Mr. Ajay Tyagi
Head - Equity, UTI Asset Management Company Limited

Ajay Tyagi is the Head of Equities at UTI Asset Management Ltd. He is a CFA Charter holder from The CFA Institute, USA and holds Master’s degree in Finance from Delhi University. Ajay joined UTI in the year 2000 and has successfully carried out various roles and responsibilities across equity research, offshore funds as well as domestic onshore funds. He has won many awards and accolades for his performance both domestically and globally. Ajay presently manages our flagship equity scheme in India and is also the Investment Advisor to UTI International’s range of India dedicated offshore funds.

Q1. Global markets have been experiencing a sustained sell-off, and commodities are leading the decline. How do you view the global economic situation? Do you think we’re in for a challenging second half of the year?

The global economy is facing a slowdown, with notable signs of weakening in growth in major economies. Developed market economies are witnessing a slowdown in growth with the US economy expected to moderate, if not enter a recession. Amongst the major emerging economies, China continues to report muted growth, and the anticipated economic recovery has yet to materialize. In an environment of lower global growth, demand for global commodities is likely to be under pressure, which is driving the moderation in commodity prices. Crude oil is a prime example of this phenomenon. Oil prices continue to face downwards pressure despite the OPEC+ group taking production cuts, diminishing the cartel’s ability to influence prices amidst expectations of moderation in demand.

Q2. Do you believe the current clampdown on speculative trading will affect market sentiment or momentum, or will the focus shift back to fundamentals next week?

Recent data shows a remarkable surge in futures and options (F&O) activity, with F&O transaction volumes now exceeding the nominal GDP of the country. For FY24, F&O turnover (premium) reached ₹481 trillion, compared to the projected nominal GDP of ₹362 trillion for FY25. To highlight the scale of this growth, the F&O turnover (notional) is about 368 times larger than the cash market volume and has surged nearly 48 times since FY2018.

This stark increase in speculative trading has been driven largely by rising retail participation over the past few years, prompting regulators to highlight this as a compelling concern. In response, the regulator has taken necessary steps to address the disproportionate growth of F&O volumes and retail participation. These steps, while prudent, may impact market sentiment in the short term. Participants heavily engaged in derivative trading may react to tighter restrictions, potentially causing temporary shifts in liquidity and pricing. Nevertheless, these steps should contribute to the long-term health and integrity of the financial markets. Over the long-term, investor behaviour and market’s direction shall be driven by the underlying growth in the economy and corporate earnings.

Q3. How do you evaluate the IPO market, given that many recent listings are yielding significant returns for investors? Do you detect any signs of froth or excessive enthusiasm at the moment? SEBI has expressed concerns regarding SME IPOs—what are your views on this?

At UTI, we adopt a bottom-up approach when evaluating IPOs. We focus on assessing individual companies based on their long-term fundamental outlook, rather than following broader market themes or narratives. Through this approach, we’ve identified a few IPOs over the past couple of years as attractive investment opportunities worthy of participating in, while we have let the others pass.

Recently, there has been heightened activity in the IPO market, both on the SME exchange and the main exchange. This surge reflects growing interest in new listings across various sectors, creating a dynamic environment for investors. However, we remain selective, guided by our commitment to fundamental analysis and long-term value.

Q4. It seems that conditions are favorable for a potential rate cut by the US Fed in the upcoming policy meeting. Could this signal a "risk-on" sentiment for equity markets?

Generally, interest rate cuts are viewed positively by the market, as they typically encourage investment and stimulate economic activity. However, this optimistic sentiment hinges on the future trajectory of the US economy. If the economy continues to grow, even at a lower rate, or even in case of a shallow recession, rate cuts may act as a supporting factor for equity markets. However, in case of a deep recession, the positive impact of rate cuts on market sentiment may not materialize as anticipated. In such a scenario, investors might remain cautious due to lingering concerns about economic stability, which could keep overall market sentiment negative despite the lower interest rates.

Q5. Foreign Institutional Investors (FIIs) withdrew approximately 15,000 crores from financial stocks in the first half of August and increased their exposure to defensive sectors such as healthcare, FMCG, and consumer services. What is your long-term outlook for the financial sector? Is it advisable for investors to invest now?

