Vetri Subramaniam, CEO of UTI Asset Management Company, says rising US Treasury yields should not trigger an exit from Indian equities. He urges investors to focus on domestic earnings growth rather than global interest rate volatility, while warning against overexposure to expensive small- and mid-cap stocks.
The surge in global interest rates, particularly with the 30-year US Treasury yield crossing the 5% threshold, has often served as a trigger for investors to pull capital out of emerging markets like India. However, Vetri Subramaniam, MD and CEO of UTI Asset Management Company, suggests that Indian investors should look past this external pressure and focus on domestic fundamentals.
In his view, the domestic investment narrative remains supported by robust corporate earnings and macroeconomic stability. For long-term investors, the performance of the Indian economy acts as a buffer against global fluctuations. When a country maintains fiscal discipline and demonstrates consistent corporate cash flows, it creates a layer of protection that can withstand the volatility often associated with rising global interest rates.
One of the critical warnings for retail investors involves the current state of market valuations. There is a noticeable gap between different segments of the market. While large-cap companies are currently trading at valuations that appear more comfortable based on historical norms, small-cap and mid-cap stocks are trading at significantly more demanding levels. This valuation gap suggests that the rapid price increases in smaller segments may not always be supported by earnings momentum, creating higher risk for those holding these stocks.
Investment strategy remains a key theme for wealth creation. While record-high flows into Systematic Investment Plans (SIPs) indicate that retail participation is stronger than ever, this periodic method of investing is not a magic shield against market corrections. Investors often mistakenly believe that because they are investing small amounts over time, they are immune to the risks of market segments like small-cap funds or thematic strategies. Subramaniam emphasizes that disciplined portfolio rebalancing is necessary to manage these risks effectively.
For the asset management industry, the future path involves more than just gathering assets. Firms are increasingly launching specialized funds to capture investor interest, but the long-term success of these products will depend on their ability to deliver genuine risk-adjusted returns rather than just following a trend. Technology has become a tool to lower costs, but institutional trust and proven investment credibility remain the primary drivers of sustainable growth in the mutual fund sector.
Investors may track the consistency of corporate earnings in the upcoming quarters as a primary indicator of market health. Since domestic flows from retail investors have become a massive counterbalance to foreign capital outflows, the stability of these SIP inflows and the ability of mid-to-small cap companies to justify their current valuations through profit growth will remain essential factors to watch.