Reasonable alternatives in fixed-income domain, equities not the only option, says Vetri Subramaniam of UTI MF


Fixed income has started attracting investors’ attention after many years, offering a reasonable alternative to equities, said Vetri Subramaniam, chief investment officer at UTI Mutual Fund (MF), in an interview with the Economic Times (ET).

“For too long, equity has benefited from the theory that there is no alternative to equity to earn a reasonable return because the debt was not giving you anything. Now that the US 10-year bond gives 3.6 percent and the India 10-year yields 7.3 percent, fixed income has become a reasonable alternative for the first time in many years. Due to this, money will be reallocated between equities and bonds,” Subramaniam told ET.

He pointed out that even though the Indian economy is in much better shape, the year 2023 is not expected to see strong growth.

Besides, valuations are still above the long-term averages even though they have derated from their year-ago level. The current situation favours bonds over equities.

“In terms of forward earnings, various estimates put it at 17 percent for March 2024, roughly giving a PE (price to earnings) multiple of 18 times and an earnings yield of 5.5 times,” said Subramaniam.

“Valuations have derated from where they were one year ago but they are still above the long-term average. They are not very attractive. The needle is favouring bonds over equities. Also, if inflation can be brought down to 4%, it again is attractive for bonds,” he added.

Subramaniam said there are opportunities at the stock, sector and geography levels in spaces such as IT, pharma and global commodity business.

He told ET that the IT sector has seen derating while the medium-term story is intact. The pharmaceuticals space has valuation comfort and companies’ return on capital is improving.

Talking about the new-age tech businesses, Subramaniam said they are still evolving and even though he owns small positions in them, he is waiting for the stabilisation in their business models.

“The bigger issue is that business models of consumer internet companies are still evolving. We are sensing a flux in the business strategies of these companies. They are still experimenting and consistency is still evolving. We own small positions, but we are waiting for the stabilisation of business models,” Subramaniam told ET.

Disclaimer: This article is based on an ET interview. The views and recommendations given in this article are those of the analyst. These do not represent the views of MintGenie.

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