We have a positive view on the financial services sector, driven by expectations of continued financialization of savings in the country over the long-term. Rising financialization is expected to have a positive impact across various financial services, including insurance, asset management, wealth management, and broking. As households increasingly channel their savings into formal financial products, businesses in these segments should see significant growth. Additionally, India's credit market remains underpenetrated. We believe credit growth in the country should at least align with nominal GDP growth, if not higher, presenting a substantial long-term opportunity for financial institutions.

From a valuation perspective, the financial services sector is currently trading at or around its long-term averages, making it relatively attractive compared to other sectors in the market. This combination of growth potential and reasonable valuations reinforces our positive outlook on the sector.

Q6. Do you think the recent market uptrend over the past couple of months is primarily due to inflows, or do you believe it is supported by strong fundamentals? Q1 earnings were relatively weak. It appears that SIP flows and mutual fund investments might be fueling the market.

The fundamentals of the Indian economy remain robust, and we continue to anticipate strong growth over the coming decade. Key drivers such as demographic advantages, increasing urbanization, and structural reforms should sustain India’s long-term growth trajectory. However, it's important to note that current market valuations are higher than their long-term averages driven by the re-rating of several companies witnessing a cyclical upswing in growth. In certain cases, valuations have moved ahead of the underlying fundamentals. While this may create short-term price fluctuations, the robust economic outlook provides a strong foundation for long-term growth.

Source: Media reports, Bloomberg, SEBI

The views expressed are the author’s own views and not necessarily those of UTI Asset Management Company Limited. The views are not investment advice and investors should obtain their own independent advice before taking a decision to invest in any asset class or instrument.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Mr. Nikhil Rungta
Co - Chief Investment Officer - Equity, LIC Mutual Fund Asset Management Ltd.

Mr. Nikhil Rungta is a seasoned investment professional with extensive experience in managing diverse investment portfolios. He has a track record of developing and implementing successful investment strategies and also has demonstrated ability to conduct comprehensive market analysis and identify investment opportunities. Mr.Rungta is a Rank holder Chartered Accountant, MBA (Finance)-NMIMS, FRM (GARP) and also has ESG certification issued by CFA UK Society.

Q1. We're aware of the adjustments to LTCG and STCG announced in the Budget. How do you think these changes will affect mutual fund investments?

The recent adjustments in LTCG and STCG may slightly reduce post-tax returns for equity mutual fund investors. However, Equities and Mutual funds being long term instrument for wealth creation, the impact may be miniscule. Despite the hike in capital gains taxes, India's rates remain among the lowest globally. The modest increase, particularly in long-term capital gains, still positions equity mutual funds as the most favorable asset class for long-term investors.. Overall, the impact of these tax changes on equity mutual fund investments is expected to be minimal.

Q2. We know that tax changes shouldn't necessarily drive investment strategy adjustments. However, to optimize benefits, is there a specific category that has become more appealing following these changes?

As noted earlier, the recent tax changes will have a minimal impact in individuals investment strategy and Equities may continue to be a preferred asset class.

Q3. What's your view on SEBI's measures to regulate the surge in retail activity in F&O trades? Do you think these measures will be effective?

Globally, institutional investors dominate the F&O markets due to their expertise in strategy and risk management. In contrast, India has a significant retail investor presence in these markets. SEBI's studies indicate that most retail investors incur losses in F&O trades, likely due to inadequate strategy and risk management. While Indian equities may offer strong risk-adjusted returns for long-term investors, the same cannot be said for short-term F&O trades. Therefore, SEBI's measures are a step in the right direction. The proposed increase in securities transaction tax and short-term capital gains tax could reduce retail participation in F&O to some extent. To further curb speculative trading, SEBI might consider reducing the number of single-stock options and increasing lot sizes to make speculative positions more challenging for small investors.

Q4. Given the current global economic headwinds, how resilient do you believe the Indian market will be for the remainder of the year? To what extent will domestic factors outweigh global influences?

The Indian equity market is influenced by global factors such as growth, cross-border portfolio flows, and investor sentiment. While global macroeconomic headwinds will inevitably affect India, the country is better positioned than most peers. Strong macroeconomic performance, robust corporate earnings growth, increasing household equity allocations, and reasonable valuations suggest that the Indian market may l demonstrate greater resilience.

