Economic recovery will lead to rise in inflation: UTI AMC’s Vetri Subramaniam
In a weak economy typically rates go down, said Vetri Subramaniam, Group President and Head-Equity of UTI Asset Management Company in an interview with CNBC-TV18. “..This is done with the expectation that the economy will gradually start to recover,” he added.
“As you start to see signs that the economy is recovering, you would expect the rates to respond to that recovery in the economy, to the economic data as well as to the pickup in inflation. It is nothing which is unusual in this. We have seen in the past the economy doing well as rates move higher and companies not getting affected too much by the increased rates,” he said.
Vetri tends to remain cautious on initial public offerings (IPOs).
“I tend to be cautious on IPOs for a very simple reason that when a company comes for an IPO, you get to see only 2-3 years of data relating to the company but it is not really high conviction investing in some senses simply because you don’t know enough of the company and you get to learn about it over a period of time. So I would always trade with caution when it comes to over-excitement in the IPO markets,” he stated.
“I am very delighted as a fund manager that more and more companies are coming for listing but I would recommend to proceed with caution and not to get carried away by listing day gains,” he pointed out.
According to him, the disconnect between the markets and the economy is very hard to grasp.
“Effectively over two years, gross domestic product (GDP) is going up just by about 2 percent or so. If you look at profitability, if you take March 2020 as a base, as 100, it looks like this year based on the consensus estimates that we have, earnings for 2021 will be up 8 percent. Then the consensus estimates are that earnings will rise further almost 30 percent in 2022. Which means in a period of two years, GDP goes from 100 to 102, earnings are going from 100 to 140. This is the challenge that people are trying to reconcile with,” he mentioned.
He expects to see positive earnings growth in March 2021.
“Bottom-up we do find some opportunities in sectors and stocks but at a top-down level looking at the valuations, there is a genuine concern that we have that we have already discounted the potential for strong growth and therefore the outlook for the economy may be bright for the next two-three years but I think maybe we have sucked in some of those returns early,” he stated.
On FOMC meeting, he said, “My immediate sense is that the FOMC will continue to remain accommodative. I don’t see any surprise in that. But I think the markets are also looking to test the FOMC. So you will continue to see the markets testing the FOMC and the limits of its patience and willingness to stay accommodative.”
Source: CNBC TV18