Suraj has held leadership positions at FIL Fund Management Private Limited (the Indian arm of Fidelity International), MetLife India Insurance Company Limited and Templeton Asset Management (India) Ltd. He is well known for his expertise in Sales & Marketing. He has contributed immensely to the development of the Indian Mutual Fund industry having worked relentless to popularise the concept of investing in mutual funds through Systematic Investment Plans (SIP).
Suraj Kaeley is a graduate in Science and a post-graduate in management studies. He is also a Certified Financial Planner. He was a part of the committee set up by SEBI to curb mis-selling in India.
About UTI Mutual Fund
UTI Mutual Fund is a SEBI registered mutual fund whose Sponsors are State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation of India.
UTI Mutual Fund is one of the largest mutual funds in India with investor accounts of over 1 crore under its 219 domestic schemes / plans as on December 31, 2016.
Suraj Kaeley says, "Typically, when someone is investing in India, one is investing for higher nominal returns in equity and if you are a foreign investor what happens to the currency also determines your overall returns based on which country you are coming from."
How do you think strengthening of dollar will affect Indian equity markets in coming years?
When looking at the markets, the key drivers are domestic and international factors. In the international space, what the US does is fairly relevant and events like Brexit are also on the horizon. China has its own challenges like credit, which is very large. The Chinese are struggling to maintain their GDP growth rate which they had maintained over the last three decades. From the global perspective, what Trump really translates from rhetoric into actual actions is yet to be seen.
The vision which Trump seems to be outlining would consist of the following:
1. Trump believes genuinely that if tax rates in corporate America are reduced significantly, the companies there will be more keen to do business at home rather than outside. So, there will be huge surge in investments because of that reason.
2. He wants to build policies which encourage American corporates to do business in America
3. Trump is expecting to give a large fiscal stimulus for building infrastructure as he believes that the US has not invested in Infrastructure for a long time. But having said that, there are various sceptics and critics of policies as well, so what he does reduces lot of pressure on inflation and hence interests rates could harden at a much faster pace if Trump implements these policies.
4. The hardening of interest rates in the US has two straightaway impacts:
a. Strengthening the dollar
b. It reduces the total revenue American companies generate from outside as the value of that gets reduced.
For example, Apple draws a lot of income from outside the US, but when the company reports it in dollars, because of the strong dollar, the numbers really get muted. Then, if the interest rates are to rise at a much faster clip, obviously, it will impact local growth tremendously. So, what remains to be seen is how these factors eventually balance out and what will really lead to impact from an Indian market perspective as well.
So, at this point, until we see some genuine policy announcements from the US, it is premature for markets to react, because Trump is also weighing the implications. So how much he does take it through logically will really determine the extent of impact on Indian markets.
Clearly, if interest rates were to rise at a faster clip, that is a negative from an Indian market perspective as well as for all emerging markets.
How do you see this in case of Indian rupee touching 70 to a dollar and yet it remains one of the best emerging markets currencies (relatively speaking)? So, will that impact FII money flowing into Indian equity markets because that makes it less attractive?
I would say two things. Typically, when someone is investing in India, one is investing for higher nominal returns in equity and if you are a foreign investor what happens to the currency also determines your overall returns based on which country you are coming from.
Our view on Indian market today is fairly resilient in the sense that we never had a challenge on currency so far and we have managed that extremely well.
RBI will also intervene from time to time to ensure that there will be no abrupt movement in the level of currency. So till the depreciation of currency remains at a fairly steady pace for a longer term, which has been the case in India, I think FIIs will continue to invest in it, but if we find abrupt changes in the currency, that can certainly affect the FIIs.
The inflow has been negative since last couple of quarters or three months and there are more views on rupee weakening, so what is your view on FII participating throughout the year till March 2018?
If you look at the last 15 years of FII inflows, and if you break them down by quarters, I think you can find that there were only two years since we allowed FII investments in 1991 where there have been net outflow of FII money from the markets. For example, in the year 1996. when the global currency crisis happened. So, there may be two or three instances where we have not got a net inflow from FII on annual basis.
Typically, what we have observed in FII behaviour is that whenever there are significant events either in India or outside, FIIs will tend to redeem from emerging markets, but eventually they have to reallocate the money once again. So money flows in eventually when the event stabilises.
