‘Don’t shift asset classes on 1-yr views’

‘Vetri’ in Tamil means victory. Not a bad name to have on board when you are starting off to make your mark among three dozen competitors, some of them multi-billion dollar gorillas. But, Vetri M Subramaniam brings in much more than a talismanic name.

Of his 14-year love affair with the Indian markets, a considerable part has been spent in the UK as an advisor to Boyer Allan Investment Management, where he helped launch an India-dedicated offshore fund. In his earlier stint at home, Subramaniam managed investments for Kotak Mahindra MF and Sharekhan.com and handled sales for SSKI Securities. Vetri learnt his management lessons at IIM-Bangalore.

The head of equity at Religare Aegon Asset Management says the focus will be on to bring out the plain vanilla products, irrespective of prevailing market conditions. “Our perspective is to roll out basic products without worrying too much about things not in our control. One thing we want to ensure is that we don’t plan for a tailwind and then run into a headwind,” he said.

The headwinds the market is facing have their origins in mid-2006. The RBI had clearly hinted tightening measures then. The market did not take cognisance of that and rallied further. “Unfortunately, when the effects of 18 months of tightening spree should have cooled down inflation, it started flaring up as a result of rising oil prices. Global liquidity position has deteriorated making things worse for the market.”
But there is some hope as oil prices are ‘pretty near the tipping point’, he said. While the supply-side issues are being addressed, demand destruction would eventually lead to a fall in prices.

Where does one make money next year? Subramaniam feels adjusting for the amount of pain, simplest returns one can make is from debt investments like fixed deposits and fixed maturity plans (FMPs).
The concerns of inflation being more than the returns seem misplaced. “We seem to be a little carried away by the past.

What you have to worry is inflation from here to next 12 months. It could be a lot lesser. Considering the underlying volatility one might face in other asset classes, it is not all that bad to deal with debt,” equities chief of Religare Aegon said.

But he is quick to add asset class shifts should be based on long-term investment strategy and not on one-year views. He recollects how in 2003 it was so difficult to convince anyone to purchase equity. People had 10-15% exposure to equities, at the most. It was a complete contrast in Diwali 2007.

“I was running into people who were 80% on equity. Logically, given the steep rise in equity market and relative lull in other asset classes, your 15% asset allocation in 2003 would have automatically become 70% plus. The trick with asset allocation is to keep shaving off regularly. Also, you should not shift from 0-50% or vice versa at one go.”

But foreign institutional investors seem to be making the shift at one go selling over $6 billion in six months. Subramaniam said the outflows are a result of the global de-leveraging. “We are seeing the reverse of liquidity creation process, which was started in 2003-04. In India’s case, flows are affected more because of the curb on P-notes, which was a simple way for overseas investors to invest here.”

In the scenario, Subramaniam will be a little wary of companies, which will face cost pressures due to falling demand and capex-heavy companies, which will get hit by high interest rates. Stocks with no earnings visibility in the next five-six years but quoting at high PE due to sum of the parts valuation are also a no-no.

Big users of steel will face difficulties given the sharp run up in the prices. “Only tailwind, I see, is for companies that will benefit from agri-based rural income. For the first time since the mid-90s, terms of trade are favourable with rise in volumes and higher prices.”
Among the sectors, though IT looks good, it’s not all rosy. “The IT rally of the last few months is primarily due to the depreciating rupee. Given the global economic scenario, the outlook remains cautious,” Subramaniam said. 

n_subramanian@dnaindia.net