Set-up favourable for long-term investors, says Vetri Subramaniam

Subramaniam says cheap valuations and easy monetary policy will set the tone for attractive long-term returns

Despite a sharp correction, the markets have not dropped to valuation lows of the 2008-09 global financial crisis, says Vetri Subramaniam, group president and head of equity, UTI Asset Management Company. In an interview with Samie Modak, he says cheap valuations and easy monetary policy will set the tone for attractive long-term returns. Edited excerpts:

Will the stimulus packages being thrown around to contain the economic damage caused by the pandemic help?

The reverberations from the pandemic and its economic fallout are not fully calculable as yet. Fiscal policy will first be used to tackle the humanitarian crisis, health costs and loss of income. Then, further interventions may be required to address demand and supply-side issues and provide a stimulus to economic activity. The burden of lifting economies out of this challenging period will fall on fiscal policies.

Will rate cuts and bond buying programmes  lead to a spike in equities like we saw in 2009?

A market, where valuations are cheap and fiscal policy and monetary policy are accommodative, is well set for a favourable outcome over the long term. That is my lesson from 2009 and the crises before that. But there is no model than can give us a timeline or speed forecast for how the markets will behave. As a caveat, also note that while equites have experienced a sharp valuation cut and are in the attractive zone, they have not dropped to the valuation lows witnessed during the global financial crisis in 2008-09.

What’s your take on the measures announced by our govern-ment and the Reserve Bank of India (RBI)? What more is required?

The RBI has taken aggressive steps to address the growth challenge to the economy and ensure adequate liquidity within the system. The framework and timeline for debt forbearance may require further tweaks, including sector-specific policies. The government response in India has so far largely addressed humanitarian issues. More intervention may be required both in terms of social security, direct transfers and eventually further fiscal intervention to stimulate the economy. Households and firms are likely to exhibit a risk-averse behavior in the current environment. Under the circumstances, the Keynesian case for expansion of government spending and policy intervention is supportive. The fiscal deficit... is less of a constraint in this context.

As a fund manager, how are you navigating the volatility? 

My lesson from the past is that one should not be reactive – it is your actions before the crisis and volatility that are most crucial. Our focus, as always, is on what is in our control – the investment process and disciplined review of our holdings and risk management.