We believe India still remains a very attractive destination for FII investments and there is a genuine belief in the Indian growth story, the demography is very favourable for India and the several policy measures introduced by the government are well appreciated by the PFIs. The lid that we have maintained on fiscal deficit is always being appreciated by FIIs. The government finances being strong are very well taken by FIIs.
The low inflation we have been having is favouring the FIIs. We believe the India macro story today is fairly strong and whenever FIIs start to reinvest in emerging markets India can gain a fair share of it. So we are not bearish as far as FII flows are concerned.
On the valuation front, the US markets are now at highs, so the FIIs may book profit there and come back to emerging markets again. Do you buy that story?
I wouldn’t buy that story on the face value. Ultimately, valuations in any market are the functions of it earnings, so if Trump were to significantly reduce the taxation for corporate America, there will be huge boost to earnings on the domestic front and suddenly you can find the markets are not very expensive.
What is your view on the target sectors in coming quarters, that is, sectors you are closely tracking and sectors you are avoiding?
As far as we are concerned, we are very bullish on India’s growth largely led by investment demand. So, we are very bullish on capital goods, construction, cement. We believe lot of mid-cap cyclical can really come back in the coming months. What has happened is not clearly related to the Budget, but the fact is that the sectors have expanded their capacity, and once the capacity gets used up, we will see very sharp reduction or very sharp utilisation of capacity that can translate into a disproportionate gain as far as the earnings of those companies are concerned. So we believe that wherever there is operating leverage, we are very bullish on them at this point in time.
Today, we are watchful on sectors like IT and pharma, especially because of the global events. We want to wait and watch what is happening in these sectors, but by and large we believe that valuations in those two sectors are fairly attractive, so it is not that we are concerned about the sectors. Obviously, the future growth of the sectors will also depend on what happens in global markets.
So what are the key risks in the markets in the upcoming quarters or over a one year time-frame?
The two key risks I would largely point out are:
1. The huge expectations we are building on the local story. If those expectations are not fulfilled, that may lead to disappointment for the investors
2. Global risks which are far greater than the local factors, such as what happens to the US, Brexit, scheme on protectionism. These are long term risks for everyone. The more protectionist measure you bring, it is generally expected that they will slowdown economy activity. That will remain a key risk to watch out.
What are the key triggers for the markets in the upcoming quarters?
The Budget and the Q3 numbers are behind us. Now, we have the monsoon expectations built up into the system. So, how good the monsoon will be this year and all this will be interspersed with the events around the globe which are happening on a very regular basis.
As Trump also outlined in his first 100 days, he has brought in his policy measures. I think that we will be watching very closely in the future as well.
Putin's aggression is something which is ignored, but the way he is behaving also increases the geopolitical tension for the global markets. That has always been the case; some amount of geopolitical tension is always there. Of course, we did a surgical strike on Pakistan, which also created our own disturbances in the markets domestically.
Does UTI have any customised tax savings investment solution? What is UTI Smart Plan?
UTI Smart Plan is a customized tax saving investment Solution which will provide benefits of Wealth Creation, Protection and Retirement benefit in addition to tax benefits under Sec 80C of the IT Act, 1961 upto Rs.1.50 lakhs.
UTI Smart Plan comprises of 3 wealth creation cum tax saving schemes namely UTI Long Term Advantage Fund-Series V, UTI Unit Linked Insurance Plan and UTI Retirement Benefit Pension Fund.
UTI Long Term Advantage Fund- Series V: The investment objective of the fund is to generate capital appreciation over a period of 10 years by investing predominantly in equity and equity related instruments of companies along with income tax benefit.
UTI Unit Linked Insurance Plan (UTI ULIP): UTI ULIP is the first insurance linked mutual fund product in the country, launched in 1971. UTI ULIP not only offers life coverage but also tax savings opportunity and a bundle other benefits such accident insurance cover and a balanced portfolio of debt and equity.
UTI Retirement Benefit Pension Fund (RBPF)
A government of India notified Pension Fund, UTI RBPF helps in building a long-term portfolio for retirement. The scheme is trusted for over 22 years and has more than 2.4 million investor accounts.
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