Can you take us through your fund management style? How is your style different from others?
We focus on good companies that have potential to grow and have good fundamentals but are going through tough times due to certain external factors.
We then look at valuation of the company. We prefer investing companies having attractive price and competitive advantage.
Overall, we monitor our stocks on a regular basis and undertake a detailed analysis before adding names to our portfolio. In addition, we are very particular about liquidity. We make sure that we do not have any stock, which needs more than a week to be liquidated.
What is your outlook on the equity market and what will be the key drivers of the market?
It is difficult to give a near-term outlook on the equity market. The markets have run up quite a bit and there is possibility that market may correct a bit. We may see some signs of fatigue among the companies that have consistently performed well. However, the stock prices of these companies have a tendency to overshoot due to rally.
On the longer-term, say three to five year perspective we are positive on the equity market. Many banks are in their restructuring phase. A lot of cleansing activities have been going on when it comes to their balance sheets. These companies will strengthen the equity markets in the long run.
In addition, I believe that beaten-down stocks will drive the equity markets in future considering their increasing focus on revival of their businesses.
Another key aspect is the sunrise sectors. These are smaller sectors that have a potential to become large sectors. Chemicals, agro companies, defence companies are some of the sectors that have the potential to become market giants.
What is the driving the rally?
In the last six months, we have seen a rally but if we look at the data of last two years, the markets have not really moved much. Currently, the macroeconomic conditions look good, fiscal deficit is manageable and inflation has fairly subdued. The current account deficit is at a comfortable level. The political stability and reforms such as GST are beneficial to the country.
How do you see the valuation at this point of time? What are the challenges in finding buying opportunity under the current scenario?
We are not facing that problem as currently we are buying the stocks whose shares prices have fallen due to various reasons. We find there is opportunity in these stocks. We are also buying stocks that have a relatively smaller market capitalisation.
What are the sectors that you are bullish and bearish on? Why?
We are overweight on the telecom sector. The sector is going through stress due to excessive competition and valuations look attractive. Another sector that we are quite positive on is the utilities space. Currently, there is pessimism for multiple reasons which we believe will subside over time.
Corporate banks that have reported higher NPAs are also among our favourites. We have increased exposure to some of pharmaceutical and IT companies as well. The valuations of these companies are currently attractive.
On the other hand, we are underweight on banks that have low NPAs and consumption-oriented sector. These sectors have given good returns in the past and hence we believe that the returns will slow down in the future.
You seem to be very fond of banks. You have a lot of banking stocks in your holdings across the funds you manage. Given the current scenario, how do you make sure that your bet does not wrong?
The pessimism surrounding banks is quite high due to NPAs. The current environment is challenging but with provisions in place, things will become better with the intervention of government and RBI. These banks have good deposit numbers. In fact, most of the deposit numbers have come from retail investors. Since retail investors stay put for long term, this will help banks restructure their bad loans and clean their balance sheets.
Since we are overweight on banks, we ensure holding adequate cash to meet liquidity. If we are buying a bank stock that has a pile of bad loans, we mitigate the risks by adding a stock that is secular in nature provided the valuation is attractive. If we do not get such a stock that is trading at the right price and has good ROC, we increase our cash holdings.
Fund management is a journey where you tend to learn from mistakes. Can you share with us one such mistake, which has helped learn something in your fund management career?
One thing I learned from my career is to keep calm. The market is volatile and one tends to lose sleep over such things. I try to keep myself away from such developments and consistently keep a cool mind.
