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Small And Midcaps Are Good Wealth Creators If Purchased At A Reasonable Price: Vinay Paharia, CIO, Union Asset Management Co

In an interview with BW Businessworld, Vinay Paharia, Chief Investment Officer of Union Asset Management Company, talks about opportunities lie in the small and mid-cap space and more

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What was the rationale behind launching a focused fund at this time? Going forward, do you believe that more focused strategies will outperform diversified ones?
Union Focused Fund is expected to invest across market caps (i.e. multi-cap) and have a concentrated portfolio of maximum 30 stocks. Generally, a concentrated portfolio tends to have the potential to deliver relatively better returns over medium to long term period when compared to a diversified equity fund but with higher risks, which is suitable for sophisticated investors.

By and large, corporate performance has been bleak. Incoming result numbers are not too encouraging, and the index’s EPS just doesn’t seem to be breaking out. What’s your prognosis for large caps as a whole?
According to our internal research, market returns over the past seven years have reflected fair value growth, which was in double digits. However, recently, we have seen the impact of a slowing economy on corporate earnings and expect it to be a key headwind going forward.  

Do you believe that better opportunities lie in the small and mid-cap space right now?

Small and Midcaps are good wealth creators if purchased at a reasonable price. According to our internal analysis, the small and mid-cap segment has seen a significant correction in valuations and they now offer similar risk reward payoff as their large cap peers. Hence we are neutral across the market cap curve.

Is the worst behind us for credit risk funds? With all the negative sentiment priced in, do you think that corporate bonds are now trading at attractive valuations? What are the best options for low risk investors at the moment?
We have seen large number of credit risk events materialize in the past twelve months. According to us, however, the current slowdown in the economy may result in a fresh buildup of stress. Hence we have a cautious view on bonds with a higher level of credit risk. Instead, high quality corporate bonds offer a better spread versus G-Sec and hence should be preferred by fixed income investors.

What challenges do smaller AMC’s like Union face at this time? Are you planning to build synergies with Union bank, in the same way that other bank-owned AMC’s have leveraged their banking channels?
Smaller AMC are no different than their larger counterparts as far as the quality of investment management and research are concerned, and many smaller fund houses have also produced superior performance. However, investors tend to take time to develop confidence in new AMCs, which makes growth difficult in the early years of the Fund House. Our parent, Union Bank of India, has been our strong and steady supporter and, over time, we expect to build equally strong connect with other channels like IFAs, Wealth Managers and Banks.

Product label for Union Focused Fund:
Date of Allotment on: - 5th Aug 2019; Scheme re- opens on: - 13th Aug 2019
Disclaimer: The views expressed or statements made in this document are purely the views of the author and do not necessarily represent the views of either Union Asset Management Company Private Limited or its affiliates.

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Vinay Paharia Union Asset Management Company