'Biggest risks to the market are always the unknowns'

'Just because you don't see them does not mean they don't exist.'
'The greatest risk is overconfidence.'

"This is the time to be disciplined about your risk taking. Returns of the past year tell you nothing about the risk and return of the next year," cautions Vetri Subramaniam, chief investment officer, UTI AMC, in an interview with Chirag Madia/Business Standard.

What is your view on Indian equity markets? Do you think after the recent correction, valuations have turned more favourable?

Equity valuations across several measures are rich relative to their history.

While there are pockets of value, investors should be cognisant of the risk from valuations.

Aggregate market valuations have a bearing on forward returns of the asset class.

The lesson from history is that valuations are not a perfect timing device -- it is certainly not the equivalent of a school bell, which signals an immediate call to action -- either to assemble or disperse.

The recent correction is not meaningful in a historical context.

What is the road ahead for equities in Samvat 2078?

We don't have a crystal ball to forecast the outlook for equities over the next year.

We are long-term bullish about the prospects for Indian equities driven by the potential for growth across sectors in the economy and quality of entrepreneurs in India.

However, none of this can erase the volatility inherent in equities or the role of the valuation cycle.

Success and longevity in equity investing comes not from predicting the next one year's outcome, but from the ability of investors to handle the likely ups and downs of the asset class during an investing journey spanning decades.

How do you look at mid and small-cap space, going forward?

While all segments of the market are rich in terms of valuation, the small cap space is particularly challenging.

We have a bias towards large-caps at this point based on relative valuations.

Our principle in evaluation of mid and small caps is to filter for companies that exhibit a strong competitive position in their respective industry.

Such companies could have financial metrics comparable to large-cap leaders except for their classification on market cap.

The market cap is an outcome of the smaller sector or sub sector in which they operate.

What, according to you, are the key risks for the equity market at this point of time?

Today, we see a combination of healthy data, happier headlines, and rich market valuations.

This is the time to be disciplined about your risk taking.

Returns of the past year tell you nothing about the risk and return of the next year.

The biggest risks to the market are always the unknowns.

Just because you don't see them does not mean they don't exist.

The greatest risk is overconfidence.

Which sectors you are bullish and bearish on. Why?

In the value opportunities fund that I co-manage, we currently find value in financials, healthcare and auto.

In financials, we find that our key holdings have navigated the Covid-related NPA (non-performing asset) challenge rather well.

In healthcare, we like the twin barrels nature of companies -- a strong domestic growth opportunity and competitive export business.

Auto has been through a tough cycle for nearly three years now and we think this is attractive, given the medium-term growth opportunity.

Domestic flows have provided counterbalance to foreign flows. Do you think this trend is likely to continue?

The financialisation of savings has a long way to go in India.

There could be cyclical movements, but the underlying structural trend is positive.

The behaviour of the SIP pipeline during this difficult period gives us confidence.

Should investors continue with pure equity funds or diversify towards debt or balanced funds? What should be the strategy for existing investors?

We suggest that investors stick to their asset allocation framework, incorporating both equity and debt funds.

Further stick to your systematic investing approach for both investment and withdrawals.

Equity funds meet the long-term wealth creation needs of investors and debt funds can meet both short- and medium-term needs while balancing the aggregate portfolio.

Hybrid funds have widely varying allocation patterns to meet the needs of different investors.

What is your broad investment strategy while managing equity funds?

We are guided by our investment process.

At UTI, funds adopt varying strategies towards their stock selection and portfolio construction, but the framework ensures disciplined execution through changing market seasons.

We don't attempt to change strategies to match the ever so frequent shifts in market moods.

We are equally comfortable at managing a quality growth strategy or a relative value or a GARP (growth at a reasonable price) strategy, among many others.

Feature Presentation: Aslam Hunani/Rediff.com