According to the Association of Mutual Funds in India (AMFI), after declining for 6 months, mutual fund investment through SIPs increased to Rs 7,800 crore in October 2020, growing sequentially than September (Rs 7,788 crore). Does this mean the situation is improving?
The FinTech sector has been driving the growth of the digital economy in India. Around 500 million internet users are there in the country and a large number of them belong to Generation Y and Z. More than 95% of these users access the internet through mobile phone and using it to transact online. Such companies are offering services like digital wallets, Systematic Investment Plan (SIP), debt investment, etc.
The demonetisation announced by the Indian government in November 2016 has a massive fillip to the FinTech sector. The government policies are evolving rapidly to provide a favourable situation to the FinTechs. Also, the users are finding the solutions provides by FinTech companies more convenient than conventional banking system thanks to the lack of paperwork and aid of internet.
During the recent economic crisis and Coronavirus pandemic as well, we have seen the FinTech companies came useful for the consumers than the conventional banks, due to several reasons. It has been proved that the FinTech industry is not quite pandemic-resistant but pandemic compliant for sure.
FinTech companies have already altered the Indian financial market. Around 82% of traditional financial companies now plan to increase their collaborations with FinTech firms in the next 3-5 years. Clearly, that indicates the growth potential of FinTechs.
Autofintechs spoke to Samant Sikka who is the Co-Founder of Sqrrl FinTech to learn about the ecosystem.
Edited excerpts below.
Q. With issues like a liquidity crisis, job loss, salary cuts during and post-lockdown, how has the investment flow of people been impacted? As an investment aggregator, if you can shed some light on that.
There is no denying that the Covid-19 crisis very rapidly manifested into a bigger financial crisis for many. Here are some highlights:
a) While there was a widespread reduction in income levels for many, this period was also accompanied by lower expenses for most. Salaried individuals moved back to their hometowns leaving their rented places behind, one could not order food, go to the cinema, or shop in the malls. All these regular expenses got cut down. My observation is that people who had built a savings pool or specifically an emergency fund for such times were able to navigate the challenges in a far better manner.
b) As far as the behavior of investors is concerned, we did see a small percentage of users come back to either skip/postpone SIP payments to keep higher liquidity on hand. This can allude to salary cuts and loss of jobs for many people.
c) Due to the multiple lockdowns, this period also saw a lot of new investors enter the arena of investing. In fact, data shows that since the beginning of the pandemic, stock & share markets have recorded a noticeable increase in the number of female investors.
While millions got lured by the stories of making quick money in stock trading, millions of others decided to set aside some corpus and create an emergency fund to tackle such unprecedented times. The violability and then sharp short term gains in the equities market also attracted many investors.
Q. According to AMFI, after six months of continuous decline, mutual fund investment through SIPs increased to Rs 7,800 crore in October, growing sequentially than September (Rs 7,788 crore). Does this mean, the worst is over, despite the surging cases and no solid clarity on the vaccine’s arrival?
During February and March’20, I vividly remember how the newspapers and TVs were filled with the news of a massive breakout of Coronavirus cases and deaths, especially in Italy. Retrospectively, one can claim that it was just the beginning of us realizing the gravity of the situation. This realization along with the overnight imposition of lockdown in the country drove the country into a massive shock.
The Indian economy came to a grinding halt overnight with businesses staring at a huge loss of income and revenues cascading into job losses or income reductions. With this backdrop a lot of SIP investors decided to create extra liquidity by skipping SIP payments, this trend continued for most of the last 6 months as foretold in AMFI Data.
We feel that with the gradual opening up of the economy, and businesses starting to pick up economic activity, once can see a trend reversal towards pre-coronavirus levels.
Q2 financial results of corporate India also bring out this trend. We believe that Q3 results will further reiterate this bounce back. Although the recovery that one is seeing at the moment may not be as broad-based as one would expect but we believe that the worst is indeed behind us. The road to a full recovery will definitely be a long one.
Q. SIP inflow to mutual funds reached Rs 55,627 crore between April-November FY21. How do you see the path of revival in the rest of FY21? Any projection for FY22?
SIP inflows in January’20 were over Rs. 8.5 K crore and came down to Rs. 7.3K crore in November’20 with the highest inflow being 8.6 K crores, in March’20. The SIP inflows have been steadily coming down since then a month on month. November’20 has recorded the lowest number in this calendar year.
However, the number of SIP accounts has been steadily rising. In fact, at the end of November’20, the SIP accounts were 3.4 Crores. One can say that the SIP returns for the last 3 to 5 years during April to November’20 were not great, hence a lot of existing investors stopped their SIPs.
In addition to a poor past performance by SIPs, millions of people lost their jobs during the pandemic which can be cited as another one of the reasons why we saw the downward trend.
Although a downward trend was seen in SIPs, we saw a different trend in the case of stocks. Over the last 6 months, we have seen a lot of investors start investing in direct stocks. In fact, the stock markets have been rising since March’20. This has shifted some investors from mutual funds to direct stocks. This can be seen from the number of new Demat accounts.
As of now, the economy is on the mend. Low-interest rates and economic revival will mean money will start coming to mutual fund houses through SIP in the next 6-12 months.
Q. How technologies have been changing the Indian financial sector? Especially in the light of the pandemic?
Ever-evolving technology is an essential ingredient for the future of financial services. The challenges that the ecosystem faces of pushing wider adoptions, increasing reach, lowering costs, improving efficiency in the delivery of services, and even building stronger compliance and regulatory systems for the next century are all possible by embracing technology.
India has been at the forefront of not just embracing but drying this change. In many ways, it has already started to shape up as a successful case study for the world to look at the benefits of the intersection of tech and financial services. The India stack is a classic example where a technology infrastructure has been created for the ecosystem to thrive and build a variety of products and services.
The pandemic has only accentuated the pace of this adoption and change. Given the lockdown, there is a lack of physical access to lots of products and services which in turn, is driving fence-sitters to adopt these tech-enabled features, even something like a simple digital payment.
The important fact to bear in mind is that this transition to technology-enabled solutions is an irreversible change in consumer behavior and likely to be the norm even post Covid-19.
Q. Indians are spending millions daily on cryptocurrency trading. Do you see this trend growing or it is just a momentary bubble? What are the factors the investors should be concerned about?
I am no expert on Cryptocurrency, however, from what I have read and observed there are arguments from both sides, for and against the benefits that Crypto brings. All I can say with a certain degree of confidence is that the evolution of Cryptocurrency should not be considered as a bubble.
Of course, the price i.e. the intrinsic value and pace of volatility is something that can always be debated, but my argument is that the valuation of a listed equity asset is also subject to different valuation metrics and may not always follow the logic. The other thing is Cryptocurrency as a product itself, its use cases, etc. will definitely need to evolve.
The structure may need to be made more palatable for the regulators to embrace, and to be fair we have already started to see that happening. With changing times, we stand on the brink of Crypto acceptance where many countries and central banks are now warming and opening up to the idea of embracing Crypto.
I feel that this is setting the stage for Crypto becoming an acceptable asset class or medium of currency. Who knows Crypto could replace Gold as the store of value for the next century!