UTI Large & Mid Cap Fund: V Srivatsa’s Strategy for Reducing Exposure to Financial Stocks

UTI Mutual Fund Shifts Portfolio Strategy, Trims Financial Sector Holdings

Mumbai, India – A leading asset management company, UTI Asset Management Company, is actively rebalancing its UTI Large & Mid Cap Fund portfolio, strategically decreasing its long-held overweight position in the Financial Services sector. This move comes as sector valuations climb, prompting a diversification into areas poised for future growth. V. Srivatsa, Executive Vice President & Fund Manager – Equity, is spearheading this adjustment.

Navigating Market Volatility

Equity markets inherently experience fluctuations, and Equity Funds are susceptible to volatility. Srivatsa emphasized that while the fund refrains from making ample cash calls to mitigate downside risks, it maintains disciplined active calls within a narrow range of 2-3%. The fund also keeps its allocation to high beta stocks relatively low compared to its benchmark. Historically, the fund has demonstrated a tendency to outperform the benchmark during market drawdowns.

Outperformance Driven by Valuation and Fundamentals

The UTI Large & Mid Cap Fund has achieved a strong 5-year Compound Annual Growth Rate (CAGR) exceeding 26%,substantially surpassing its benchmark. This success is attributed to a blend of stock selection, sector allocation, and portfolio construction, driven by a relative value investment ideology. The strategy focuses on identifying companies and sectors trading at attractive valuations relative to their past norms and,in the case of mid- and small-cap stocks,pinpointing those mispriced relative to their underlying fundamentals.

Balancing Stability and Growth in Portfolio Allocation

The fundS asset allocation targets approximately 45-50% in large-cap stocks, 35-38% in mid-cap stocks, and 10-15% in small-cap stocks, contingent on relative valuations. The higher allocation to large caps aims to provide portfolio stability. While mid-caps offer greater growth potential, their higher valuations have limited the fund’s exposure to near minimum levels. A strategic allocation to small-cap stocks allows for investment in fundamentally sound companies at attractive valuations.

rethinking Financial Services Exposure

For the past two years, the fund maintained an overweight position in the financial services sector due to favorable valuations and earnings visibility.With sector valuations now increasing, UTI AMC is actively reducing its weighting in line with its established strategy. This sector exposure encompassed a diverse range of financial institutions, including banks, Non-Banking Financial Companies (NBFCs), Asset Management Companies (AMCs), and Life Insurance providers.

Current Earnings Landscape

Recent earnings data indicates that while the frist quarter showed growth aligned with expectations, performance was largely driven by sectors like oil and gas, metals and mining, capital goods, and cement. Growth in sectors such as details technology, healthcare, banking, and consumer staples remained subdued. Broad-based recovery is not yet evident; growth is expected to be primarily driven by commodity and cyclical sectors in the near term. Government initiatives, including rate cuts, liquidity improvements, and Goods and Services Tax (GST) reforms, are expected to spur broader earnings growth from Fiscal Year 2027 onwards.

Capturing Emerging Themes

With the increasing prominence of themes like manufacturing, digital transformation, and healthcare in India, large & mid-cap funds are well-positioned to capitalize on these opportunities compared to funds solely focused on large- or mid-cap companies. These themes are found in both large- and mid-cap companies, giving a combined fund greater versatility and investment options.

Asset Class	Allocation Range
Large Cap	45-50%
Mid Cap	35-38%
Small Cap	10-15%

Did You Know? The Indian financial services sector has been a key driver of economic growth, but rising valuations necessitate a cautious approach to portfolio allocation.

Pro Tip: Regularly reviewing portfolio allocations, based on changing market conditions and sector dynamics, is crucial for maximizing returns.

What strategies are other fund managers employing to navigate the current market conditions? How will government policies impact sector-specific growth in the coming years?

Understanding Mutual Fund Portfolio Rebalancing

Portfolio rebalancing is a crucial aspect of investment management. it involves adjusting the weightings of different asset classes within a portfolio to align with the fund’s investment objectives and risk tolerance. This often entails selling assets that have performed well and buying those that have underperformed, helping to maintain the desired asset allocation and possibly enhance returns.Regular rebalancing ensures the portfolio remains aligned with the fund manager’s strategy and risk profile.

The financial services sector in India has witnessed substantial growth,driven by increasing financial inclusion and technological advancements. Though, valuations have risen significantly in recent years, prompting fund managers to reassess their exposure.

Frequently Asked Questions

• What is a large & mid-cap fund? A fund that invests in both large and medium-sized companies, aiming for a balance of stability and growth.
• Why are financial services valuations importent? high valuations may indicate limited potential for future returns,prompting portfolio adjustments.
• What is a CAGR? Compound Annual Growth Rate – a measure of the average annual growth rate of an investment over a specified period.
• How does the fund manager identify “mispriced” stocks? By comparing a company’s stock price to its essential value based on factors like earnings, assets, and future growth prospects.
• What role do government policies play in earnings growth? Policies like rate cuts and GST reforms can stimulate economic activity and boost corporate earnings.
• Is diversification critically important in a mutual fund portfolio? Yes,diversification across different sectors and asset classes helps reduce risk and improve potential returns.
• What’s the significance of relative value investing? It means finding assets that are undervalued compared to their peers or historical norms.

