Interviews

Mr. Anurag Mittal
Head - Fixed Income, UTI Asset Management Company Limited

Anurag Mittal is the Head - Fixed Income at UTI Asset Management Company Ltd. He is a Chartered Accountant affiliated with Institute of Chartered Accountant of India and holds a degree in Master of Science from University of London. He previously held the office of Senior Fund Manager at IDFC Asset Management Company Private Limited and managed key IDFC debt mutual fund schemes. Prior to this, he was associated with HDFC Asset Management Company Limited as Senior Manager - Investments and Axis Asset Management Company Limited as Fund Manager - Investments, responsible for Fund Management, Dealing and Research.

Q1. With growing speculation about a potential rate cut by the US Fed, which might prompt a rate cut by the RBI in India, what trajectory do you anticipate for interest rates? How could this affect your funds?

We expect 50-75 bps rate cut by the RBI in the next 6-12 months primarily due to easing food inflation and moderating economic growth. Given the expectations of a shallow rate cut cycle, we expect short to medium duration segments (3-7 years) of the yield curve to outperform in the medium term. We are accordingly positioned in our actively managed funds.

Q2. What will be the impact of geopolitical actions like war in Ukraine and Russia, Bank of Japan's interest rate hike and weaker U.S. labor market data on India's debt market?

Typically, geo-political tensions or volatile currency movements due to central bank actions (for example Bank of Japan’s) are negative for emerging markets. However, India’s favorable current account dynamics due to its improving service exports, high foreign investment flows & the robust FX reserves have helped maintain currency and bond market stability.

The Federal reserve in its last FOMC meeting has already stated that they may look to cut rates as balance of risks has shifted towards growth from inflation and they do not welcome “further cooling in labour market conditions”. Hence, we expect that the weak labour market in the US could propel the Federal Reserve to start its rate cutting cycle by 150-200 bps at a minimum in the next 12 months. While RBI may initially remain on hold given India’s still high growth & historically volatile inflation, we expect them to initiate the rate cutting cycle once they have greater confidence on the durability of disinflation.

Q3. How do you handle credit and interest rate risk within the fund?

At UTI Mutual Fund, we have leveraged our long-term track record of managing fixed income funds, our research capabilities & risk management tools into developing our in house curated fixed income investment framework – “GIMS” which stands for Gate, Investments, Monitoring & Surveillance. The objective of the GIMS framework is to select the most suitable companies for our investment universe, create a framework for portfolio strategy with well-defined risk limits and ensure consistent monitoring of the portfolios.

We strongly believe in active duration management across our funds to optimize our view on interest rates. What is really important for us is to ensure a strong team to safeguard quality views. As Michael Jordan once said, “talent wins games, but teamwork wins championships”. Our team is not only highly experienced but extremely stable. All our fund managers have an experience of 15+ years in UTI.

Q4. What kind of growth have you seen in the popularity of debt funds over the last 4-5 years? What is fueling this trend?

Fixed income funds (excluding liquid/overnight) AUM has grown from Rs. 5.1 trillion in FY19 to Rs. 9.71 trillion in FY24 registering a healthy CAGR of 13.7%. However, the product mix is changing incrementally after the changes in taxation for fixed income mutual funds. While duration and target maturity funds were contributing meaningfully to flows till FY23, it is money management products which are driving flows in recent times. While investors are adjusting to the new tax regime, we believe over the longer term, investors should start re-allocating to fixed income funds to realise the advantage of a diversified, transparent and relatively liquid product.

Q5. This year, foreign investors have poured a net $13 billion into Indian bond markets. A July report from SBI Research forecasts an additional inflow of $20 billion to $22 billion by March 2025. What might be driving these anticipated investments?

India has become part of JP Morgan's Government Bond Index-Emerging Markets from June 2024. The index is being tracked by approximately $213Bn of assets globally (Source: Business standard). Given India’s 10% weight, even an index weighted allocation can potentially bring in approximately $21-$22 billion inflows. Moreover, India is attracting non-index fixed income allocation as well given its stable currency as well as improving fiscal dynamics. India is a very attractive fixed income emerging market which gives high absolute yield with a very stable currency to foreign investors.

Q6. What would be your advice to investors investing for short term, medium term and long-term investment horizon considering the current market trajectory?

