Consistent inflows in weak markets reflects investor maturity, says V Srivatsa, UTI AMC

Despite heavy foreign investor selling, domestic flows into mutual funds have remained strong, highlighting a structural shift in investor behaviour over the years. While global uncertainties and rising crude oil prices continue to pose risks, steady inflows from retail investors have helped stabilise markets and cushion volatility.

Speaking to ET Now, V Srivatsa, Executive Vice President - Equity at UTI AMC said that one of the most notable trends has been the consistency of flows even during market downturns. He pointed out that, unlike a decade ago when investors would pull money out during corrections, the current environment reflects growing maturity among investors.

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“I think that is a remarkable transformation in behaviour that we have seen over the last 10 years. Honestly, if you go back 10–15 years, there used to be outflows when markets were down. So, there has been a remarkable change,” Srivatsa said.

Investor behaviour shows structural shift

Srivatsa noted that inflows have not only remained stable but have actually increased during periods of market decline. This, he said, reflects better investor education and a more disciplined approach towards investing, particularly through SIPs.

He added that while investors who entered the markets in the last 18–24 months may be seeing modest returns, there is no widespread panic. Instead, investors are seeking clarity and guidance, indicating a more evolved investment mindset. This behavioural shift has also helped reduce market volatility despite significant foreign institutional investor (FII) outflows.

Srivatsa said, “I see this as a very positive trend. It has gone a long way in ensuring that market volatility remains lower, even when there is heavy selling by one segment of investors.”

Valuation concerns in mid and small caps

On valuations, Srivatsa highlighted that midcap and smallcap stocks are currently trading at a premium to largecaps, which is unusual during periods of economic uncertainty.

According to him, strong inflows into these segments have kept valuations elevated, even though historical trends over the past 20 years suggest they typically trade at a discount during challenging phases. In contrast, largecaps appear relatively more comfortable in terms of valuation, though not necessarily cheap compared to past crises such as Covid or demonetisation.

“Correspondingly, we are seeing more comfortable valuations on the largecap side. They are not cheap, but in previous environments like Covid or demonetisation, valuations were at least 20–25% lower than they are now, which offered far greater comfort for large investments,” Srivatsa said.

Asset allocation remains key

Given the current environment, Srivatsa suggested a balanced investment approach. While fixed income has performed relatively well over the past two years, taxation remains a deterrent for many investors.

He recommended using hybrid categories such as equity savings, balanced advantage, and multi-asset funds to gain exposure to debt in a more tax-efficient manner. These categories allow investors to maintain diversification without compromising on tax efficiency.

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Suggested portfolio mix

Srivatsa suggested a broad allocation strategy where around 50% of the portfolio is invested in equities, with a bias towards largecaps and flexicap funds. The remaining 50% can be allocated to hybrid and asset allocation categories to balance risk.

He also emphasised the importance of gold as part of asset allocation, recommending around a 5% exposure as a hedge against uncertainty. However, he advised caution on silver, citing its higher volatility and dual role as both an industrial and investment asset.

Sectoral outlook: Two-pronged approach

On equities, Srivatsa said he is adopting a two-pronged strategy. He prefers sectors that are relatively insulated from rising crude oil prices, such as telecom, utilities, and metals.

At the same time, he sees opportunities in beaten-down sectors like infrastructure and private banking, where valuations have corrected. He also remains positive on insurance within the financial services space, citing improving regulatory clarity and growth potential.

However, he advised caution in certain segments of the oil and gas sector, particularly downstream and gas-related companies, due to uncertainty around crude price movements.

Crude oil remains a key risk

Srivatsa believes that even if geopolitical tensions ease, crude oil prices may remain elevated for the next two to three quarters due to supply disruptions. This could continue to weigh on certain sectors and corporate earnings.

He expects earnings growth for FY27 to be revised downward by 3–4% if crude prices remain high. However, he is more optimistic about FY28, assuming crude prices stabilise and economic growth picks up.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)