medium distributors and how they are managing their families. Trail income has already come down from 2016 onwards with the expense ratio coming down. Wealth management is no longer an easy job with technicalities despite online. The large distributors can cut down cost and can manage the business but what about the small and medium-size distributors. They have lost business and their hopes. Running a family for individual MF distributors is tough. Advisory fee concept is far etched matter and a distant dream for the industry now. From 2016 the reduction of brokerage has already killed distributors who are small ones and medium
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