Every individual’s allocation may depend on their risk appetite and investment horizon. Typically, investors look at fixed income for predictable and stable returns as well as to provide counter-cyclicality to their equity exposure. Hence, investors may allocate their fixed income investments largely in moderate duration (1-4 years) and high credit quality products. Broadly, investors can consider 5-10% of their fixed income allocation to liquid/overnight funds for their contingency needs. 60-70% of their allocation can be considered for moderate duration funds (1-4 years) & the balance can be allocated to high duration/high credit risk funds as disciplined allocation to provide diversification to an investor’s portfolio.

Source: Bloomberg, AMFI

The views expressed are the author’s own views and not necessarily those of UTI Asset Management Company Limited. The views are not investment advice and investors should obtain their own independent advice before taking a decision to invest in any asset class or instrument.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Mr. Ajay Tyagi
Head - Equity, UTI Asset Management Company Limited

Ajay Tyagi is the Head of Equities at UTI Asset Management Ltd. He is a CFA Charter holder from The CFA Institute, USA and holds Master’s degree in Finance from Delhi University. Ajay joined UTI in the year 2000 and has successfully carried out various roles and responsibilities across equity research, offshore funds as well as domestic onshore funds. He has won many awards and accolades for his performance both domestically and globally. Ajay presently manages our flagship equity scheme in India and is also the Investment Advisor to UTI International’s range of India dedicated offshore funds.

Q1. Global markets have been experiencing a sustained sell-off, and commodities are leading the decline. How do you view the global economic situation? Do you think we’re in for a challenging second half of the year?

The global economy is facing a slowdown, with notable signs of weakening in growth in major economies. Developed market economies are witnessing a slowdown in growth with the US economy expected to moderate, if not enter a recession. Amongst the major emerging economies, China continues to report muted growth, and the anticipated economic recovery has yet to materialize. In an environment of lower global growth, demand for global commodities is likely to be under pressure, which is driving the moderation in commodity prices. Crude oil is a prime example of this phenomenon. Oil prices continue to face downwards pressure despite the OPEC+ group taking production cuts, diminishing the cartel’s ability to influence prices amidst expectations of moderation in demand.

Q2. Do you believe the current clampdown on speculative trading will affect market sentiment or momentum, or will the focus shift back to fundamentals next week?

Recent data shows a remarkable surge in futures and options (F&O) activity, with F&O transaction volumes now exceeding the nominal GDP of the country. For FY24, F&O turnover (premium) reached ₹481 trillion, compared to the projected nominal GDP of ₹362 trillion for FY25. To highlight the scale of this growth, the F&O turnover (notional) is about 368 times larger than the cash market volume and has surged nearly 48 times since FY2018.

This stark increase in speculative trading has been driven largely by rising retail participation over the past few years, prompting regulators to highlight this as a compelling concern. In response, the regulator has taken necessary steps to address the disproportionate growth of F&O volumes and retail participation. These steps, while prudent, may impact market sentiment in the short term. Participants heavily engaged in derivative trading may react to tighter restrictions, potentially causing temporary shifts in liquidity and pricing. Nevertheless, these steps should contribute to the long-term health and integrity of the financial markets. Over the long-term, investor behaviour and market’s direction shall be driven by the underlying growth in the economy and corporate earnings.

Q3. How do you evaluate the IPO market, given that many recent listings are yielding significant returns for investors? Do you detect any signs of froth or excessive enthusiasm at the moment? SEBI has expressed concerns regarding SME IPOs—what are your views on this?

At UTI, we adopt a bottom-up approach when evaluating IPOs. We focus on assessing individual companies based on their long-term fundamental outlook, rather than following broader market themes or narratives. Through this approach, we’ve identified a few IPOs over the past couple of years as attractive investment opportunities worthy of participating in, while we have let the others pass.

Recently, there has been heightened activity in the IPO market, both on the SME exchange and the main exchange. This surge reflects growing interest in new listings across various sectors, creating a dynamic environment for investors. However, we remain selective, guided by our commitment to fundamental analysis and long-term value.

Q4. It seems that conditions are favorable for a potential rate cut by the US Fed in the upcoming policy meeting. Could this signal a "risk-on" sentiment for equity markets?

Generally, interest rate cuts are viewed positively by the market, as they typically encourage investment and stimulate economic activity. However, this optimistic sentiment hinges on the future trajectory of the US economy. If the economy continues to grow, even at a lower rate, or even in case of a shallow recession, rate cuts may act as a supporting factor for equity markets. However, in case of a deep recession, the positive impact of rate cuts on market sentiment may not materialize as anticipated. In such a scenario, investors might remain cautious due to lingering concerns about economic stability, which could keep overall market sentiment negative despite the lower interest rates.

