India’s Equity Mkts Positioned For Long-Term Stability & Growth, Says UTI AMC’s Srivatsa

UTI Asset Management Company (UTI AMC) is one of India’s leading mutual fund houses, known for its diverse investment offerings and robust fund management strategies. In an exclusive conversation with Bizz Buzz, V Srivatsa, Executive VP & Fund Manager - Equity, UTI AMC, shares his insights on mutual fund investment policies and their implications. He stresses, “The investor should try to understand the strategy and investment philosophy of the fund and also ensure it adheres to the strategy that the fund house has defined. The risk policy is very important for the investor to understand so that he can assess the risks of the strategy.”

Srivatsa elaborates on the importance of investment policies in determining a fund’s risk-return profile and discusses emerging trends such as quant-based and factor-based investing. He also provides a nuanced view on the future of India’s equity markets, which he believes are positioned for long-term stability and growth

How does a mutual fund's investment policy influence its risk-return profile, and what factors should investors consider when evaluating a fund’s policy?

Investment policy is very critical for the smooth functioning of any fund house. Investment policy defines the boundaries under which the team operates, the risk limits, and processes of the fund house. While all aspects of the policy may not be open for public, generally the investors should pay attention to the risk policies of the fund house as to the limits of stock, sector or off benchmark stocks exposure. The investor should try to understand the strategy and investment philosophy of the fund and also ensure it adheres to the strategy that the fund house has defined. The risk policy is very important for the investor to understand so that he can assess the risks of the strategy.

How do you view earnings growth in sectors like pharma, auto, and financials given current market volatility?

Earnings growth in pharma is steady given the steady growth in Indian markets while there could be some volatility for export-oriented companies given the volatility of the US markets. The margins of the pharma industry have improved given the lower API prices which has benefitted the industry as a whole and we expect the trend to continue. In case of automobile industry, we expect decent volume growth in passenger cars and two-wheeler and stable raw material prices which would aid decent profit growth. While commercial vehicles sector would be under pressure because of CV sales, we expect tractor sales to outperform which would benefit tractor companies. In case of financials, we expect decent credit growth and stable credit costs which would negate the pressures of lower NIM as yields would be lower. Overall, we expect consistent and steady results from these sectors.

How do FIIs influence market volatility in India, and what role do they play in shaping market performance?

FIIs tend to sell when there is a risk off environment globally or when the dollar strengthens or when there is huge global volatility as they want to reduce the riskier assets and move to safe havens. FII also tend to exit markets if they see another good cheaper alternative market with same characteristics. While FII actions add volatility to the market, it adds depth to the overall market which is very critical for the functioning of well-oiled market. FII think and act differently from the domestic investors and their contrasting styles create liquidity in the markets which is critical for the markets. For any global market to succeed and remain relevant, it is essential it has a good mix of FII, domestic investors and retail investors so that it remains vibrant.

What emerging trends do you foresee in the Indian mutual fund industry, and how are you preparing to navigate these developments?

In terms of emerging trends, there are developments on widening the product baskets from the traditional equity, debt and hybrid funds to quant-based funds which relies on models and limited human intervention and factor-based investing funds which are based on factors like quality, value, and momentum. UTI is in the forefront of factor investing funds wherein we have launched factor based passive funds and we have recently also launched our quant model based on our proprietary quant model.

With rising domestic participation, what does the future hold for India’s equity market in terms of stability and growth?

We expect Indian equity markets to do well in the long run as structurally we are well placed for decent long term GDP growth, stable inflation and exchange rates which act as triggers for stable long term equity performance.

The local savings are channelised towards mutual funds as SIP itself amounts to around Rs 26,000 crores which is showing increasing trend. Besides, there is also increased investments by the NPS trust and EPFO towards equities which will ensure sustained flows from savings to equity markets which is a win-win situation as investors get decent returns on the savings and flows in equity markets act as additional source of capital for the economy. Increased domestic flows help in maintaining market stability as well.