Beating benchmark indices has been a challenging task: Vetri Subramaniam

The volatility that we are seeing isn't exceptional, says Vetri Subramaniam

The spike in volatility isn’t really concerning but generating alpha has become more challenging than in the past, says Vetri Subramaniam, head of equity at UTI AMC. In an interview to Samie Modak, Subramaniam shares his view on economic slowdown, valuations and the best investment category. Edited excerpts:

How are you keeping your calm in these volatile times?

The volatility that we are seeing isn’t exceptional. We have seen even worse before. Nothing can beat what happened post the 2008 global financial crisis. Hopefully, it was a once-in-a-lifetime event. This time around, the extent of damage is similar to the selloff in 2010 to 2013. However, some parts of it have been different. For instance, outperforming the benchmark in the last 18 months has been proved to be much more challenging than in 2013.   

Why is it so? Does it have to do with how polarised the markets have been? 

Partly that. This time, the extent of polarisation has been a lot more than we have seen in the past. If you look at the BSE 500, it is extreme. Then you telescope into Nifty 50 index and again it is extreme. Even if you look at specific sectors, you will see extreme outcomes. This level of divergence is different to what we have seen in the past.   

How much worse can it get from here?

If you look at the economy, the fourth quarter of last fiscal was very weak. Our sense is the first two quarters for the ongoing fiscal will also be weak. The reality is 6-6.5 per cent GDP growth for the full year. So, clearly there is a cyclical slowdown. It is feeling much worse this time around because of two things. One is that this is the third setback in two and a half years. In 2016, you had demonetisation, 2017 you had GST (goods and services tax) implementation and September 2018 onwards you have had problems in the credit market. The flow of credit has been constrained. So, the cumulative impact of these three knocks and constrained credit, in particular, have accentuated things.

Do you expect valuations reverting or slipping below the mean? 

There has been a correction in valuations and it is in fair-value territory though above the long-term average. The massive premium over long-term averages, as it was in 2017 or early this year, has significantly eroded. We haven’t got as cheap as early-2016 or mid-2013. Whether we will hit a trough in valuations is unknown.

What is your reading of the global situation? 

You can’t divorce yourself to what is happening around the world. We are dependent on global capital markets as our desire to invest is higher than our domestic savings pool. So, we will always run a current account deficit and take in external savings. We are not as affected by global trade as some other economies. But for India to sustain growth at our aspirational levels – which is above 8 per cent – we need the global economy to be supportive.

How are equity flows shaping up? 

The flows have held up under the SIP (systematic investment plan) route. Outside that, it is a mixed picture as we are seeing irregular flows. It is only the SIP flows of about Rs 8,000 crore a month, which are giving us the visibility.   

Are you beginning to see any hiccups on the SIP front given the latest downfall? 

Not yet. There is data indicating that levels of cancellation have increased but the aggregate number is still rising. I won’t be surprised if we went through a period of cancellations if the market stays challenging. On our part, we have been educating investors that you have to continue with the SIPs if you want it to work in your favour. 

How does an investor approach the market? 

My standard answer to all investors is the best product to invest is a widely-diversified fund. In the Indian context, it is the multicap fund category. You get a flavour of everything as the portfolio is truly diversified. Sectors and themes go in and out of fashion but if you want to stay invested through an SIP over a long period of time, multicap fund is the ideal way to go. If you are investing in a sectoral fund, you should be conversant with when you should be getting in and when you should be getting out. With a multicap fund you can take that out of the equation.  

What are your sectoral preferences at this juncture? 

From a valuation point of view, if you look at sectors that have gone through de-rating, pharma is one sector that stands out. There has been significant de-rating and the valuations give us comfort. Automobile, which has been an extremely hot sector till the middle of 2018, has seen a dramatic selloff. Incrementally, that is another area we are inclined to look at for opportunities as we have seen some degree of valuation corrections. Real estate and NBFC sectors have witnessed elements of supply shock and we think a few companies in these areas will emerge much stronger as weak ones are getting culled.