Mumbai . The stock market has seen a lot of correction from the upper levels in the last few months. The Russia-Ukraine crisis has worsened the market condition since mid-February. New investors are worried about the huge volatility in the market. In such a situation, experts are giving some important advice and suggestions regarding the market.
In a conversation with Moneycontrol’s Jash Kriplani, Vetri Subramaniam, Chief Investment Officer of UTI MF (which manages assets worth Rs 2.24 lakh crore) spoke at length on the impact of the Russo-Ukraine war on the market. Vetri Subramaniam also spoke in detail about the fund house’s passive product and the new competition in the industry.
Here are the edited excerpts of his conversation:
How do you see the Russia-Ukraine crisis affecting the stock markets?
Central banks around the world were looking to withdraw monetary aid that was given due to COVID-19. Inflation concerns were on the rise and supply chain disruptions also increased inflation. The supply chain was affected by the Ukraine problem. This belt is an important supplier for oil, gas, coal. Putting Russia and Ukraine together, it is a major supplier of agri-commodities and metals. Therefore, this war has caused another supply shock to the global economy.
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What should investors approach the markets during this correction?
Subramaniam said that investors should continue their investments. If they have held their money due to expensive valuations, then this is now becoming an opportunity for them to invest that money in the market. In large-caps, you can clearly see that the valuations have come down. This was not the first time that we have seen valuations become costlier and we will see valuations getting cheaper again at times in future. The valuation keeps on fluctuating. The reasons behind this and the news keep coming out at different times. In fact, valuation means revert. Hence, investors should be cautious when valuations are high.
Which sectors are you bullish on?
Responding to this, Vetri Subramaniam said that the valuations in the financial sector seem reasonable and companies are looking well prepared for profit. Volumes in the auto sector are running 20-30 per cent below the peak volumes in FY2018-2019. This is a bit unusual but the demand will pick up in the future. You cannot expect auto demand to remain below a three-year peak in a growing economy.
Why is UTI MF launching so many passive funds, especially factor-based funds? Why hasn’t any international fund launched yet?
Investors can mix both the strategies together. On the passive side, we are focusing on factor-based investment strategies. Through factor-based strategies, you can adopt an active strategy and convert it into a passive strategy. We have just launched a Low Volatility Index Fund based on S&P BSE Low Volatility Index. Along with this, have filed for Nifty Midcap 150 Quality 50 Index Fund. When the foreign investment limit for mutual funds will be increased, then we will also launch an international fund.
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Vetri further said that the December-quarter results show that multiple NFO launches have impacted AMC margins due to distribution cost. Competition is increasing in this as the newly launched passive funds are charging very low TERs.
Passive fund investment inflows are likely to increase in the next decade or so. At the same time, we must not miss the opportunity to increase the size of the market. When it comes to financialization of savings, there is a huge opportunity for Indian AMCs.
Do you also expect it to be challenging for active fund managers to outperform?
Vetri Subramaniam said about the outperformance of fund managers that what we can learn from the rest of the world is that as the markets become more and more institutional, so will the alpha (outperformance) of institutional investors. Competition with each other will increase. This will make it more challenging. The outperformance will continue, but it can be very difficult to understand which investment strategy will outperform. So for the time being, both the strategies have room to survive.
(Disclaimer: Tech for FTCP advises users to consult a certified expert before making any investment decision.)
Tags: Share market, Stock Markets, stock return, Stock tips, Stocks
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