‘Markets have moved out of panic phase’

As the markets recover gradually from their March 2020 lows, AJAY TYAGI, executive vice-president and fund manager (equity) at UTI AMC, says there are many mid-and small-cap stocks that are available at reasonable valuations now. The financial sector, he tells Swati Verma, may go through a volatile phase in the short term, but its ability to create value in the long term is fully intact. Edited excerpts:

Is the worst over for the markets or can they retest their March 2020 low?

One needs to keep in mind that no matter how severe the economic downturn, the intrinsic value of most businesses is not as deeply impacted as the stock price correction during the early phases of such downturns. While nothing can be said about the direction, it does appear that markets have moved out of the panic phase. That said, they may continue to remain volatile and

keep reacting to the incoming data in the short term.

What is your view on mid- and small-cap indices?

Despite the overall correction in mid-andsmall caps over the last couple of years, many stocks from this segment have done very well and, in fact, outperformed the market significantly. Rather than predicting the recovery, we would continue evaluating business models. Wherever we see a sustainable and scalable model that will generate cash flows and create economic value, we would go ahead and build exposure in our portfolio. The good news is that there are many mid-and small-cap stocks that fit the above requirements and are available at reasonable valuations now.

Which are the overweight and underweight sectors?

We have been consistently negative on sectors like metals, oil & gas, real estate, infrastructure and aviation. We have been positive on private sector banks, consumer goods, pharma

& health care and IT services. This hasn’t changed one bit during the Covid-19 crisis.

SIP flows continue to decline, given the market volatility. Do you see a pick up anytime soon?

While SIP flows may have come off slightly, the industry continues to witness net positive flows on the equities side despite such widespread panic. There is certainly much more stability in the markets now compared to March and April. This makes me feel that investor anxiety would remain under check and net flows will continue to remain positive. At some stage, SIP flows would also start to move up. At UTI, the trends have been similar to the industry-wide trend.

What is your view on the financial sector, especially in the wake of the moratorium announced on loans?

The financial sector may go through a volatile phase in the short term, but its ability to create value in the long term is fully intact. Challenges exist in the near term related to moratorium, asset quality and growth.