Is it the time to increase equity investments? Here’s what V Srivatsa of UTI MF has to say 

Markets are prone to shorter-term corrections as they are the victim of global events and shorter-term challenges, says V Srivatsa, EVP and fund manager-equity at UTI Mutual Fund. In an interaction with Business Today he further shared his views related to how to create a portfolio amid the ongoing volatility on D-Street.  His views came at the time when the benchmark equity indices BSE Sensex and NSE Nifty declined nearly 5 per cent in May. The money manager also threw some light on his personal portfolio as well as emerging themes which may deliver a solid return to investors going ahead. Edited excerpts: 

Business Today (BT): What is the biggest challenge for the market? 

Srivatsa: Inflation is the biggest challenge both on the macro side and on the micro side. On the macro side, it will lead to hardening of rates as real rates need to go up which is visible and on the micro side this will lead to higher pressure on margins as most consumer industries will face the brunt. Rising rates are short term negative on equity and some level of earnings cut can be expected in the short term given the sharp rise in base metals and crude and gas. 

BT: Buy the dip or stay on the sidelines: What is your suggestion? 

Srivatsa: Past corrections have shown us that any accumulation during the phase of correction has been rewarding over the long term. Equity is a long-term investment, and one needs to be disciplined to invest at regular intervals. 

BT: Where do you see buying opportunities in this market? 

Srivatsa: We are positive on financial services and automobiles at the current juncture as we believe that banking is ideally poised given the rise in the profitability and banks entering a positive credit cycle which would lead to a higher return on assets and return on equity.  In the case of automobiles, the cycle is very favourable as in all the three sub-segments of two-wheelers, passenger cars and commercial vehicles, we are at bottom of the cycle, and we see a strong upcycle ahead and valuations are reasonable. 

BT: Midcap and smallcaps have underperformed large caps so far in 2022. Which factors are putting pressure on broader markets? 

Srivatsa: The valuations of mid and small caps are on the higher side as compared to large caps and also in rising inflation and interest rate environment, we see higher challenges for the mid and small caps. 

BT: Do you think the time has come to increase equity investments after the selloff in May? 

Srivatsa: Equity is a long-term product, and it is proved over time that equity has the best returns across asset classes for 10 years and above. Hence one should not be timing the markets and waiting for a correction, rather should systematically deploy in markets. Also, one has to keep an eye on valuations and when valuations of the markets are below the long-term mean, and then one can accelerate the investments. 

BT: How do you see rate-sensitive sectors if RBI increases rates by a minimum of 75-100 basis points in FY23. 

Srivatsa: Rising rates are positive for banks as they can raise the rates while the liabilities take time. While this could be negative for sectors such as housing and automobiles, the impact would be much less as sectors are coming out of downcycle and also given the expectation of rising incomes, this would negate the impact of higher interest rates. 

BT: How investors can create new portfolios amid the ongoing uncertainty in the domestic equity market? 

Srivatsa: As the markets are volatile and there is short term uncertainty in terms of inflation and rate hikes, it would be advisable to consider hybrid funds and large cap funds if one needs to invest today. Also given the current interest rates, some allocation can be done to duration products for a longer time frame of three years. 

BT: What is your advice to investors whose portfolios have plunged in double digits during the ongoing fall? 

Srivatsa: Markets are prone to shorter-term corrections as they are the victim of global events and shorter-term challenges. In the longer term, the markets follow the fundamentals of the economy and companies, and both are on a strong wicket. My advice would be to stay on the portfolio. 

BT: Which are the emerging themes in this market? 

Srivatsa: The new age business of e-commerce is interesting as they could be big disruptors in the long run and one can keep on watch if the valuations are correct. Clean energy is another theme which looks promising from the long-term perspective. 

BT: What actions you have taken in your personal portfolio? 

Srivatsa: I have been investing in equity for a long period of time and right now equity is around 85 per cent of my assets. Given my age profile, I need to increase the debt part of my portfolio and hence most of my incremental flows are going into debt. I intend to take debt to around 30 per cent of my portfolio. 

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