$3 billion fund manager Ajay Tyagi says delayed gratification key to wealth creation

UTI AMC's Ajay Tyagi has a piece of advice for small investors: do not expect the stock market to give positive returns every other year. The best wealth, he said, is generated when one accepts delayed gratification instead of an instant one.

Tyagi, who manages about Rs 27,000 crore ($3.3 billion) of assets at UTI Asset Management, and also advises to offshore funds that look after over Rs 15,000 crore ($1.84 billionbillion) in assets, said equities will remain volatile, non-linear and will continue to surprise investors in shorter time periods. The only way to make most of them is to invest for long term, Tyagi said in an interview to BT Online.

As far as Dalal Street goes, valuations are about 15 to 20 percent higher than the mean and this may lead to the market remaining sideways or witnessing a correction over the coming quarters, Tyagi warned.

2 things that matters in investing

Right from college days, Tyagi had a bent towards lessons in investing. Tyagi, who joined UTI in 2000 said, financial courses that were about investments and their management used to enthralled him.

That is where it all started, he recalled.

Today Tyagi heads Equities at UTI Asset Management. He is a CFA Charter holder from The CFA Institute, USA and also holds a master’s degree in finance from University of Delhi.

"The industry had already taken a professional turn almost 7-8 years prior to when I joined UTI. Since then, we have seen a sea change. The industry has matured and research has deeply intensified leading to a more comprehensive approach and understanding," he recalled. 

Tyagi, who loves reading Common Stocks and Uncommon Profits – by Philip A. Fisher and Kenneth L. Fisher, and also various letters by Warren Buffett, said the two important things that matter in creating wealth in the long run are: one, selecting the right kind of businesses and staying the course with them patiently; and two, best wealth is generated when you accept delayed gratification instead of instant gratification.

Sectors to bet on: IT, Pharma

Tyagi said investing is an exercise that is forward looking, therefore if any sector or company has witnessed an improvement in fundamentals, it would be reflected in valuations already.

One has to take a view on which sectors and companies that are going through a temporary setback right now, but remain fundamentally strong from a medium to long term perspective, Tyagi said.

"We feel that the IT and the Pharma sector look attractive from this perspective," he said.

PSUs, loss-making cos: To consider or not?

Tyagi said a big rally has already happened anticipating the improvement in growth and profitability for many PSUs. From here on, it would be the outcomes of these PSU businesses in terms of sustainability of growth, RoEs and cashflows that will determine how these stocks behave over the coming years, Tyagi said.

On whether one should look stocks of loss-making companies, Tyagi said equity markets are forward looking and more than the fact that a company is making losses today, one has to focus on

whether these losses will persist or they can turn into sustainable profits. 

Investors have to study the business strategy of these companies, the industry structure under which they operate and their path towards profitability, he said.

"Finally, the intention and motivation of the promoters who are running such fledgling businesses is very important to understand," Tyagi said.

Union Budget: A make or break deal?

Tyagi said rather than anticipating about the sectors that may end up benefitting in the budget, his mutual fund house likes to invest into businesses that are not dependent on any regulatory or government push and are expected to do well mainly on account of a profitable business model. These business models, he said, should have been created on the back of solving a customer need and providing a strong value proposition.

"From this perspective the Union budget is just one of the many things that we end up scrutinising in our quest for constructing the right portfolio," he said.

Tyagi noted that Budget is an exercise of presenting expenses and incomes of the government of India and is not an event where policy announcements are made.

"Of course in any given year the government does focus on one or more sectors and increases its allocation towards those sectors.  While this can lead to an excitement around them in the near term but this excitement can also see a reversal in the next year," he said.

India valuations: 3 ways to look at them

Tyagi said there are parts to look at India's valuation. The first is that fact that India has been trading at a valuation premium to other emerging markets for more than two decades now on account of its sustainable growth and relatively better return on equities (RoEs).

"This premium is expected to stay as long as India continues to show better earnings growth," Tyagi said.

But India is trading at a premium to its own historical PE mutiples to the extent of 15-20 per cent, which should ideally reverse in the coming quarters by way of markets remaining sideways for some more time or witnessing a correction, he said.

The third part is the valuation discount that at which EMs are trading to their long-term averages mainly on account of China and a few other large markets witnessing poor growth and therefore a derating. Any improvement in their growth will get them closer to their historic averages and that should lead to a narrowing of the premium that India is enjoying currently. So, a combination of India’s valuation correcting and EM’s valuation moving up will lead to the premium come close to historic averages," he said.
 

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