Avoid metals, PSBs safe bet as 2-3 year investment: UTI MF

In an interview with CNBC-TV18, Swati Kulkarni, Executive VP and Fund Manager at UTI MF said that although inflows into mutual funds have slowed down, investors have not panicked despite returns being negative since last one year.

She further said that asset quality issues will persist for the next 2-3 quarters but the public sector unit (PSU) banks look attractive with an investment period of 2-3 years.Below is the verbatim transcript of Swati Kulkarni's interview with Anuj Singhal and Latha Venkatesh on CNBC-TV18. Latha: Give us an idea of how your investors are behaving. Did the jitters of January make any of your funds flow AUM negative? A: No, unfortunately, investors have decided to stay put in this volatile time. Being at UTI, we always had the benefit of retail investors backing the fund. So we haven’t seen much of investors' jitters even after negative returns for last one year or so. Anuj: Have you seen incremental inflows as well in your funds, which you would now want to deploy and is it right time to deploy those funds? A: We had a good amount of flows and those flows could have slowed down besides we do have specific systematic investment plans (SIPs), which keeps on happening irrespective of the market levels. As far as deploying those liquidity is concerned, because we are long only funds and because the valuations have turned at attractive level, we are not taking the call on the liquidity at this point of time but we have been looking --wherever we have comfort adding those positions. Latha: How is the market itself looking to you from your vantage point? Does it look like that 7,241 bottom will hold? Is cash still better than stocks? A: It could be, we don’t know exactly in short-term how the markets could remain, it might be range bound that is what our thought process is at this point of time. So we may be having time to choose whether we want to chase a stock or we want to wait for our price levels. But I am saying when it is a generalised comment, it is that we are using the cash flows to be deployed in the market. We might choose one of the sectors over other or in terms of stock specific, we might decide the entry points but apart from that, it is business as usual. Anuj: What about PSU banks? We have seen the maximum wealth destruction in this space but would you be willing to take contra bet here? A: From a perspective of next three years or so, PSU banks look attractive. The question is that in absence of credit demand growth in the near-term, you could see asset quality pressures lingering around for a longer time maybe at least two quarters from now on. Also the uniform recognition -- the move that probably Reserve Bank of India (RBI) has taken could throw some surprises for at least for the tier II banks. There we want to see how this is going to affect the balance sheets of some of the PSU companies before we take a big call on this. Latha: What would your call be on the economy facing banks vis-a-vis the retail banks? The standout performance has come from the likes of IndusInd Bank, HDFC Bank and Kotak Bank, not terribly economy facing banks, so what would you do with Axis Bank, ICICI Bank and State Bank of India (SBI)? A: I would like to distinguish between how we look at from a corporate banking versus retail banking. So the preference is going to be towards retail banking for some time to come and we are also thinking of -- or we do have some exposure to play -- on the rural recovery part through the non-banking financial companies (NBFCs). So that is the construct at this point of time. I believe that we will use the volatility to form a view on some of the leading PSU banks. Anuj: What about metals? We have seen a bit of a rally play out over the last two days. Is this a good sector to invest now after the correction? A: I have been always saying that structurally when China is moving away from investment led growth to consumption led growth and China being the world's biggest capex spender, it is going to be a big issue as far as the structural advantages or the demand that earlier this sector enjoyed. So from that perspective, it is quite possible that this sector comes at attractive valuations and there could be some amount of investor interest who are typically looking at value buys. However, given that the China is not likely to come back in a hurry and the import threat on some of these commodities might still affect the pricing power in the region for the commodity producers or people whose business models are built on the conversion of these commodities -- from that perspective -- we would like to avoid this sector.