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Speaker: Mr. Vetri Subramaniam

Designation: Head of Equities, UTI Asset Management Co. Ltd.

Q.1 Views on Growth recovering in FY’19? (00:11)

Ans - I think the prospects for recovery in growth are quite good. First of all keep in mind that over the last year the economy has gone through 2 significant disruptions – first was demonetization and after that, there was a transition to GST. Both of these affected the growth rates and the functioning of the economy. So I think as these 2 events fade into the rear view mirror, you will automatically see some pick-up in growth come through. Second factor which I think will enable growth to accelerate this year is keep in mind that India’s actual growth outcomes for 2017 calendar were actually very weak whereas it was actually the strongest year for growth as far as the world economy is concerned. In some part of that is likely to be positively transmitted to India this current year. So I do expect that growth will pick up over the course of next 12 months.

 

Q.2 Are valuations expensive, especially now when the markets are touching all time high almost every day? (01:08)

Ans –If you go back to middle of 2013 and look at where valuations were at that point of time and where they are today has been a very significant increase in valuations. The expectation is that earnings growth will also start to deliver quite strongly. Therefore, I would say any sustaining of the market at these levels would really be an outcome of earnings expectations actually coming good. If you look at last calendar, the total inflows into equities via equity mutual funds including what came into the balanced funds is almost about 30 billion dollars. But remember that on the other side, there is also equally large supply of equity which is coming through from companies looking to either repair their damaged balance sheets or raise new capital for growth. So, we estimate that the total supply of new shares by way of IPOs, QIPs or even somebody is selling down by way of an OFS was an excess of 30 billion dollars last year. So no doubt there is a large amount of money coming in, but there is also an equally large supply of equity coming through.

 

Q.3 While Real Estate and Metals did well in 2017, sectors to bet on for 2018? (02:13)

Ans – I wouldn’t get caught up too much in that detail because you know these things in terms of which sector does well keeps rotating. Picking good businesses and staying invested in them over extended period of time, history has shown is a far better way of creating alpha than only trying to catch the best performing sectors over the next 6-12 months. I would only say that as far as real estate is concerned, there are some very significant changes happening in the way that sector functions, significant formulization is happening. Therefore, I think there will be some attractive bottom-up opportunities in that area over the next few years. Metals is more of a global theme. So, I think you really have to watch global economy more than you watch Indian economy as far as metals is concerned.

 

Q.4 Possible headwinds in the coming year? (03:01)

Ans – I think you can divide it into global and local. As far as global headwinds are concerned, remember that all large central banks have actually been on balance sheet expansions pre ever since the global financial crisis in 2008 and 2009. We have now reached the point at which Fed has finally started to actually reduce the size of its balance sheet. It’s expected that by the end of the year ECB will also join Fed in terms of reducing size of balance sheet. I think we will have to see how both the economy and more importantly financial markets actually deal with this withdrawal of liquidity. I think the other challenge is essentially the fact that volatility has been extremely suppressed in equities as in asset class, both in India as well as in other parts of the world. So any reversion in volatility to sort of average levels will be something that can upset the markets a little bit. Locally, I think the challenge is earnings. We have gone on for very long in the expectations of earnings growth coming through. The longer that gets delayed, the risk of an accident increases.

 

Q.5 Advice to the existing and new investors participating into the Indian Markets? (04:08)

Ans – We would recommend to most investors that if you are investing through systematic investment programs, then you should just stay with that, because the whole purpose of that is to be indifferent towards valuations and if you extend your investment horizon, then over time your entry valuation would effectively be closer to the average. A big shift to equities at this valuation level does not seem something that’s hugely attractive given what has happened to valuations. But most Indians I find are under-allocated to equities, so there is a fine balance and there is a need to work with an advisor because remember all of these asset allocations and all these decisions that you are making are really to enable you to achieve your financial goals.