Want to beat stock market volatility? Veteran fund manager shares tips; also tells where to invest | INTERVIEW

One of the ways of reviving the economy would be heavy government spending on the infrastructure sector, Dongre said.

With the road-map for an economic recovery being charted out, one of the sectors that might gain amid this could be the infrastructure sector. High spending on the capital goods / infrastructure sector tends to have a high multiplier effect on the demand in the economy over medium term, said Sanjay Dongre — Executive Vice President & Sr Fund Manager – Equity at UTI AMC, in an interview with Kshitij Bhargava of Financial Express Online. The market veteran with over decades of stock market experience also shared tips on how investors can beat a volatile equity market and shed light on what sector he is keenly watching at this juncture. Here are the edited excerpts.

Volatility has been a concern, but we often see market veterans claiming that volatility is an opportunity. What strategy should investors follow to beat volatility or benefit from it?

Systematic investment plan (SIP) is one of the routes to ride the volatility in the equity market. Another strategy to beat volatility would be to pay utmost importance to asset allocation. At higher market valuations, investors need to have lower exposure to the equity asset class. At lower market valuations, investors should have a higher allocation to the equity asset class.  In order to employ this strategy, investors need to follow valuation-based discipline while investing in the equity asset class. Current COVID crisis had created opportunity in March 2020 for the investors to increase its allocation to equity. 

To boost the economy, government expenditure on infrastructure is key. Do you see this benefiting stocks in this space?

One of the ways of reviving the economy would be heavy government spending on the infrastructure sector. High spending on the capital goods/infrastructure sector tends to have a high multiplier effect on the demand in the economy over medium term. Higher ordering in the infrastructure sector such road, railways, metro, urban infra etc. would benefit EPC players, equipment manufacturers, cement companies etc.

How has the performance of your Infrastructure fund been so far this fiscal and what are your expectations further?

Though the market has recovered from April 2020, the infrastructure related stocks are still lagging other sectors during the recovery phase. UTI Infrastructure fund is focusing on; EPC companies, cement, companies in the gas supply chain, corporate oriented banks, and telecom.

Current valuations of EPC firms and corporate oriented banks are attractive when compared to historical valuations. Early normalization of demand should benefit the cement sector. Gasification of Indian economy may continue to benefit companies in the gas supply chain in the medium to long term. With three players left in the telecom sector, increase in tariff should reflect in higher cash flow generations for the telecom companies.

Are there any sectors that you are particularly betting on for this fiscal year?

In the post COVID environment, stock selection gets higher priority and importance. One needs to look at the companies having leadership / dominating positions in the sector, having strong balance sheets and strong cash flow generation. Such companies are likely to navigate the uncertainty far better and emerge stronger post crisis. From short to medium term perspective, funds would have positive outlook towards FMCG, IT, Pharma and Telecom. However attractive opportunities are also present where disruption on the supply side is leading to surviving incumbents thriving post disruption period.

How have you traded so far this year, first during the market mayhem in March and then the share resurgence that we have witnessed?

UTI Multi Asset Fund was able to ride volatility by following valuation-based discipline. UTI MAF follows the quant model for dynamic asset allocation. Quant model is a three factor model, namely trailing dividend yield, trailing price to book and 12-month forward price earnings multiple. On February 28, 2020 when the nifty was at 11200 level, the fund had net equity exposure of 41.28% and rest was in arbitrage, debt and gold. On March 31, 2020, when the nifty declined to 8600 levels, the fund had a net equity position at 77% and the rest in debt and gold.

UTI MAF by following the quant model for dynamic asset allocation, was able to protect the downside to a large extent compared to the funds following the static asset allocation. When the market recovered in the last four months, UTI MAF reduced its net equity exposure to 70% at Nifty level of 10900 and 50% at a nifty level of 11300. The lower equity at higher market valuations and higher equity at lower market valuations enabled the fund to deliver higher risk adjusted return to the investors.