The Hindu Business Line : ‘We held cash as a hedge against a falling market”

We have restructured our portfolio to mitigate possible risks from higher raw material costs. - HARSHA UPADHYAYA, FUND MANAGER, UTI OPPORTUNITIES FUND

HARSHA UPADHYAYA, FUND MANAGER, UTI OPPORTUNITIES FUND

Harsha Upadhyaya, Fund Manager of UTI Opportunities Fund, spoke to Business Line recently on the fund’s performance and sectors where he perceives opportunity now.

Excerpts from the interview:

UTI Opportunities Fund hasn’t made big bets on sectors such as pharma and FMCGs which have weathered the recent market decline well. Any specific reason for this?

While pharma and FMCG sectors have outperformed the falling market on a relative basis in 2008, the fact is that there has been no absolute positive return, except in a few stocks during this period. While we viewed these stocks as defensives, the valuations were not too comforting. We feel vindicated now, as the FMCG sector has declined by about 15 per cent last month.

UTI Opportunities Fund held a significant cash position of over 10 per cent as of end May. Have you deployed this in the recent correction?

We continue to hold similar cash positions in the fund even now. During periods of value erosion in the equity market, as witnessed now, cash provides partial hedge against fall in value. In recent times, there has been heightened volatility in the equity market. We are looking to gradually deploy cash going forward, as increased volatility expands the universe of attractive investment opportunities for long-term investors.

Which sectors would you think are best placed now, to weather commodity price inflation and high interest rates?

We believe IT, telecom, pharma and select FMCG stocks are better positioned to weather commodity price inflation and high interest rates. Also, companies that are less leveraged and without any significant capital expenditure programmes are relatively better placed in the current scenario.

Despite a mandate allowing you to take concentrated sector exposures, UTI Opportunities has actually not taken focussed bets on its top sectors recently. The May portfolio, for instance, shows a 7-9 per cent allocation to the top sectors. Why is this?

The fund benefited from its concentrated overweight position in industrial manufacturing, finance and construction sectors, all of which significantly outperformed the broader market in 2007. However, we started pruning the exposure these sectors, beginning 2008, given the high valuations and possible squeeze in margins. In a deteriorating macro scenario, the focus on capital preservation was of paramount importance. We will gradually increase our sector exposures depending on the comfort we derive from the quarterly results. These strategies have helped us achieve relatively superior performance through different market phases.

Corporate earnings showed clear signs of a slowdown in the December and March quarters. What’s your expectation for the June quarter?

We believe that the overall corporate earnings are likely to witness a visible slowdown in the coming few quarters. We feel that in the June and September quarters, there will be an increase in the number of negative surprises on earnings front, mainly because of raw material cost pressures. In line with this expectation, we have restructured our portfolio in an attempt to mitigate possible risks.

Sectors such as infrastructure and capital goods have been among the worst hit by the recent correction. Are lower valuations for these stocks here to stay?

Stocks in infrastructure and capital goods sectors have corrected mainly due to margin concerns. Some companies were also hit due to some delays in execution. However, the order-book positions of most of these companies continue to be robust. Once there is more comfort on execution and sustainable profitability, we think the valuations of these companies will improve.

AARATI KRISHNAN

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