Q5. Foreign Institutional Investors (FIIs) withdrew approximately 15,000 crores from financial stocks in the first half of August and increased their exposure to defensive sectors such as healthcare, FMCG, and consumer services. What is your long-term outlook for the financial sector? Is it advisable for investors to invest now?

We have a positive view on the financial services sector, driven by expectations of continued financialization of savings in the country over the long-term. Rising financialization is expected to have a positive impact across various financial services, including insurance, asset management, wealth management, and broking. As households increasingly channel their savings into formal financial products, businesses in these segments should see significant growth. Additionally, India's credit market remains underpenetrated. We believe credit growth in the country should at least align with nominal GDP growth, if not higher, presenting a substantial long-term opportunity for financial institutions.

From a valuation perspective, the financial services sector is currently trading at or around its long-term averages, making it relatively attractive compared to other sectors in the market. This combination of growth potential and reasonable valuations reinforces our positive outlook on the sector.

Q6. Do you think the recent market uptrend over the past couple of months is primarily due to inflows, or do you believe it is supported by strong fundamentals? Q1 earnings were relatively weak. It appears that SIP flows and mutual fund investments might be fueling the market.

The fundamentals of the Indian economy remain robust, and we continue to anticipate strong growth over the coming decade. Key drivers such as demographic advantages, increasing urbanization, and structural reforms should sustain India’s long-term growth trajectory. However, it's important to note that current market valuations are higher than their long-term averages driven by the re-rating of several companies witnessing a cyclical upswing in growth. In certain cases, valuations have moved ahead of the underlying fundamentals. While this may create short-term price fluctuations, the robust economic outlook provides a strong foundation for long-term growth.

Source: Media reports, Bloomberg, SEBI

The views expressed are the author’s own views and not necessarily those of UTI Asset Management Company Limited. The views are not investment advice and investors should obtain their own independent advice before taking a decision to invest in any asset class or instrument.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Mr. Marzban Irani
Chief Investment Officer – Fixed Income, LIC Mutual Fund Asset Management Ltd.

Mr. Marzban Irani is our debt market expert having rich experience of 22 years in Fixed Income. He has played a pivotal role in building LICMF’s image of Mutual Fund of investor’s choice for Debt funds. Mr Irani is a PGDBM - Chetana’s Institute of Management & Research, Mumbai. B.Com – Mumbai University

Q1. Do you think the Fed will adopt a measured approach, or will the slowdown in growth prompt them to implement rapid, consecutive rate cuts? If the pace of cuts accelerates, where do you anticipate interest rates in the US will eventually settle?

Recent jobs data has indicated a slowdown in the U.S. economy, which may influence the Federal Reserve's policy decisions. The Fed Fund Implied Probability is currently suggesting a strong likelihood of a rate cut in the September policy meeting and also a chance of an additional cut in the December policy meeting. In total, this implies a potential reduction of around 50 to 100 basis points by the end of 2024. Given the proximity to the upcoming elections, it is likely that the Federal Reserve will initially take a measured approach to rate cuts. However, if economic growth continues to weaken, the Fed has the option to accelerate the pace of rate cuts to provide additional support to the economy.

Q2. Will the Fed's decision to maintain, cut, or raise interest rates significantly influence India's economic and market trajectory?

India is currently positioned with strong macroeconomic fundamentals. The fiscal deficit is on a declining trend, inflation is decelerating with core inflation around 3% according to Ministry of Statistics and Programme Implementation, and growth numbers remain robust. These positive indicators suggest that India may not be heavily impacted by the Fed's decisions on interest rates. However, it is important to note that a hard landing in the U.S. could cause a knee-jerk reaction in Indian markets in the short term. Despite this potential short-term volatility, India's long-term economic prospects are expected to remain strong and resilient.

Q3. On budget day, the rupee experienced a sharp drop to a record low, likely influenced by reactions in the US markets and recession concerns. What’s your perspective on this movement?

The reduction in import duties on gold and other products during the budget is likely to impact the Current Account Deficit which may contribute to the rupee's decline. Given the ongoing geopolitical concerns, the rupee is expected to remain under pressure. However, the RBI's proactive approach in building up record reserves may offer a degree of protection, providing some immunity in the event of a global recession.

Q4. What factors contributed to the decline in the 10-year Indian government bond yield from 7.19% in March 2024 to 6.92% in July?

The decline in the 10-year Indian government bond yield can be attributed to several key factors. The demand-supply dynamics have favored demand, particularly from domestic investors such as insurance companies and pension funds. Additionally, policy continuity post-elections has provided stability, while the anticipation of JP Morgan bond flows has bolstered investor confidence. Furthermore, declining core inflation and the government's commitment to reducing the fiscal deficit have also played significant roles in lowering yields.

