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Amid global uncertainties like rising U.S. bond yields and tariff risks, Srivatsa reveals how UTI MF is shifting focus toward domestic-oriented sectors such as autos, banking, oil & gas, and telecom.
He also weighs in on IPO valuations, the outlook for interest rates, and where long-term investors can still find value in an increasingly selective market environment. Edited Excerpts –
Q) What is fuelling volatility on D-Street – tariff war fears still playing the spoilsport?
A) The US tariff is the biggest risk in markets today as this has the potential to alter the growth of the economy although we would be far less impacted than most other economies.
There has been back and forth by the US government on tariffs, and we would wait for the final outcome to determine the impact for the Indian markets.
Q) What does rise in US Bond Yields mean for Indian markets? Historically, a rise in bond yields could trigger a rotation out of equities into bonds. Additionally, rising US yields can lead to capital outflows from emerging markets as investors seek safer returns in US bonds. How are you reading into this?
A) Traditionally a rise in the US bond yields has led to pressure in emerging market debt equity and currencies as money tends to flow to US treasuries.
However, in this case, we are seeing different scenario as investors are nervous on US treasuries and also there could be pressure on US treasuries with selling by key holders such as Japanese and Chinese central banks and we have seen USD depreciating against host of currencies in the last couple of months, especially Euro and swiss franc.Q) How are you managing volatility in your portfolio? Have you made any recent tweaks?
A) We have reduced our exposures in sectors which are exposed to global volatility such as global autos and metals while we are running market weights on Information technology and healthcare which are trading at reasonable valuations.
We have increased exposures in domestic oriented names in autos, banking, oil and gas and telecom in the last couple of months.
Q) What do you make of the March quarter results from India Inc.? Any winners and losers?
A) Nifty 50 has seen revenue growth of 7% and PAT growth of 8.5% which are above consensus estimates.
The sectors contributing to the growth were capital goods, retail, telecom and metals while growth was dragged by private banks, consumer sector and oil & gas.
Q) FOMC minutes indicated that further rate cuts could be data-dependent. But what about rate cuts back home? How do you see rates moving?
A) There has been softening of rates in the G Sec yields in the last one year led by strong rally in the bond market on expectations of rate cuts and inclusion of Indian bonds in global indices.
We believe any further reduction in the rate cuts in India would largely be contingent on the US lowering rates as we cannot afford to have lower differential rates between India and US markets.
Q) We are seeing some activity in the IPO markets. Do you see froth building in this space or an opportunity for long-term investors?
A) Our general experience has been that most IPO’s are at elevated valuations versus the comparables in the market with limited history of financials.
While some of them are in new industries and emerging sectors where existing plays are not available, however higher valuations makes long term returns difficult.
Q) Where do you find value in this market for long-term investors?
A) In terms of sectors, we see value in private sector banking, life insurance, telecom, chemicals and metals.
We also see domestic oriented industries as a good theme and looking to increase exposures in auto, power utilities and consumer durables.
Q) What is your call on the defence space? Many stocks experienced a double-digit surge following the escalation of geopolitical tensions between India and Pakistan earlier this month.
A) The defence sector has seen massive rerating in the last three months with the Nifty defense sector returning 69% in the last three months led by expectations of strong bout of ordering by the government and export opportunities given the success of our arms in the operation.
However, valuations have gone up as the earnings expectations was already elevated three months back and most of the positives from the opportunities are factored in the prices.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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