Q5. Given the recent appreciation of the yen, could the unwinding of yen carry trades impact Indian equity markets? Are there potential risks of capital outflows from India due to this shift in global currency dynamics?

The global carry trade exposure since 2021, is relatively modest compared to the size of the global financial system. India’s exposure, is also not significant. According to market analysis, globally major part of yen carry trade has already seen significant unwinding. Therefore, yen carry trade poses no major challenge to Indian or global equity markets at this stage. Given strong macroeconomic and corporate fundamentals, along with reasonable equity market valuations, India is unlikely to face significant cross-border portfolio equity outflows in the near term.

Q6. Reduction in the corporate tax rate for foreign companies from 40% to 35%. Is it a move in the right direction?

Yes, this reduction will likely encourage more foreign direct investment in India.

Mr. Marzban Irani
Chief Investment Officer – Fixed Income, LIC Mutual Fund Asset Management Ltd.

Mr. Marzban Irani is our debt market expert having rich experience of 22 years in Fixed Income. He has played a pivotal role in building LICMF’s image of Mutual Fund of investor’s choice for Debt funds. Mr Irani is a PGDBM - Chetana’s Institute of Management & Research, Mumbai. B.Com – Mumbai University

Q1. Do you think the Fed will adopt a measured approach, or will the slowdown in growth prompt them to implement rapid, consecutive rate cuts? If the pace of cuts accelerates, where do you anticipate interest rates in the US will eventually settle?

Recent jobs data has indicated a slowdown in the U.S. economy, which may influence the Federal Reserve's policy decisions. The Fed Fund Implied Probability is currently suggesting a strong likelihood of a rate cut in the September policy meeting and also a chance of an additional cut in the December policy meeting. In total, this implies a potential reduction of around 50 to 100 basis points by the end of 2024. Given the proximity to the upcoming elections, it is likely that the Federal Reserve will initially take a measured approach to rate cuts. However, if economic growth continues to weaken, the Fed has the option to accelerate the pace of rate cuts to provide additional support to the economy.

Q2. Will the Fed's decision to maintain, cut, or raise interest rates significantly influence India's economic and market trajectory?

India is currently positioned with strong macroeconomic fundamentals. The fiscal deficit is on a declining trend, inflation is decelerating with core inflation around 3% according to Ministry of Statistics and Programme Implementation, and growth numbers remain robust. These positive indicators suggest that India may not be heavily impacted by the Fed's decisions on interest rates. However, it is important to note that a hard landing in the U.S. could cause a knee-jerk reaction in Indian markets in the short term. Despite this potential short-term volatility, India's long-term economic prospects are expected to remain strong and resilient.

Q3. On budget day, the rupee experienced a sharp drop to a record low, likely influenced by reactions in the US markets and recession concerns. What’s your perspective on this movement?

The reduction in import duties on gold and other products during the budget is likely to impact the Current Account Deficit which may contribute to the rupee's decline. Given the ongoing geopolitical concerns, the rupee is expected to remain under pressure. However, the RBI's proactive approach in building up record reserves may offer a degree of protection, providing some immunity in the event of a global recession.

Q4. What factors contributed to the decline in the 10-year Indian government bond yield from 7.19% in March 2024 to 6.92% in July?

The decline in the 10-year Indian government bond yield can be attributed to several key factors. The demand-supply dynamics have favored demand, particularly from domestic investors such as insurance companies and pension funds. Additionally, policy continuity post-elections has provided stability, while the anticipation of JP Morgan bond flows has bolstered investor confidence. Furthermore, declining core inflation and the government's commitment to reducing the fiscal deficit have also played significant roles in lowering yields.

Q5. Experts believe Bond yields are likely to drift lower. In such a case, what should be your fixed income portfolio strategy?

For medium to long-term investors, it is advisable to consider medium to long-duration funds, tailored to your risk appetite. The three to five-year segment appears particularly attractive on a risk-adjusted basis, as a bull steepening is anticipated with the RBI potentially adopting a more dovish tone in the near future.

Q6. Can AMFI's 'Mutual Fund Mein Fixed-Income Wali Baat' campaign effectively broaden the appeal of mutual funds to include debt-focused investors, thereby driving long-term industry growth?

