The Hindu Business Line : Stocks will grow at a faster rate relative to the GDP

Seven out of 10 Indians did not participate in the stock market when it had rallied from 6,000 to 10,000 points, laments Mr A.K. Sridhar, ED, UTI Mutual Fund. For them, the worry now is not the fall but the volatility that has become quite evident these days, he adds. He also answers a question or two about UTI MF.

How do you account for the decline that we saw in early May?

You will have to understand that since January the Indian market went up from 9,000 points to 12,000 and more. This was perhaps too fast a rise, all of it happening in too short a period.

There were a number of stocks that did not merit the kind of valuations that we saw. Many of these were not based on solid reasoning

. Correction started with some selling, possibly by hedge funds, followed by late-entrant FIIs.

With regard to fundamentals, little seems to have changed...

Yes, the GDP story is fairly intact. India is drawing strength from her forex reserves that have crossed $160 billion.

The country's demographic profile is favourable and consumption patterns are changing rapidly. Reforms are continuing, albeit slowly.

There is a finer balance today between consumption and capex spending. I am convinced that the universe of listed stocks will grow at a faster rate relative to the GDP.

But there are concerns all right...

Right. Volatility will continue till clear signals emerge on the interest rates front. Once the market stabilizes, domestic liquidity will start flowing into equities. Select stocks will continue to outperform the market. In fact, over the past few years, liquidity has been driving various asset classes, sometimes beyond fundamentals.

Commodity prices had moved up, oil spiralled and gold spurted... now global interest rates are rising, metal prices have fallen and funds have moved out of emerging markets.

Where does this leave the debt fund investor?

We expect a rise of at least 25 basis points in the next few months. Debt will attract decent amounts of money even as regulations will be introduced to streamline the market.

Activity is expected to start again in March 2007 or so. Remember, interest rates were about 16-17 per cent in 1996-97 and administered rates held sway.

This has now become history... although the older generation has been affected.

The younger lot, with a different risk appetite and greater spending power, may want to create wealth by investing extensively in equities.

How has the changing equity market affected UTI MF?

Our retail clients have not moved money out of our funds. Nor did we see a discernible shift to liquid funds or other shorter term options.

On the contrary, schemes like UTI Dividend Yield Fund did record some inflows when the index was sliding towards 9,000 points.

UTI MF is currently optimistic that sectors like banking, cement and telecom have prospects.

We think corporate earnings growth projections at 18 per cent or so are achievable. Many stocks, even large caps, are now at attractive levels.

Any new products?

At this moment I can only say that we have filed an offer document for a Gold Exchange Traded Fund.

Also, a close-end equity product is in the offing. Such close-end funds may soon start playing a more important role.

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