fund

Regular investment through SIP is better than trying to time the market: Swati Kulkarni of UTI MF


Swati Kulkarni,
Executive Vice President and Fund Manager, UTI Mutual Fund, started her journey in the stock market in the nineties. She has been with UTI since 1992. Kulkarni shared her memories with Shivani Bazaz of ETMutualFunds. CCI, mutual fund schemes selling like IPO… Kulkarni remembered the market at that time was very different. “There have been testing periods when the portfolio strategies did not work in the short term and the pressure started to build with underperformance,” reminisces Kulkarni.
Edited interview.

When did you start your journey in the stock market? Do you recall your initial years in the market?
My journey in the financial markets started in 1992 with UTI, the pioneer in many ways. It was an exciting period. With economic reforms of 1991, the license raj had ended. SEBI replaced the Controller of Capital Issues (CCI). Earlier the controlled prices of IPO in CCI regime meant huge listing gains for good companies. The boom of 1992 saw NAV surge in UTI’s pure equity schemes, leading to investors lapping up equity fund launches like company IPO. In fact, UTI Mastergain 92 created a world record with 65 lakh investor folios. Equity Funds mostly were closed end, before listing they too traded at premium in the grey market! By 1995, interest rates were freed up and the key lending rates fell from 19% to 12% in the following 3-4 years. Foreign Institutional Investors had started to set up offices in India. This fast changing and happening financial markets gave us youngsters a lot of opportunities to question the existing products, sensitize management on the changing competitive landscape and influence the shift away from assured return schemes.

What was the first thing you learnt in your initial years in the market?
I learnt how very high leverage can lead to a debt trap of rising interest burden, scarcity of capital and the value destruction can be permanent particularly if the business is poor on cash flow generation. Also, 1998-2000 was an exceptionally high growth phase for IT services companies with ‘Y2K’ opportunity. There was a clear preference for “New Economy- Internet Communication & Entertainment (ICE)” stocks while “Old Economy” Brick and Mortar businesses were ignored by the market. I experienced how the momentum can ignore the fundamentals leading to pricing anomalies for a long period, creating stock picking opportunities for the long-term investors. For example,

valuations at the peak in 2000 were implying 100% earnings growth for the foreseeable future, whereas steady growth high ROCE businesses like Smithkline Beecham Consumer were

Which was the first bad phase in the market that you remember clearly? How did you navigate it?
That was 2000 to 2003, BSE Sensex corrected from 6000 to 2800, the credit cycle was bad with rising NPA. The sentiment was poor globally too with 911 terror strike. That was the time I understood the importance of theory of economic value add (EVA) in real investing world. The businesses earning higher return on capital than the cost of recovered faster creating value for shareholders. I remember having rebalanced the portfolios to include steadier consumer, pharmaceutical companies, cheap PSU companies in Power Equipment Manufacturing and Defence by cutting losses in expensive small IT companies.

Can you tell us one mistake that you remember clearly from your initial years? What are your learnings from that mistake?
It’s been a learning curve; selling too early, missing great opportunities on high valuations and underestimating future growth potential to name a few. I remember this ‘concept stock mistake’ from the early 2000. There was this media company engaged in special effects, animation, dubbing in movies. The learning was, building in option value for future business way too higher than the existing business can be very risky. From the mistake of buying PSU banks in 2012-13, I learnt that value stocks can be a trap if fundamentals do not improve. The cheap price below adjusted book value (adjusted for future slippage) didn’t protect the downside as the credit costs persisted jeopardising the capital adequacy, further diluting the book value with capital raise below book.

You have been in the market for such a long time now. Were there any bad phases that made you lose your nerve? How did you navigate it?
In equity investing, the decision making is ex ante in an uncertain dynamic environment. There have been testing periods when the portfolio strategies did not work in the short term and the pressure started to build with underperformance. Such times I have preferred to stay cool, re-tested the investment rationale to make necessary changes if required or have stuck with my conviction whenever the rationale held well. Fortunately for us at UTIMF, the investment processes and support of in-house research team help us to hold on to the conviction for a long time as also to correct mistakes or avoid potential value destructors.

How do you see today’s market in the context of your own journey?
I see substantial improvement and sophistication in Indian markets. Derivatives in place of ‘badla’ trading, dematerialisation, reduction in individual influences / manipulation/scams with greater participation of institutions, standardised and periodic disclosures of accounts etc. Data availability was one of the challenges in ‘90s, today there is an avalanche of information and analysis. One needs to prioritise and focus on picking up the relevant information and ignore the noise.

If there is one thing that you would want young investors to learn from your experience, what would it be?
Looking back, on personal finance front, I should have avoided timing the market in 2000 correction and invested more regularly, as at 50000+ plus of BSE Sensex what matters is how much I invested not at what levels. Sticking to your asset allocation and regular investment in proportion to your rising income, through SIP, will do better than trying to time the market.



READ SOURCE

This website uses cookies. By continuing to use this site, you accept our use of cookies.