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What specific macroeconomic headwinds prompted V Srivatsa to reduce the fund’s exposure to financial stocks?

Decoding the Shift in Portfolio Allocation

V srivatsa, fund manager of the UTI Large & Mid Cap Fund, has been strategically recalibrating the fund’s portfolio, notably reducing its exposure to the financial sector. this move, observed throughout 2024 and continuing into 2025, isn’t a complete exit, but a deliberate rebalancing aimed at mitigating risk and capitalizing on emerging opportunities within the broader market. Understanding the rationale behind this strategy is crucial for investors considering this popular large and mid cap fund.

why Reduce Financial Sector allocation?

Several factors influenced Srivatsa’s decision to trim the fund’s holdings in financial stocks. These include:

* Valuation Concerns: The financial sector, particularly banking, had experienced significant gains in the preceding years. Srivatsa likely identified that valuations were becoming stretched, potentially limiting future upside. Financial stock valuations were a key consideration.

* Regulatory Risks: The financial sector is inherently subject to regulatory changes. Anticipated or enacted regulations can impact profitability and growth prospects.

* Macroeconomic Headwinds: Concerns surrounding global economic slowdowns and potential domestic headwinds prompted a more cautious approach. Rising interest rates and inflation also played a role.

* Sectoral Concentration Risk: Over-concentration in a single sector, even a historically strong one like financials, can increase portfolio vulnerability. Diversification is a cornerstone of sound mutual fund investment.

Where is the Capital Flowing? – Sectoral Shifts

The capital freed up from reducing financial exposure hasn’t sat idle. Srivatsa has been actively deploying it into sectors he believes offer better growth potential. Key areas of increased allocation include:

* Consumer discretionary: A bet on increasing consumer spending, particularly as disposable incomes rise. Companies in retail, automobiles, and leisure are benefiting.Consumer discretionary stocks are now a larger portion of the portfolio.

* Healthcare: Driven by demographic trends and increasing healthcare awareness,the healthcare sector is seen as a relatively defensive and growth-oriented option. Healthcare sector investment is a long-term play.

* Industrial Goods & services: Benefiting from infrastructure development and government spending, this sector offers exposure to India’s growth story.

* Technology: Select technology companies, particularly those focused on digital transformation and emerging technologies, have seen increased allocation. Technology fund investments are becoming more prominent.

Impact on Fund Performance & Risk Profile

The shift in portfolio allocation has had a noticeable impact on the UTI Large & Mid Cap Fund’s performance and risk profile.

* Reduced Volatility: Lowering exposure to the frequently enough-volatile financial sector has contributed to a slight reduction in the fund’s overall volatility.

* Potential for Higher Returns: Increased allocation to growth-oriented sectors like consumer discretionary and technology offers the potential for higher returns,although with potentially higher risk.

* Tracking Error: The fund’s performance may deviate more from its benchmark index (Nifty LargeMidCap 250) due to the active sectoral allocation. Fund tracking error is a metric investors should monitor.

Analyzing Specific Stock Movements (Recent Examples – as of Sept 2025)

While specific holdings are subject to change, recent portfolio updates (as of September 12, 2025) reveal some key movements:

* Reduced HDFC Bank Stake: A significant reduction in the fund’s holding of HDFC Bank, one of the largest private sector banks in India, was reported in the latest filings.

* Increased Reliance Industries Allocation: A notable increase in allocation to Reliance Industries, reflecting confidence in the company’s diversified buisness model and growth prospects.

* New Entry into Tata elxsi: The fund initiated a position in Tata Elxsi, a leading engineering and design services company, signaling a focus on the technology sector.

* Addition to Apollo Hospitals: Increased stake in Apollo Hospitals, reflecting the positive outlook on the healthcare sector.

Benefits of Srivatsa’s Strategy

* Proactive Risk Management: The strategy demonstrates a proactive approach to risk management, anticipating potential challenges in the financial sector.

* Diversification: The rebalancing enhances portfolio diversification, reducing reliance on a single sector.

* Growth Potential: The increased allocation to growth sectors positions the fund to benefit from India’s long-term economic growth story.

* Experienced Fund Management: V Srivatsa’s track record and experience inspire confidence in his investment decisions. Fund manager performance is a key factor for investors.

Practical Tips for Investors

* Review Your Portfolio: Assess whether the fund’s current allocation aligns with your own risk tolerance and investment goals.

* Long-Term Perspective: The UTI Large & Mid Cap Fund is best suited for investors with a long-term investment horizon.

* Monitor Fund Performance: Regularly track the fund’s performance and compare it to its benchmark index.

* Understand Sectoral Allocation: Pay attention to the fund’s sectoral allocation and understand the rationale