Vetri Subramaniam Sees This Dotcom Crash Trend Behind Equity Mutual Fund Withdrawals

"When a large number of retail investors come to the market and then the market sees a sharp decline, the first reaction is to redeem after a recovery," said Subramaniam, group president and head of equity at UTI Asset Management Company Ltd. This is not the first time he has seen such a behaviour. "The same thing happened in 2001-03 (dotcom crash and recovery)."

Mutual funds have seen six straight months of outflows even as the benchmark indices have recovered losses and trade at record highs after falling to their lowest in more than a decade in March.

Another reason for withdrawals is people accessing liquid assets to keep businesses running or because of salary cuts, he said. Subramaniam, however, said that inflows through systematic investment plans have largely held steady, and he sees withdrawals slowing as the economy recovers.

Key Investments

UTI AMC's investments helped the asset manager sustain the withdrawal pressure, said Subramaniam. The fund house didn't make any major changes in the portfolio and held on to its positions in information technology and pharmaceuticals, the two sectors that withstood the disruption of the pandemic.

While financials is a challenging bet, there is a separation between stronger players with higher capital and lower bad loans, according to Subramaniam. The fund house is underweight on financials but backs strong names that would gain market share after the pandemic as they have trust of depositors and bond markets.

Its schemes also gained from the upturn in its bets on passenger car, two-wheeler and tractor makers in the automobile sector, Subramaniam said. Autos is a high return-on-capital sector with free cash flows, he said.

The auto slowdown is two years old and the pandemic has cleaned up inventory, something that will aid output now, according to Subramaniam. UTI AMC will continue to hold on its positions in the sector, he said, as the auto sector is a structural story strong due to under-penetration.

Subramaniam, however, agreed that the market is expensive. But he sees valuation comfort in mid and small caps, and some cyclical stocks.

His advice to investors, though, is to choose stocks that offer high return on capital, strong operating cash flows. "That is the only way to prepare portfolio to difficult times."

Watch the full conversation here: