The Hindu Business Line : Equities may deliver good returns in medium to long term: UTI

YOU can't be a serious investor in mutual funds and ignore what is being done by UTI, the country's No 1 fund manager. The latter, thanks to the new image it has nurtured in recent months, has been in the thick of things, its activities spanning a whole lot of areas concerning investment products and services.

The latest message being sent out by UTI, is, therefore, worth noting, especially so because it dwells on critical issues concerning the market. It becomes even more significant, given the scenario prevailing on the equity front over the last six months or so. The market, it is pointed out, has been quite volatile, coupled with considerable uncertainties.

The longish list of negative news flows into the equity market notwithstanding, there has been some resilience, notes Mr A.K. Sridhar, CIO. "One may argue that the broad market has not moved. But it has not fallen either," he contends, adding that equities may well deliver "good returns" in the medium to long term. This, in the context of the kind of liquidity that exists in the system as well as the growth that India Inc. has recorded in recent times.

UTI, which has urged investors to allocate a higher proportion of their investible surplus to stocks, is strongly in favour of a regular investment strategy. "Investing a part of the surplus, month after month, in equity funds will yield good returns even in this market over a medium to long term", is the fund's simple message. The reference is obviously to the concept of rupee cost averaging.

Those who wish to get into specifics may weigh the UTI CIO's views on some of the more happening sectors of the day - banking, power, cement and pharma. Banking, for instance, is an area where stocks are said to be still available at attractive valuations.

The power sector, it is further argued, is recording strong inflows, following financial closure of several new projects. UTI has maintained its stand on pharma, which is seen as an outperformer in the medium to long term. And, over the medium term, cement is expected to fare well too.

And as for some relevant, contemporary numbers, UTI has noted that the country's GDP has grown 8.2 per cent in the last quarter of FY 2004, second to China in the Asian region. Incidentally, while UTI believes that the high inflation reported in recent weeks will climb down to a level of 5-5.5 per cent over the long term, it is worried about the progress of the monsoons. The latter, however, has picked up a bit in recent days, a trend that is expected to bring relief to market participants.

All said and done, Mr Sridhar feels that the broad market is expected to be range-bound in the near future, with individual stocks and select sectors outperforming it.

On another front, he expects the buoyancy in the non-agri sector to continue.

Feedback may be sent to nilanjan@thehindu.co.in

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