‘We expect a downgrade in EPS of Sensex basket'

Mr Harsha Upadhyaya is Executive Vice-President and Fund Manager, UTI Asset Management Company. He has been managing funds at UTI AMC since 2006. He manages an AUM in excess of Rs 4,000 crore across five funds. In an interview to Business Line , he gives insights into various issues related to the equity market.

Where is the stock market headed?

The current rally is purely driven by FII flows. Fundamentally no economic indicator has changed. Crude is at $124 a barrel and unlikely to sustain at these levels for long.

Reallocation of Japanese assets across emerging markets could be one of the reasons. In the short term, markets are expected to be range bound with some downside if liquidity flow reverses. The worst case scenario for GDP growth is 7 per cent.

What about valuation?

We expect a 5 to 6 per cent downgrade in the EPS of the Sensex basket that is currently at 1,274. The key issue is whether the money into India will keep coming despite all the negatives. However, the second half will be much better than the first half.

If monsoon is normal, inflation will cool off. Interest rate scenario will change. But the market would remain range bound for the next couple of quarters.

What do you expect from the FY11 earnings season?

We expect a 11 to 12 per cent for Q4 FY11 over the corresponding quarter of last year, i.e. Q4 FY10.

What is your take on the capex plans of corporates in the coming fiscal?

We expect capex to pick up in the second half of this fiscal.

There is always a hesitation to undertake capex during a hardening interest rate regime but that should change in the second half.

What has been the incremental AUM addition to your schemes?

Take the case of UTI opportunities fund that has a long-term focus. We have seen 15 per cent incremental AUM additions and its AUM is now Rs 1,600 crore.

The fund has been consistently outperforming its benchmark — the BSE 100 — since 2007 and it is this consistency and acceptability that has led to the inflows.

What is the frequency with which you churn and what are your cash levels as a percentage of AUM?

We are comfortable with an average cash level of 4 to 5 per cent. We prefer to churn rather than take cash calls. Our frequency of churn including derivatives is 0.9 (less than one) and 0.6 if derivatives are excluded.

Do you write options?

We never did options. Given the kind of investor base and profile that we have, we have restricted ourselves.

We do arbitrage in cash and futures and would continue to do that and would not like enter into derivative transactions that most of our investors do not understand.

What sectors are you looking at going forward?

Our current portfolio has 20 per cent exposure to FMCG, 15-16 per cent in banking and energy distribution and 7 to 10 per cent in cement, IT, auto and auto ancillary. We are underweight on banking and have brought down our exposure from 24 to 16 per cent because of the margin pressures that banks are expected to face.

We usually follow a 70:30 allocation pattern, 70 per cent in large caps and 30 per cent in good quality mid caps.

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