Despite a sharp correction, markets have not fallen to the lowest valuation level of the 2008-2009 global financial crisis, says Vetri Subramaniam, group president and head of equity, UTI Asset Management Company. In an interview with Samie Modak, he says cheap valuations and easy monetary policy will set the tone for attractive long-term returns. Edited extracts:
Will stimulus packages to contain the economic damage caused by the pandemic be useful?
The impact of the pandemic and its economic impact are not yet fully calculable. Fiscal policy will first be used to combat the humanitarian crisis, health costs and loss of income. Second, new interventions may be needed to address demand and supply problems and stimulate economic activity. The burden of getting economies out of this difficult period will fall on fiscal policies.
Will rate cuts and bond buying programs spike stocks as we saw in 2009?
A market, where valuations are cheap and where fiscal and monetary policy are accommodative, is well positioned for a favorable long-term result. This is my lesson from 2009 and from previous crises. But there is no model that can give us a chronology or a forecast of the speed of market behavior. As a warning, it should also be noted that while stocks fell sharply in value and are in the attractive zone, they did not drop to the valuation lows observed during the 2008-09 global financial crisis.
What do you think of the measures announced by our government and the Reserve Bank of India (RBI)? What more?
The RBI has taken strong steps to meet the challenge of economic growth and ensure adequate liquidity within the system. The debt forgiveness framework and timing may require further adjustments, including sectoral policies. The government response in India has so far largely addressed humanitarian issues. More intervention may be needed both in terms of social security, direct transfers and possibly new tax interventions to stimulate the economy. Households and businesses are likely to exhibit risk averse behavior in the current environment. In these circumstances, the Keynesian argument for the expansion of public spending and political intervention is favorable. The budget deficit … is less restrictive in this context.
As a fund manager, how do you manage volatility?
My lesson from the past is that you don’t have to be reactive – it’s your actions before the crisis and volatility that are most crucial. As always, we focus on what is under our control: the investment process and the rigorous review of our assets and risk management.