I believe the health of the company is much better now: UTI AMC's Leo Puri

Leo Puri, Managing Director, UTI Mutual Fund
Recent reports suggest that domestic shareholders of UTI Mutual Fund (MF) —Life Insurance Corporation of India, State Bank of India, Punjab National Bank and Bank of Baroda —holding 74 per cent in the fund house have expressed their unhappiness with Managing Director Leo Puri’s performance and do not want an extension in his tenure. 

He tells Joydeep Ghosh that the fund house has not only become better in the past few years but has developed other businesses without sacrificing profitability. Edited excerpts:

Shareholders of UTI MF have criticised the performance of the fund house during your tenure. What is your response? 

When I took over, UTI did not have any MD for over two years. The employee morale wasn’t too high. In the past few years, we have put in place new systems, built new businesses and have become a very cohesive unit. I believe the health of the company is much better now. 

Yes, we may have ceded some market share, but we are among the most profitable fund houses. UTI Asset Management Company's  (AMC’s) largest shareholder, T Rowe Price, which runs a trillion dollar global investment company, has expressed its strong support for the investment performance of UTI AMC and its turnaround in the last few years. 

In addition to our MF business, UTI has been successfully running a number of other businesses like international, alternative investment assets and pension funds business. 

Between FY14 and FY18, our overall group business grew at a compound annual growth rate (CAGR) of 33 per cent. Our group assets under management stand at an estimated Rs 3.4 trillion in FY18. Our overall fund performance in the pension fund business has been recognised by the Pension Fund Regulatory and Development Authority as well as Employees’ Provident Fund Organisation (EPFO) with UTI winning the EPFO award for the Best EPFO Manager in 2017. UTI is one of the most profitable fund house at over Rs 4 billion, which has delivered high profitability on a year-on-year basis with the profit-after-tax CAGR of 18 per cent since FY14.

Coming to the MF industry, after a few very good years, are things beginning to slow down? 

This is a cyclical industry. And people do forget it during very good times. So, if you would anticipate in the third or fourth year of a cycle, there will be signs of plateauing or reallocation beginning to happen. There are a couple of things happening that are signs of a cycle. 

For one, equities are beginning to look fully valued, so there is some reallocation towards debt—a completely healthy sign. That pattern is led by institutions, and high networth individuals and retail investors follow. 

And as already seen that in the first part of the fiscal year, fixed maturity plans and credit funds are back and single-ticket investing in the mid-cap beginning to tail off. 

In terms of flows, due to regular flows of Rs 70 billion in systematic investment plans (SIPs), things have been steady. 

The industry experience has been that if there is a sharp fall, the churn rate in SIPs  shoots up. As of now, there has been nervousness, but markets have not been too hot or too cold. This could be a year of consolidation. 

Do you think volatility will increase due to elections?

Volatility has been unusually low. I expect it to increase, but largely due to global events, initially. Global events such as oil prices going up could lead to a rise in subsidies. 

The more generalised issues around elections such as rise in spending become, I would not expect anything out of the ordinary. I don’t think in that the face of inflation and interest risk, the government would take the risk. I think it will be a tougher year. We will see macro weaken and there will be pressure on rupee and rate, and that is the trend line we are on. 

MF re-classification seems to have affects many fund managers. How do you see the situation?

There has to be a one-time adjustment where a lot of portfolios will have to change. Since all the data is available, many traders will have positioned themselves accordingly. If you were on the wrong side of the trade, you are likely to suffer. In any case, the valuation of mid-and small-cap vis-a-vis the index had widened significantly. From trading at a 10 per cent discount to the index, it had risen to a 30 per cent premium. And a lot of this was not necessarily good quality of stocks; it was just scarcity and momentum. The readjusting is healthy; it is the law of gravity.

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