Mr. Vetri Subramaniam
Group President & Head of Equity at UTI Asset Management Company Ltd
Vetri Subramaniam is Group President & Head of Equity at UTI Asset Management Company Ltd. He has been in this role since January 2017. At UTI MF Vetri leads a team of 17 persons including analysts and fund managers.
Vetri has over 26 years of work experience. Prior to joining UTI in January 2017 he was Chief Investment officer at Invesco Asset Management Ltd. He was part of the start-up team at Invesco (then Religare Asset Management) in 2008 and helped establish the firm’s proprietary investment process and the team. During this period the firm established a strong track record. The firm also launched several offshore funds investing into India from Japan, Mauritius & Luxembourg. Vetri started his career at Kotak Mahindra in 1992 after passing out from IIM Bangalore with a PG Diploma in Management. He has worked in equity markets & investment roles at various firms from 1994 including Kotak Mahindra, SSKI & Motilal Oswal. He was also one of the founders of Sharekhan.com (now Sharekhan BNP Paribas) where he led the research & content team. He has also worked as an advisor to a UK Hedge fund Boyer Allan on its equity investments in India during 2003-2007.
Q. India’s market capitalization hit $2.5 trillion recently pushing it to the eighth position globally. What is your view on the present market valuations?
Answer : Valuations are certainly expensive for the large-cap based indices. In the mid and small-cap segments aggregate valuations are less expensive. Dispersion in valuations across companies and sectors remain quite high when we break down the aggregate valuations. In other words, when you look beyond index valuations at the valuations of companies and sectors the situation is slightly more nuanced.
The key is where we are placed in the growth cycle and how earnings shape-up. Past experience is that markets often get expensive early in the growth cycle. The baton must pass from valuations to earnings progression from here. Keep in mind that over the cycle- the currently elevated valuations could potentially contribute to a drag on returns. The extent and degree of this growth cycle hold the key to the outcome.
Q. There has been very strong FDI and FPI inflows into Indian markets. What has been the reason for the same?
Answer : India has been a significant beneficiary of foreign inflows, this is in the backdrop of strong foreign flows into emerging markets over the course of the year. In the case of India, we must also note that while FPI flows into equity were strong at $ 23 bn there was an outflow of $ 14 bn from debt in 2020. As of Sep-2020, FDI inflows for the 6-month period were up by 15%. The aggressive fiscal and monetary policies adopted in the US has weakened the dollar and set off a capital surge into emerging economies. The weak dollar is setting up an expectation of continued strength in flows to emerging economies including India.
Q. How is the recovery in global economy happening right now? Has the second wave and expectations of vaccination changing any narrative?
Answer : The recovery is mixed as not all economies have returned to near normal levels of activity. In India, a wide range of indicators suggest that the economy has significantly normalized. But, this is not the case globally with some economies continuing to face health challenges and experiencing further loss of output due to renewed lockdowns. In the US, it is the aggression of the fiscal and monetary policies that has buttressed weak households and held up income and spending patterns. The visibility of the vaccine continues to renew the confidence to look beyond the health challenges and we expect that as vaccination coverage expands; recovery can continue apace. Even in India we should note that few sectors are still experiencing stress and our indicators do not necessarily measure the health of the unorganized and informal sector accurately.
Q. Some investors are wondering what to do with their existing equity portfolio? What would be your advice to them?
Answer : From an asset allocation perspective, valuations certainly pose a challenge. It would be appropriate for investors to stick to their predefined asset allocation targets. Domestic investors have withdrawn money from equity MFs significantly and we do not know what combination of reasons has driven this. It might be behavioural – relief at seeing prices recover after experiencing a sharp decline early in the year. But, anecdotally we also know that many investors have withdrawn to overcome financial challenges posed by the pandemic. As a result, there is no single appropriate answer for all investors.
Q. What is your investment strategy for your flagship funds in the present markets? How are you allocating your funds and managing exposure to cash and different market segments and sectors?
Answer : Our investment process guides all the funds at UTI. Individual funds adopt varied approaches to stock selection and portfolio construction based on their philosophy. We emphasize staying true to the guardrails for every strategy based on data, and do not encourage frequent or dramatic shifts in portfolio construction approach. Our Portfolio turnover ratio has stayed stable or declined during 2020 for most strategies. Our risk framework prohibits FMs from keeping cash above 10% and in practise, we encourage FMs to run fully invested portfolios, as is indicated by the data. UTI Equity Fund is a bottom-up strategy that is driven by a growth investing approach. It invests in companies with strong return ratios and having a long growth runway. It emphasizes secular growth opportunities, stable margins, low or no debt and strong free cash flow generation.
Q. What would be your advice to new investors who are planning to enter into equity markets now?
Answer : The best approach for new investors is to follow a systematic investment route (SIP /STP) and invest with a financial plan that includes a clear process for asset allocation and a logic for re-balancing the overall portfolio as and when appropriate. Invest for the long-term based on your financial goals rather than trying to maximize portfolio outcomes based on annual forecasts and volatility. Do not day trade and do not use leverage.
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