The campaign has the potential to significantly raise awareness about debt as an asset class, highlighting its importance for portfolio stability. By educating investors about the role of debt in a balanced investment strategy, the campaign can broaden the appeal of mutual funds to include debt-focused investors. This increased awareness and understanding could drive long-term growth for the industry by encouraging more investors to incorporate debt funds into their portfolios.

Mr. Prashant Pimple
Chief Investment Officer (CIO) - Fixed Income, Baroda BNP Paribas

Mr. Prashant Pimple has an overall experience of 24 years. He is esignated as Chief Investment Officer – Fixed Income of Baroda BNP Paribas Asset Management India Private Limited. His previous stint was with JM Financials AMC as CIO – Fixed Income. Prior to that, he has also worked with Nippon AMC, Reliance Mutual Fund. Mr. Prashant Pimple has done his B.Com, MMS (Finance), ACTM.
Academically, prashant is a Commerce Graduate from Sydenham College of Commerce and Economics and has completed his MBA from Jamnalal Bajaj Institute of Management Studies (JBIMS) and he has done ACTM, Chartered Treasury Manager course specializing in Treasury and Forex Management from The Institute of Chartered Financial Analyst of India.

Q1. Do you believe there's a chance that expectations for a rate cut could be delayed until calendar year 2025 due to the possibility that inflation might remain persistently higher than current estimates?

Headline inflation picked up above 5% in June-24 led by a sharp pickup in food prices. Whereas core inflation remained closer to historical lows. In Q2 FY25 inflation is expected to see a dip led by favourable base and post that inflation is expected to rise as support from base-effect wanes. RBI’s monetary policy focus is expected to remain on ensuring sustained moderation in inflation towards the 4%-target. Solely based on domestic inflation expectations the earliest RBI can cut interest rates is in Q4 FY25. By this period there will be greater clarity on food inflation risks and Fed policy.

Q2. What impact could the inclusion of Indian bonds in the JP Morgan Global Bond Index have on the money market and capital flows? How significant might this be for the interest rate landscape in India?

JP Morgan bond inclusion is expected to bring in approximately USD $20-$22 BN over next year or so in Indian G-secs. This inflow will certainly improve India’s forex inflows in addition to improving liquidity over a period. Positive flows will impact the interest rate sentiment and improvement in liquidity is expected to steepen the current flat yield curve thereby resulting in shorter end yields with downward bias. Both these factors are expected to have a positive impact on interest rate landscape in India.

Q3. Do you view the recent upward guidance from the RBI governor predicting 8% GDP growth for India as optimistic or realistic?

India’s growth story has been outlined with incorporation of structural shifts starting from adoption of GST regime, government’s thrust on capital expenditure, strong financial system driven by healthy corporate balance sheets. Impact of external headwinds on India’s growth has been limited as the government has taken proactive and balanced approach. One of the key highlights of India growth story is reflected in the robust services economy which has been supporting India GDP growth. Weak rural sentiment remains a risk for RBI’s growth projection of 8% but given India’s potential output growth 8% is achievable. Having said that we expect the divide between the GVA and GDP to continue for some time.

Q4. How do you anticipate foreign institutional investors (FIIs) will allocate funds into the Indian debt market?

In addition to JP Morgan inclusion led flows we are also witnessing flows in general from FPIs especially into Government securities market. We expect these flows to continue as expectations of global as well as local markets gets stronger.

Q5. Despite inflation easing, the US Federal Reserve has signaled that it will cut its key interest rate just once this year. What are your views on this?

The US economy has been facing one of the trickiest monetary policy dynamics. Inflation has eased but is still above its target range. Core inflation continues to remain sticky. The labour market has also started showing signs of normalization. But still cannot be termed as weak when compared to pre pandemic levels. In such a scenario the best bet that FED could possibly play out is to wait and watch. By Sep-2024 FED will have two more inflation prints and will have a better clarity on inflation trajectory. FED is cautious of early loosening.

Q6. What allocation strategy would you recommend for a conservative investor, with different time horizons: short-term (6 months to 1 year), medium-term (1 to 3 years), and long-term (5 years and beyond)?

Investor with short term investment horizon can positively consider investment in Money market and short duration category in light of our interest rate and liquidity outlook.

Investor with medium to long horizon can consider duration funds with varying ranges depending on the investors risk appetite.