UTI AMC bets on new pvt banks; shuns energy, PSBs

Given the uncertain global environment and indifferent domestic business scenario, one should expect quity markets, India included to remain volatility, says Lalit Nambiar, SVP and fund manager, UTI AMC.

In an interview to moneycontrol.com, Nambiar said the current situation can be referred to as a ‘sideways’ market; a bear market accompanied by sharp and short rallies.

So, one should scout for stocks with strong underlying business traction, healthy cash flows, even if they are available at slightly expensive valuations, he suggested. "We look at strategically picking undervalued stocks on a 'bottom-up' basis."

Sectorally, UTI AMC is betting on new private sector banks and shunning most public sector banks (PSBs) and energy stocks.

"With a potential farm loan waiver on the back of poor monsoons and the run-up to state and general elections round the corner, we would continue to avoid most of the PSBs. We are also avoiding the energy sector, given the policy issues in this area," he explained.

Meanwhile, Nambiar advices equity investors with limited time and analytical resources to invest in 'process-oriented' mutual funds through systematic investment plans (SIPs) and be patient.

Below is the edited transcript of Nambiar’s interview with moneycontrol.com

Q: What strategy are you employing for your funds this year?  

A: It is an uncertain global environment where some of the developed markets, which are heavily indebted, are staring at a potential deflationary spiral. They are using bouts of currency debasement and debt monetisation to counter the immediate impact on confidence in their economies. Given all this and an indifferent domestic business scenario, we are looking at continued volatility in equity markets including that of India.

Essentially you could call this a 'sideways' market, a bear market where there could be sharp and short rallies. This scenario calls for a core portfolio of stocks with a strong underlying business traction and healthy cashflows, even if available at slightly expensive valuations. Around this core, we look at strategically picking undervalued stocks on a 'bottom-up' basis.

Q: Which are some of the sectors and themes that you find attractive in the market at present? How are you positioning your funds in the present context?

A: We like select private sector banks which we are using to play beta. The defensive plays in consumer and utilities are expected to hold us in good stead in a sudden collapse.

Q: What is your assesment of the earnings season so far? 

A: It was in line with our expectations except for IT. 

Q: Do see equity valuations as reasonable at these levls?

A: Historically valuations are reasonable in isolation. But, our fundamentals such as earnings growth and ROE have also deteriorated. Net-net we are neither at bargain-basement valuations nor extremely overvalued, we are somewhere in the middle.