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The Rediff Money Interview/ UTI Chairman P S Subramanyam

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

PART I: 'There is no scope for NPAs in our portfolios'

A few seasons back, UTI made controversial news for its reported decision to sell its stake in ITC to BAT. The latter was seen as a videshi company trying to take over a swadeshi company through backdoor means. BAT was reportedly lobbying with UTI during the US-64 crisis for ITC equity. What is the latest on that?

We have a certain percentage of stock in ITC. There is a certain value to it. We have an open mind on this issue. We perceive a certain value in the company. We will hold the stock for as long as we foresee value in it. If there are any signals of loss of value, we will do what needs to be done to arrest the loss. It is actually a matter for the fund managers concerned to decide. I have no exclusive views on the matter.

There is also a view that UTI, in its bid to keep US-64 investors happy, is penalising subscribers of other schemes by not handing them handsome returns.

I do not agree. SEBI guidelines won't allow such a thing to happen in the first place. We have to maintain market rates at all times. We can't afford to do anything other than that.

A few months back, you said the BSE Sensex will touch 6000 by Diwali. Do you still feel so?

Yes, of course. My foresight has not changed. Even today (July 18), the prime minister has told the Economic Advisory Council that this year's growth rate would be seven per cent, thanks to good monsoons. Even financial institutions abroad have been consistently bullish on India. I see no reason why we should be pessimistic on this score. I am confident the Sensex will touch 6000 by Diwali.

As head of India's biggest, unassailable mutual fund, what is your outlook for industry?

The mutual fund industry will further consolidate. By that I mean there will be more mergers, acquisitions and so forth.

Will UTI buy out other mutual funds?

Maybe yes. Perhaps not. It depends on the kind of opportunities that exist in the market. India has a very large middle class. Mutual funds in general and UTI in particular will launch more and more products for the middle class investors to offer good value for their savings. Mutual funds will seek to be the purveyors of wealth. We would encourage the investors to hold stocks in the market.

The other day, the prime minister said that equity culture should be spread to rural areas, to villages and every nook and corner of India. Do you have any specific plans to do that?

UTI has been the only institution that has been playing a proactive role in spreading the equity cult across India. Our penetration into rural markets is the largest. We will leverage this factor to intensify our efforts.

UTI has been exhorting companies to embrace healthy corporate governance practices. What are the results on this front?

Every Indian corporate has realised the significance of good corporate governance. Initially, there was some resistance, especially from those who were comfortable in the previous regime. Now market cap (market capitalisation) is the mantra. Every corporate is chasing it.

Market cap has become crucial to every company's image. And for a healthy market cap, companies have to deliver good results and be fundamentally strong. The market supports only such companies. I am satisfied with the way companies have responded to the UTI's initiatives for exemplary corporate governance.

You had also warned that UTI will pull out of badly run companies. Was that the reason why they responded positively?

(Smiles). Of course. I am happy it was not necessary to execute my warning.

What are your plans for entering the insurance industry?

We have a tie-up with AMP Limited, Australia's largest financial services company. We are keen on entering the sector. In March 1999, we had launched the $ 500 million India Infrastructure Fund. Finer details of our insurance foray are being worked out. We believe insurance will be a major opportunity in the financial services sector in India. Naturally, we would like to have a significant presence.

Earlier, it was said that UTI would be looking at only the life insurance segment.

UTI is interested in the life insurance as well as the general insurance segments. We are also keen on reinsurance. As for our planned investments, the IRDA Act (Insurance Regulatory and Development Act) stipulates that investments should be Rs 1 billion. So it will be in that range.

FIs like ICICI have been very aggressive in their reinvention of themselves for the Net Age. UTI seems to lag in the march towards Net-based economy. Why?

Look, ICICI is not a mutual fund. Although we are all broadly categorised as FIs, ICICI is more oriented towards banking. We are a mutual fund. This is not to say that UTI is not inclined to adapt to the Net Age. We have been doing that. We do have a huge budget for reorienting our operations. We have McKinsey & Co for advisors. TCS has been hired to develop generic software, a strong technology platform. In a year's time, UTI will be on par with any other most tech-savvy mutual fund in the world.

What about computerisation of your operations?

We have been computerising our operations gradually. Internal networking among the branches has been satisfactory. It has added a new dimension to our operations. Our technology is very sophisticated. We have a SAP model in place.

And yet, unit holders complain of long queues at UTI offices....

We are not interested in offering our services only to the elite, so to say. We subscribe to both categories of customers. It will be some time before Net-based transactions are commonplace in India. Some of our customers, particularly the retired employees, believe in getting things done in person; they like to feel the papers physically. It kind of reassures them that things are all right. They are not the types who move around with laptops, etc.

We cannot ignore them. So, yes, it will take some more time before every unit holder reaps the full benefits of computerisation.

UTI has been demanding a place on the boards of companies where it has substantial stakes. What is your view on this now?

First of all, I would like to say we have been misquoted on the issue in the past. We never demanded a place on the boards. The question is, are we getting the best returns from companies in which our funds have substantial exposure? After all, we have to ensure that in order to pass on the benefits to our unit holders. So we communicated our desire that UTI should not be ignored or overlooked while taking important decisions. We emphasised corporate governance. We have enough responsibilities on our hands. Who wants more responsibilities? It was only incidental that we said we should be consulted at crucial junctures.

There is a talk that HDFC is keen on merging itself with HDFC Bank. One cannot rule out similar mergers between ICICI and ICICI Bank, and IDBI and IDBI Bank. Will UTI and UTI Bank merge too?

Again, I would like to emphasise that ICICI is moulding itself into a universal bank. The basic functions of IDBI and UTI are different, though people refer to us with the common phrase, 'financial institutions.' UTI is a mutual fund. We are not oriented towards banking. Having said that, I would also say that whatever synergies that exist between UTI and UTI Bank and other group outfits, will be harnessed.

There was a time when UTI was autonomous. Most of UTI's schemes are now under the purview of SEBI. How is it like being under the watchful eyes of D R Mehta, so to say?

I see it as a great opportunity to achieve a higher level of transparency. It gives me immense satisfaction that UTI rose to the occasion and strengthened its operations in a way that ensured a higher level of compliance with SEBI guidelines. We would like to observe them in letter and in spirit. For transparent operations will help us to be in high spirits.

You had said UTI under your stewardship would introduce new instruments for the infrastructure sector. One major announcement in this direction was that UTI would participate in the Bangalore-Mysore expressway project. What role in infrastructure financing do you envisage for UTI in the New Millennium?

We have had exposure in several power projects, some of which reached their financial closure this year. UTI is not interested in participating from the very beginning. We would like to enter the scene last. Once the project acquires its physical form, once all the clearances are in place and when financial closures near their end, that is when UTI will step in. I foresee more closures this year too. Our commitment to infrastructure financing has not been diluted.

UTI wanted to play a key role in the commodities sector.

Yes. We believe commodities are also a big opportunity in the New Millennium. India is a very big market. We have launched certain sectoral funds to encourage this industry. We will step up our efforts in this sector.

UTI's year-end in June is not in sync with Corporate India's year-end in March. Do you have plans to change this?

No. Our practices are dictated by the UTI Act. This particular aspect is not under my purview. Parliament is the sole authority on matters like this. Parliament is aware of this issue.

Would you recommend a change to Parliament?

No. Who am I to recommend changes? As I said, Parliament is aware of this fact and this matter is not under my domain. So I would rather not discuss it.

'The future belongs to India'

Money