Q5. Experts believe Bond yields are likely to drift lower. In such a case, what should be your fixed income portfolio strategy?

For medium to long-term investors, it is advisable to consider medium to long-duration funds, tailored to your risk appetite. The three to five-year segment appears particularly attractive on a risk-adjusted basis, as a bull steepening is anticipated with the RBI potentially adopting a more dovish tone in the near future.

Q6. Can AMFI's 'Mutual Fund Mein Fixed-Income Wali Baat' campaign effectively broaden the appeal of mutual funds to include debt-focused investors, thereby driving long-term industry growth?

The campaign has the potential to significantly raise awareness about debt as an asset class, highlighting its importance for portfolio stability. By educating investors about the role of debt in a balanced investment strategy, the campaign can broaden the appeal of mutual funds to include debt-focused investors. This increased awareness and understanding could drive long-term growth for the industry by encouraging more investors to incorporate debt funds into their portfolios.

Mr. Nikhil Rungta
Co - Chief Investment Officer - Equity, LIC Mutual Fund Asset Management Ltd.

Mr. Nikhil Rungta is a seasoned investment professional with extensive experience in managing diverse investment portfolios. He has a track record of developing and implementing successful investment strategies and also has demonstrated ability to conduct comprehensive market analysis and identify investment opportunities. Mr.Rungta is a Rank holder Chartered Accountant, MBA (Finance)-NMIMS, FRM (GARP) and also has ESG certification issued by CFA UK Society.

Q1. We're aware of the adjustments to LTCG and STCG announced in the Budget. How do you think these changes will affect mutual fund investments?

The recent adjustments in LTCG and STCG may slightly reduce post-tax returns for equity mutual fund investors. However, Equities and Mutual funds being long term instrument for wealth creation, the impact may be miniscule. Despite the hike in capital gains taxes, India's rates remain among the lowest globally. The modest increase, particularly in long-term capital gains, still positions equity mutual funds as the most favorable asset class for long-term investors.. Overall, the impact of these tax changes on equity mutual fund investments is expected to be minimal.

Q2. We know that tax changes shouldn't necessarily drive investment strategy adjustments. However, to optimize benefits, is there a specific category that has become more appealing following these changes?

As noted earlier, the recent tax changes will have a minimal impact in individuals investment strategy and Equities may continue to be a preferred asset class.

Q3. What's your view on SEBI's measures to regulate the surge in retail activity in F&O trades? Do you think these measures will be effective?

Globally, institutional investors dominate the F&O markets due to their expertise in strategy and risk management. In contrast, India has a significant retail investor presence in these markets. SEBI's studies indicate that most retail investors incur losses in F&O trades, likely due to inadequate strategy and risk management. While Indian equities may offer strong risk-adjusted returns for long-term investors, the same cannot be said for short-term F&O trades. Therefore, SEBI's measures are a step in the right direction. The proposed increase in securities transaction tax and short-term capital gains tax could reduce retail participation in F&O to some extent. To further curb speculative trading, SEBI might consider reducing the number of single-stock options and increasing lot sizes to make speculative positions more challenging for small investors.

Q4. Given the current global economic headwinds, how resilient do you believe the Indian market will be for the remainder of the year? To what extent will domestic factors outweigh global influences?

The Indian equity market is influenced by global factors such as growth, cross-border portfolio flows, and investor sentiment. While global macroeconomic headwinds will inevitably affect India, the country is better positioned than most peers. Strong macroeconomic performance, robust corporate earnings growth, increasing household equity allocations, and reasonable valuations suggest that the Indian market may l demonstrate greater resilience.

Q5. Given the recent appreciation of the yen, could the unwinding of yen carry trades impact Indian equity markets? Are there potential risks of capital outflows from India due to this shift in global currency dynamics?

The global carry trade exposure since 2021, is relatively modest compared to the size of the global financial system. India’s exposure, is also not significant. According to market analysis, globally major part of yen carry trade has already seen significant unwinding. Therefore, yen carry trade poses no major challenge to Indian or global equity markets at this stage. Given strong macroeconomic and corporate fundamentals, along with reasonable equity market valuations, India is unlikely to face significant cross-border portfolio equity outflows in the near term.

Q6. Reduction in the corporate tax rate for foreign companies from 40% to 35%. Is it a move in the right direction?

Yes, this reduction will likely encourage more foreign direct investment in India.