Investor focus will return to long-term financial goals: Vetri Subramaniam, Group President and Head of Equity, UTI AMC

By Urvashi Valecha

Even though investment decisions have been impacted due to the dislocation in the economy, the focus of investors would return to their long-term financial goals, says Vetri Subramaniam, group president and head of equity, UTI AMC. In an interview with Urvashi Valecha, he explains how the pandemic has further given a push to the formalisation of the economy. Excerpts:

Equity inflows into MFs have been muted this year. Excluding arbitrage funds, equity funds have seen outflows worth Rs 8,900 crore till date in FY21. Will these flows remain muted going forward? What is the outlook for equity flows for FY21?
Given the dislocation in the economy due to Covid-19, there has been an impact on savings and investment. Obviously, that impacts investors personally and might have also affected their investment decisions in the near term. Despite this, SIP flows have held up reasonably, suggesting that investors have not panicked during the volatility and have largely stayed on course. Once the economy normalises and people feel more confident about the future, their focus will turn from this disruption to their long-term financial goals. The trend toward financialisation of savings and planning for financial goals is a structural trend. We are optimistic that the structural trend will assert itself.

Even with grim economic projections, markets seem to still remain in a state of euphoria. Will there ever be a catch-up?
The market has rebounded from the lows and erased most of the losses. If you look at aggregate price earnings ratios, the market would appear expensive, but this is misleading.
Earnings are currently depressed due to the pandemic and lockdown, and they are not a guide to future earnings potential of the business. If on the other hand, we look at the P/B ratio – it is still in fair value territory. So we would not characterise the market as being euphoric in terms of valuation. In addition, we continue to see several opportunities on a bottom-up basis where valuations are reasonable. Also, while the index has recovered, note that there has been significant sector rotation. Leveraged businesses have underperformed, including financials, where there are concerns about an increase in non-performing loans. On the other hand, globally oriented businesses and companies with little or no leverage have performed better.

What will be the long-term impact of the pandemic on Indian companies? How many in the listed universe will not be able to survive the onslaught of the pandemic? Are Indian markets overpriced and is a big correction due?
The pandemic has further accelerated the formalisation of the economy. This is a process that has gathered momentum from demonetisation to the implementation of GST and through a credit crunch. The unorganised sector and smaller businesses have been impacted more severely. Listed companies belonging to the organised sector and having better access to capital and credit are gaining market share. Further as the supply side is disrupted, competition has reduced and margins are expanding for a select list of companies even within the listed universe. We would argue that the listed companies and the stock market reflect this reality. We are not suggesting that the economy is in fine fettle, it will take time for output to recover to the previous peak.

Technology stocks have come into the limelight because of their recent outperformance to the benchmarks. They also enjoyed a new high in allocation by MFs in September. Is there more value left in these stocks? And are these stocks Covid-19 proof?
We have been positive on IT stocks for long and have maintained overweight positions in several funds for many years. Further, many companies in the sector score well on governance and capital allocation. Valuations are no longer cheap compared to their own past history. So, we are more mindful today, but their businesses are on strong wicket.

The Indian mutual fund industry has come under the scanner with respect to its underperformance. With popularity of passive funds rising, what is the way forward?
Based on our data, nearly 74% of our equity AUM, as of September 30, is outperforming the relevant benchmark over the past year. Performance outcomes are a function of a process, people and culture. We lay significant emphasis on these areas. We believe there is space for equity and passive funds to co-exist. We will strive to offer investors high-quality options in both the passive and active range of funds.