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Bullish on Indexing

Swati Kulkarni, Fund Manager, UTI Asset Management, says investors will look for low expense/load funds as the excess return may not compensate higher expense ratio of actively managed funds

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This old article may have references to outdated tax rules and laws. For up-to-date information on taxation of mutual funds, refer to

After doing her Masters in Financial Management from Narsee Monjee Institute of Management, Swati Kulkarni worked with Reliance for a year before joining UTI Mutual Fund in 1992. She worked in the research and development department mainly handling market and macro research and product reviews, before moving on to fund management in 1998, where she acquired hands-on experience of analysing companies across industries. In 2001, she managed an off-shore fund for a year and subsequently moved to domestic funds in 2003. Excerpts from an interview:

What’s your view on the current levels of the market? Do they look scary?
The valuations appear fair. However, investors with medium-term horizon can still take home good returns from the current level. I believe that the multiplier effect of infrastructure investment will continue to have a favourable impact on other sectors. The growing working class population with rising income levels, domestic orientation of the economy, increasing contribution from services sector and reducing dependence on agriculture for economic growth are structural macro positives that would continue to attract investment in equity over medium- to long-term. I don’t think the market is scary. But, there could be pockets of correction depending on the liquidity movement in the short-term. Domestic flows to equity have been plentiful and so are from the FIIs. Long-term support in terms of retail participation is expected through systematic investment plans and pension reforms.

Having said this, I expect equity to deliver returns in line with the earning growth of 15-18% over a period of time, which could be still better than the return expected from the alternative investment avenues. It will be unfair to expect super normal returns, like the recent past, from current levels.

Are there pockets or sectors where you see a bubble and which you would like to avoid right now?
I don’t think there is a bubble forming in any of the sectors right now. Expectations of growth and investment horizon could be different among the market players and hence there could be difference in valuations assigned by different people. For example, those who perceive higher growth and have longer investment horizon would be comfortable with current higher multiples.

I, would probably hold on to existing exposure and look for taking fresh exposure if there is a correction in the engineering and capital goods space at this point of time. I would avoid ferrous metal since I feel there could be pressure on price consequent to increasing supplies.

Which sectors are looking promising to you?
The banking sector should do well despite the near-term pressure on account of rising interest rate and gradual loan re-pricing due to competition. India is moving to a higher growth trajectory and banks provide excellent proxy to ride the economic boom. Opportunities in retail financing will continue, as retail finance still forms a small percentage of GDP compared to the Asian average. I expect the FMCG sector to do well as organised retail format gains prominence on the back of growing working population.

The oil sector could be an excellent bet from a long-term perspective. Other promising sectors where there is visibility of earnings growth are information technology, infrastructure, textiles and pharmaceuticals.

Tell us about your research team and stock selection process.
We have nine analysts tracking various sectors, covering more than 180 companies. In addition, each fund manager has at least one assistant fund manager who is actively involved in individual fund strategies. Besides this advisory support, the fund manager is free to take exposure to other stocks after a detailed analysis encompassing the valuations, competitive strength, growth potential and m

This old article may have references to outdated tax rules and laws. For up-to-date information on taxation of mutual funds, refer to

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