Indian equities still trade at unattractive valuations and foreign investors will take at least 6-to-12 months to come back, UTI Mutual Fund CIO Vetri M Subramaniam and its head of equity Ajay Tyagi said on Thursday on the sidelines of a bell ringing ceremony on UTI Nifty 50 Index Fund completing 25 years.
The reason behind FPI outflows is beyond capital gains tax, Tyagi said, calling it a convenient argument. There has been no change in capital gains tax for more than 12 months, he added. Indian markets, in terms of valuations, are expensive compared to their own history as well as other emerging markets. “Starting August-September, FIIs did realise that we are trading at untenable valuations, growth prospects are not strengthening but possibly are weakening so they must have found opportunities outside India where this capital can be put up efficiently,” he said, adding this is not the first time they have pulled the plug on India.
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Since September, FIIs have taken out Rs 2.28 lakh crore, or $26.5 billion, from the Indian market. While it is very hard to figure out where they are putting the money, according to Subramaniam, broadly, the US is sucking the oxygen out of all capital market debt and equity given bond yields are at 4.5% and the US now makes up two-thirds of global indices. “It has actually become the go-to market for foreign capital,” he said.
On asset allocations, Tyagi emphasised the need to go slow in mid- and small- caps as they are expensive. “Large caps provide much better value but they are also not extremely attractive,” he said, adding that at the current juncture they are finding value in balance advantage and multi-asset funds.
UTI Nifty 50 Index Fund is a passive mutual fund with assets under management of over Rs 20,000 crore.
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