`Huge opportunity in services sector' -- Mr P. S. Subramanyam, Chairman, UTI

Rajesh Chandramouli

The Unit Trust of India may be losing market share to private sector funds. But it still is the major player with the largest investor base. The UTI Chairman, Mr P. S. Subramanyam, spoke to Business Line on a range of issues relating to the markets and the UTI. Last week, the UTI CEO's views on US-64 was published. This is the second and concluding part of the interview.

Excerpts from the interview:

What is the outlook for the market over the next six months and one year?

For the next six months, I feel the market should move up because of the fundamental factors. Monsoon has been good. In fact, reports coming in from Punjab indicate a bumper harvest of wheat. But they are saying that the storage capacity would be inadequate, and there is also the fear that farmers may not get the right price.

But agricultural production has been on the rise, and this provides a stable income for rural India. Then, for instance, more than 55 per cent of LIC's first premium income or policy sold comes from the rural sector. And that is perhaps one of the reasons why IRDA also started thinking about it, indicating that when new companies come in, they should also look at the rural areas. Similarly, bank deposits from the rural areas are on the rise. This means there is more money in the hands of the rural investor. There is a huge untapped potential there. With that I believe the country is poised for a higher rate of growth and, hence, the market should also be good.

What sectors does the UTI look upon favourably and what would be your top five picks in today's market?

I continue to believe that the New Economy sectors comprising infotech, communications, entertainment and media would do well and be attractive to us. Knowledge-based industries such as the pharma and biotech sector would provide very good opportunity for investments. The services sector would throw up huge opportunities; the contribution of the services sector to GDP has increased in recent times.

In the Old Economy, with the international prices of steel firming up, that sector will perform better or at least steel will discover its right price. Not that new investments will come in, but at least the existing ones will do better. And, therefore, those who hold positions in the steel sector will get better returns compared to the last year or two. Cement has started looking up. I think the key to everything is quick financial closure of infrastructure projects and the disbursements from the institutions should start flowing in, and with that both equity and debt will pick up. This will have a cascading effect on the market.

The Finance Ministry has rejected the UTI's suggestion seeking reliefs on the dividend tax on monthly income plans (MIPs). How do you propose to handle this? SEBI may not allow original terms of returns modified.

This year, we have absorbed that and I hope a review will be set in motion before the formulation of the next Budget.

Do the equity operations and attendant exigencies of US-64 have an adverse effect on the investment performance of other equity schemes of the UTI?

No. Other UTI schemes have also performed well. It is a reflection of the market. What eventually we need to achieve is a vibrant secondary debt market. It is easier for each one to say that especially in a balanced fund or a dynamic balanced fund (as I call it) such as US-64 to move more into the debt market. But does the market provide adequate triple A and double A paper? The answer is no. So, till such time the market develops, we need to be shuffling on both instruments -- equity and debt. I believe the market will deepen in due course and that will give the right comfort for achieving this balance.

How does the UTI view the decline in the share of assets under management by all mutual funds to 67 per cent and in fresh sales to less than 30 per cent in the last year or so?

It is not a decline. Earlier, the UTI was the lone player. When competition sets in, we do not expect them to be at zero level. After all, they must also have a share. Let us look at it from this angle: Overall, the sector has grown and new funds have come with newer products. People do recognise these products and invest in them. In other words, the mutual fund industry, led by the UTI, has contributed to an increase in the pool of savings.

Do you think the emergence of private sector funds collectively as a sizeable force is a good thing for the UTI (providing some balance in the market)?

It is good. Competition is welcome...I have always said that. It is only when there is competition, that there is transparency -- higher levels of disclosure, higher level of comfort to investors. It provides as some kind of balance in the market. Otherwise, the market will be totally unidirectional.

What are your views on the role of the FIIs in the Indian market? Do you think they have had a positive or detrimental effect on balance?

The role of the FIIs should be seen in the context of their objectives. They have investible funds, and they take different country exposures. They would also like to achieve risk diversification. So, from their perspective, the money has to flow where the returns are. India provides reasonable returns. There is no reason why the FIIs should not invest more and stay put in India. It is from that context that one has to look at developments in the corporate sector. Companies have recognised the importance of good corporate governance...adoption of best practices...and that has led to increased comfort levels for the FIIs. So, the FIIs still find that from the point of view of overall positioning, India is a good market.

What our corporate sector should do is to see that it conducts itself in a transparent manner, give a reasonable return and enhance shareholder value, which will pave the way for more funds to flow into the country. I believe our corporates have taken the signals right and, therefore, I continue to believe that the FIIs will come into India.

Does the UTI have problems in attracting and retaining quality manpower? How are you addressing this aspect?

It is relative in nature. In the circumstances we are in, we have certainly attracted quality manpower. True, the compensation package in the UTI is much less than the private sector. But the challenge of working in a large fund and the empowerment for the fund managers has attracted talent. Many fund managers feel they are better off compared to their counterparts who are being dictated to. I am taking steps to improve the compensation package. The board of trustees has extended its support to it. Going forward, I do hope there will be a substantial increase in the compensation package to UTI employees.

What has been the UTI's thrust areas to improve investor services? In general, are you happy with the quality of service provided?

A survey of investors was done, and the respondents felt the service offered by UTI was better than that of many private mutual funds. In terms of number of complaints, ours is around 0.4 per cent, of course, this might be more in absolute terms, but others have also to be compared. We attach the highest importance to achieve the highest level of investor satisfaction. That is why we are setting up a central data processing centre, as recommended by McKinsey. We are developing a generic software. Both these projects will be commissioned soon.