What is driving the market rally?
Clearly, liquidity is the key driver. Many investors are chasing the best performing asset class. This is not the first time that we are seeing such degree of interest in equities. We saw it earlier 2008.
While markets have been on the rise, no asset class in India, other than equity, has been performing since 2014.
This trend will continue until we see a correction. If markets correct tomorrow for any reason, you could see a big reversal in inflows.
Another factor driving the markets is expectation of revival in earnings growth due to GST, bankruptcy law, digitalisation and opening up of FDI in the defence sector.
With the market trading at such high valuation, where do you see investing opportunities? How difficult is it to find such opportunities?
I believe that investment opportunities will always be there. The beauty of the market is that not every stock moves in a similar manner.
Take the case of two vastly different sectors. When there is difficulty in finding investment opportunities in high momentum sectors such as financials and FMCG, you will find opportunities in defensive sectors such as IT and pharma. For instance, currently, a few large pharma and IT companies are trading at very attractive valuations.
What would be the impact of rising crude oil prices on the Indian market?
The rising crude oil prices will of course widen current account deficit and put pressure on the rupee to depreciate.
However, considering the fact that elections are round the corner, the government may not want to pass on the burden of higher crude prices to the people. Going forward, crude oil prices will not have a huge impact on the country due to the emergence of electric cars and hybrid cars. These will help reduce India’s over dependence on oil.
Which sectors are you bullish on, and why?
We are bullish on banking and financials, consumer discretionary, automobile, pharma and IT.
Let’s talk about why we are bullish on banks; Indian households are not adequately leveraged and hence there is scope for growth in retail lending. We are focussed on private sector banks with high credit quality.
On consumer discretionary and automobile, we believe human beings are aspirational. With an increase in income, Indians would like to associate with brands and luxury, which would lead to growth in these sectors.
We have been hearing from fund managers that corporate earnings are round the corner for the last three years. Why have they not revived so far? When do you expect the revival in corporate earnings and why?
We would perhaps have witnessed higher corporate earnings had GST and demonetisation not taken place. Now, with the fundamental reforms stabilising, we will see revival in earnings growth.
Last year, you made some major changes in UTI Equity Fund. What difference has it made in the fund performance?
We have been overweight on sectors such as pharma and IT that have not performed well. Moreover, we have been underweight on metals and gas that have done very well. It has been a double whammy for us. However, we have a conviction that these value calls will reward our investors in the long term.
Our other fund, UTI Bluechip Flexi cap, has done very well. It has beaten its benchmark and performed better than its peers. The core philosophy remains the same in both the funds.
The recent SEBI circular restricts the mid cap universe from 101 to 250 stocks, according to market capitalisation. How has it affected the industry?
The rules have changed, and going forward this is how we have to manage money. There will be uniformity among all the funds in all categories. There can be a few initial challenges, but I do not see them as insurmountable.
