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The Rediff Money Interview/ UTI Chairman P S Subramanyam

'There is no scope for NPAs in our portfolios'

When Y Siva Sankar met Unit Trust of India chairman P S Subramanyam in Rome, Italy, last fortnight at the reception hosted by the Indian ambassador in honour of visiting Prime Minister A B Vajpayee, there was an air of serenity around India's bestknown mutual fund manager and a soothing smile on his face.

The smile seemed almost permanent, whether he was in the company of India's corporate czars or Finance Minister Yashwant Sinha. When "the chief trustee of more than 50 million investors" chose to be alone for a few minutes, the smile was still in evidence.

And when Siva Sankar met Subramanyam at his office in south Bombay on July 18 for an exclusive one-on-one, the familiar smile greeted him.

"I manage to smile always. You can say my smile played a role in seeing UTI through the US-64 episode of 1998. It had a positive effect on our employees during that crisis period. I learnt later that they had told themselves: 'Here's a man who has not lost the will to smile even in the face of difficult times. If he can be confident, why can't we? We shall prevail.' That strengthened the team spirit. And today, two years down the line, US-64 has positive reserves and is alive and kicking," he said, flashing that smile again, during the course of a wide-ranging interview.

Critics and journalists may debate on UTI's dividends this year and its rejection of the open offer by Reliance Industries for BSES stock, but Subramanyam, 58, would smile them off with his cool 'Why-shouldn't-I-smile?' demeanour. Why not, indeed, when business giants such as Ajay Piramal, chairman, Nicholas Piramal, Mukul Kasliwal managing director, S Kumars and Ravi Subramanian, chairman, Silverline Technologies, which has just been listed on the New York Stock Exchange, make it a point to pay courtesy visits to the man who presides over a Rs 720 billion corpus.

Soon after you took over as UTI chairman in September 1998, US-64 came under critical scrutiny, particularly from Mumbai's pink papers. Today, one sees press advertisements, hoardings and billboards proclaiming US-64 as 'The Achiever.' What went right?

(Smiles). Oh yes, the press was having a go at us. But we decided to take the onslaught in our stride. We were very focused on what we wanted to do and decided not to get distracted by anything.

There are three main reasons behind the turnaround of US-64. One, we decided to honour our commitment to our patrons, the unit holders, come what may. If anyone wanted to sell, we decided to repurchase, no questions asked. In 24 hours flat. We wanted to tell the people at large that UTI was not short of cash, that there was no cause for panic. In Calcutta, I remember, senior citizens declined to sell even when our officers volunteered to buy back their units, to put fears to rest. "We have confidence in UTI. We don't want to sell. We know this is just a passing phase," they told our people. This initiative worked wonders. People calmed down and began to see reason.

Two, the UTI top brass took the lead in galvanising the entire UTI staff for a damage control exercise. We told them that much of the crisis was media-hyped, that the real problem was manageable. In real terms, there was no threat to UTI because we have no competitors as such. We account for a dominant chunk of the mutual fund industry in India. Once our staff realised this, there was no turning back. With renewed confidence, we figured out where we went wrong, evolved corrective measures and started implementing them in right earnest. I played the twin roles of a team leader and team member.

Three, the general market expectation at that point in time was that UTI would unload equity at lower prices. There were fears to that effect. But I didn't do it. Sure enough, the markets moved up. We decided to restructure the US-64 portfolio. A special action plan was drawn up to shift the accent to the New Economy stocks. The exposure of US-64 to the Old Economy at that point in time was quite heavy. But then, UTI moves rather quickly in its market operations.

There is a view that UTI's confidence in the New Economy stocks may be misplaced. The infotech stocks are not zooming up the way they did a few months back. Has UTI merely shifted the US-64 exposure from one risky sector to another?

It is not so. I do not agree. True, there are crests and troughs of late in the infotech sector. But what UTI has done can be called risk diversification. We have not moved out of Old Economy stocks completely. I don't share the pessimism related to infotech stocks either. Sure, there is a seemingly unreasonable proliferation of dot-coms and B2B and B2C businesses. But this does not mean one has to look down upon the entire industry itself. I feel the infotech industry per se has tremendous prospects. It is the future.

When you took over as UTI chairman, you wanted to "enhance unit holder value and increase UTI's corpus of investible funds". How far have you succeeded?

To a very high degree. About the investible funds, you can get the exact figures from our press releases. In 1998, there were negative reserves in US-64. At the end of 1999, they have turned positive to the tune of Rs 1.30 billion. The market value of securities has increased. We are complying with SEBI guidelines. There was a time when huge advertisements were released in the press portraying us in a negative light. Now people seem to agree that, yes, we have succeeded in enhancing the unit holder value.

Back to US-64. What is its debt to equity ratio now? Now that the reserves are positive, will you make it open-ended?

The Deepak Parekh Committee (instituted to suggest ways of restructuring the fund) has made certain recommendations regarding that. It has given us a time frame of three years. We are gradually moving in that direction. We have to effect changes in the fund's portfolio in such a way that there is no impact on the market.

The same committee had also said that in three years, US-64 Net Asset Value and sale and repurchase prices should be linked.

I believe it is possible to do so. The relationship with NAV moves within a certain band. I am confident we can do that in the stipulated time frame.

You had justified exposure of nearly 70 per cent of US-64 to equity by saying that equities yield higher returns than debt instruments. However, not many are impressed by the US-64 dividend this year.

One should not compare the US-64 dividend this year with returns on equities themselves. There is the issue of tax. The 13.75 per cent dividend declared is tax-free in nature. I agree those who are not in the tax bracket are not very happy. But those who have to pay the tax have no major complaints. Ask any one of them and they will tell you the return this year is "very competitive" and comparable to the best in this market segment.

Will UTI move away completely from assured returns schemes to open-ended schemes?

We have already done that. There are very few assured returns schemes, if at all. Our interest lies in ensuring that the unit holders get good returns. The emphasis is on what is called take-out financing. We can't ignore the writing on the wall.

You have expressed your displeasure at the 22 per cent tax on dividends of funds that have more than 50 per cent exposure to equities. Would you like to say anything on that?

A correction: It is incorrect to say I have expressed my displeasure. I have merely pointed out how our schemes are affected by the tax.

Himachal Futuristic, a telecom company, figures in the UTI Pharma Fund. Analysts say this flies against the basic mandate of the fund's tenets.

One should not perceive this as tampering with the fund's basic tenets. Our fund managers make it a point that every fund's risk allocation is balanced. We have to have faster exit routes, just in case. There is no scope for NPAs (Non Performing Assets) in our portfolios. We calibrate in such a way that sometimes it becomes necessary to innovate in order to maintain a healthy NAV.

There have been analyses in the media questioning UTI's exposure to Pentamedia. The collective stake of the FIs is 12 per cent, and UTI alone accounts for 10 per cent. When other FIs seem disinterested, why is the UTI active? Has this anything to do with the UTI's conviction that infotech is the future?

I do not want to comment on company-specific issues. It would not be right on my part to do so. Constitution and management of portfolios is a task performed by our fund managers. They are free to determine and evaluate the market forces. I do not impose my personal opinions on their judgement. I am confident of their ability to deliver positive results. If they feel a certain stock has a lot of potential, I am not one to object.

'I am confident the Sensex will touch 6000 by Diwali'

Money