Market valuations at below 15x one year forward earnings have turned attractive from a long term perspective and given the likely revival in the corporate earnings this year represents a good entry point for long term investors, said V Srivatsa, EVP & Fund Manager, UTI AMC in an interview with Myiris.com.
At UTI AMC, V. Srivatsa currently manages Rs 17 billion of equity in the domestic schemes (Equity portion of the hybrid schemes) and Rs 8.50 billion on the offshore schemes.
Excerpt from an interview with V Srivatsa:
Stock market was down sharply by 4.6% so far this month on the RBI's hawkish tone in policy statement and IMD's poor monsoon forecast. In such corrective phase, what steps you take to protect interest of investors as a fund manager?
As a fund house, we do not believe in taking short term liquidity related calls and by and large our cash levels are at around 5% at the maximum. We build portfolios for the long term and we use these short term corrections in the market as an opportunity to build positions on our existing high conviction bets or add new ideas which looks attractive in this correction.
Could you through some light on your fund management style? How frequently you review and churn fund portfolio? What are the key things you look at before taking a buy or sell call in particular stock?
We follow largely a Growth at reasonable price (GARP) style in our equity funds. The portfolio review is on continuous basis and as a fund house, our portfolio churn is very low as compared to the Industry as we invest on a long term basis and do not look for short term opportunities. In case of buying, we do look at various factors such as Industry dynamics, attractiveness, how the company is positioned to take advantage of the growth opportunities, quality of the management both in terms of execution and corporate governance, return ratios, free cash generation and valuations. We lay a lot of emphasis on the return ratios, quality and free cash flows of the business in our portfolio selection.
In case of sell, we look for any potential change in the Industry or company which can endanger its long term outlook, performance of the management in execution and corporate governance and valuations of the company. We also do profit booking when the weightages of the stock rises above our desired levels of weight in the portfolio.
UTI Mutual Fund's recent Fact Sheet showed high exposure to financial services, IT and automobile sectors in the most of equity oriented funds. What is the rationale behind betting big on these sectors?
We are positive on the financial as this is the best sector to play the recovery in the domestic economy. Banking as a sector is under penetrated and represents a holistic play on the growth in the economy. Within the banking space, we believe that the private sector financials are ideally poised to capture market share and higher growth relative to the public sector banks. Automobile is also one of the earlier beneficiares of the recovery in the Indian economy and this sector has high entry barriers in all the segments be it passenger cars, 2 wheeler and Commercial vehicles and select ancillary industries. This sector has best in class return ratios and free cash flows. Information technology is more a bet on the growth returning back to the IT industry after a gap of two years and appealing valuations given the strong free cash flow generation and high quality of the top IT companies.
Quarter after quarter, corporate financial performance remained lackluster. March 2015 quarter was not exception. There has been mild increase in corporate earnings. Sales growth was slightly better than earnings growth. According to you, when do you see turnaround in corporate performance?
The last two quarters of corporate earnings have been below par both on absolute basis and market expectations. The biggest disappointment has come from the muted revenue growth across sectors which is a result of muted domestic demand in India coupled with low inflation and pressures in the global oriented sectors such as IT. This has been compounded by the huge volatility in both the forex and commodity prices. The margins across sectors have seen improvement on account of lower commodity costs, however the full benefit of the benign commodity costs are not yet reflected in the operating margins. Turnaround in the corporate earnings will be led by the demand recovery which is expected by the second half and also operating leverage of the companies which was lacking last year on account of muted revenue growth. In the last year, full impact of the lower commodity prices was seen in the results of commodity based sectors and given the stability of prices, it is unlikely to have further detrimental impact on their profitabilty.
Do you think the recent fall in the stock market was excessive? How do see the market outlook for next one year?
In the last one month, we have seen the cumulative impact of risk off trades of global investors, global macro concerns, domestic concerns on monsoon and corporate profitability which has resulted in Indian markets underperforming. The valuations at below 15x one year forward earnings have turned attractive from a long term perspective and given the likely revival in the corporate earnings this year represents a good entry point for long term investors.
What is your advice to investors at this point in time?
Equities as an asset class has proved to be a long term winner and there is no structural change in the Indian economy or markets to warrant a change in this view. One should view this short term corrections as an opportunity to build positions and stay invested in the markets as the Indian equity markets have risen above these short term challenges successfully to deliver returns to a long term investor.
About Fund Manager:
V. Srivatsa is a B.Com graduate, C.A., C.W.A. and has a PGDM from IIM, Indore. He has been with UTI AMC since 2002. V. Srivatsa joined UTI AMC in 2002 in the Department of Securities Research as a research analyst and he has covered diverse sectors such as Information Technology, Cement, Healthcare and Capital goods. In December 2005, he was promoted as Fund manager managing three offshore schemes of UTI. In November 2009, he was given the additional responsibility of managing the equity portion of UTI Balanced Fund, UTI Retirement Benefit Plan, UTI CRTS, UTI Capital Protection Oriented Scheme and UTI monthly Income Scheme.
Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.