Appropriate choice in fixed income domain, says UTI MF’s Vetri Subramaniam, equity not the only option

“For too long, equities have benefited from the principle that there is no substitute for equity to earn reasonable returns because debt was paying you nothing. Now that the US 10-year bond yields 3.6 per cent and the India With a 10-year yield of 7.3 per cent, fixed income has become a viable option for the first time in many years, Subramaniam told ET.

He said that even though the Indian economy is in a very good shape, it is not expected to see strong growth in the year 2023.

Furthermore, valuations are still above long-term averages, even though they have declined from their year-ago levels. The current situation favors bonds over equity.

“In terms of forward earnings, various estimates for March 2024 put it at 17 per cent, roughly at PE (price to earnings) of 18 times and trailing earnings of 5.5 times,” Subramaniam said.

“Valuations have come down from where they were a year ago, but they are still above long-term averages. They are not very attractive. The needle is favoring bonds over equities. Also, if inflation is to be kept at 4 %, then it is again attractive for bonds,” he said.

Subramaniam said there are opportunities across stocks, sectors and geographies in sectors such as IT, pharma and global commodity business.

He told ET that while the IT sector has seen a downturn, the medium-term story remains intact. The valuations in the pharmaceuticals space are comfortable and the companies’ return on capital is improving.

Talking about new age tech businesses, Subramaniam said they are still evolving and even though he owns small positions in them, he is waiting for stabilization in their business model.

“The bigger issue is that the business models of consumer Internet companies are still evolving. We are feeling a flux in the business strategies of these companies. They are still experimenting and sustainability is still evolving. We Owning short positions, but we are waiting for stabilization of the business model,” Subramaniam told ET.

Disclaimer: This article is based on a ET Interview, The views and recommendations in this article are those of the analyst. These do not represent the views of MintGenie.