Good rains, pay hikes to cushion global tremors: UTI MF

Himadri BuchMoneycontrolA favourable policy regime and robust business environment have made India a preferred destination for global money managers, says Swati Kulkarni, Executive Vice President and Fund Manager at UTI Mutual Fund in an interview to Moneycontrol.“Due to the administrative and legislative reforms happening, confidence is building up around the world for India,” Kulkarni said.The Indian market has been volatile over the last month, and most experts feel expensive valuations and global events are holding back investors from buying at higher levels.Speculation about a rate hike by the US Federal Reserve and the outcome of the US Presidential elections are the two major triggers in the short term. In addition, there has been persistent concerns about the state of the Chinese economy and the fall-out of Brexit.Kulkarni says any tremors in the global markets will be felt in India as well, but corrections could be short-lived.“Since India’s fundamentals are improving and are more domestic-driven, investor interest will return and so corrections are expected to be short-lived,” she said.According to Kulkarni, near-term valuations are fair and FY18 valuations at 15 times PE are reasonable as she expects earnings growth to pick up.She envisages monsoon-related benefits to start showing results from the second half of this year.She does not expect a big shock to global markets from the US Fed rate hike as it has already been discounted to a large extent.Good monsoon, pay hikes for government employees under the Seventh Pay Commission and government spending on roads could be the key drivers of market sentiment, feels Kulkarni.She is bullish on domestic cyclicals such as automobile, cement, short cycle industrial manufacturing and construction. "These sectors are expected to show steady earnings growth and do not necessarily depend on the fresh capex in the economy in the near term. Kulkarni said.Another reason for domestic cyclicals to perform well is that post good monsoon, ground water levels have improved, which will support winter crop. This along with Seventh Pay Commission pay-off is expected to provide demand support for the sector as consumer confidence improves with increase in liquidity in hands of the people.Government spending on roads, railways, rural infrastructure augurs well for the prospects of construction companies with better balance sheets.Among the financial pack, the fund house is upbeat on private sector banks with a predominant retail focus, and also bullish on NBFCs and select PSU banks. She is neutral on IT and pharmaceutical sectors.Kulkarni expects a revival in information technology sector only if the companies are able to acquire some good companies that can improve their offering.“We have a neutral position in IT sector, as we believe that, though the near-term growth outlook has moderated, certain companies have huge cash positions which might be used for seeking inorganic opportunities for growth,” said Kulkarni.“Also, in a scenario of pace of Fed tightening going beyond the current market expectation, the INR currency is likely to depreciate which will provide a tailwind for the sector,” she added.Strengthening of US dollar will benefit information technology companies as far as their margins and passing on the cost pressures are concerned.Kulkarni manages Rs 14,000 crore across five schemes: UTI Top 100 Fund, UTI MNC Fund, UTI Mastershare Fund, UTI Dividend Yield Fund and UTI Opportunities Fund.Of these, UTI Mastershare Fund, completes 30 years this month. The fund started as a close-ended equity scheme, and went open-ended in early 2000. Kulkarni has been managing it since November 2006, but her association with the scheme began much earlier in 1986 when her father invested in it on her behalf.A volleyball and music aficionado, Kulkarni follows Warren Buffet’s investment philosophy of buying good businesses even if expensive, as there is a high probability of making decent returns in the long run.One of her favourite books include ‘In Search of Excellence’.