30 years of liberalization: How Vetri Subramaniam got a sneak peek into India’s reforms early in 1991

The Group President & Head of Equity at UTI Mutual Fund takes us through the revolution in the equity markets and one of Manmohan Singh’s speeches before he became the Finance Minister.

Vetri Subramaniam, Group President & Head of Equity at UTI

It was like an early view into the liberalized future for Vetri Subramaniam, Group President & Head of Equity at UTI Asset Management Company. In April 1991, he was a student at IIM, Bengaluru. Manmohan Singh was the chief guest for the convocation ceremony. Singh hadn’t yet become India’s finance minister – that would happen three months later. But as India was sinking into a payments crisis at that time, Singh, in his address, listed the steps that India should take to improve the situation. Opening up the Indian economy was a big part. Like his friends and peers, Subramaniam didn’t grasp the importance of Singh’s talk. But a year later, when the India’s economic reforms had kick-started, Subramaniam actually saw things materializing in real life.

Allowing market forces to decide

“He talked about the need for us to open up the factors of production, allow companies to build capacity, allow markets to determine prices and the process of capital allocation. His speech was prescient. When I think about it today, he talked about the globalization of Indian businesses and making them competitive in a global environment way back,” says Subramaniam.

As a fund manager and an equity investor, Subramaniam remembers that in those days, a government body called the Controller of Capital Issues (CCI) used to determine how much premium a company’s share can charge in its Initial Public Offering (IPO). This entity was disbanded as a part of India’s economic liberalization. Funnily, he remembers having learnt the CCI formula at IIM as part of his curriculum.

As a result of the IPO market opening up, he says, many companies came out and raised funds. That gave rise to a lot of shell companies. “We referred to them as vanishing companies; these people took away public money and vanished,” he says. The Harshad Mehta scam of 1992 that brought the markets down didn’t help.

Bringing in the investors

Investors, however, bought shares directly than going through mutual funds (MFs). The absence of professionally-managed private sector fund houses and a lack of choices meant that more investors went to equity markets directly. For fund managers and stock markets brokers and analysts, there was a challenge – the lack of information. Subramaniam recollects that in those days, many brokerages had libraries in their offices. If an analyst wished to study a company’s annual report, she had to request the librarian to procure a copy from the Bombay Stock Exchange. A copy would cost Rs 20-50. Figures were to be manually entered in Excel and analysis done.

Today, Subramaniam says, there is an overload of information. “The nature of the investing business has changed. Once upon a time, we had to go hunt for the information. Today, it’s about rejecting the information and figuring out what I actually need. And that’s a massive transformation,” says Subramaniam. That is also why he feels it was far easier for fund managers to outperform 20-30 years ago, than in present times “because research-based approach gave us a distinct advantage over others.” What’s the one big lesson he learnt as a fund manager? “IQ (Intelligence quotient) is important, but EQ (emotional quotient) is more important,” he says. Subramaniam takes inspiration from men’s tennis champion Novak Djokovic.

After winning his 20th grand slam title earlier this month at Wimbledon, Djokovic described how losing consistently to his peers, Roger Federer of Switzerland and Rafael Nadal of Spain, made him a better player. “The biggest challenge for us fund managers is similar; how we manage our behavior, our portfolios during turbulent markets, while ignoring the noise and staying true to our mandates,” he says.

Source: Money Control