Patel believes that the attractive valuation of mid cap and change in leadership within the large-cap will be beneficial for Tata Focused Equity Fund.
Share with us the fund management process of Tata Mutual Fund. What makes your process different from others?
Our investment philosophy is Growth at Reasonable Price (GARP). So, while we target companies with good runway for growth, we also keep an eye on sectors or companies that are going through an earnings upgrade cycle. Earnings upgrade provide the necessary valuation cushion in the investment framework. In addition, unlike deep value investing, GARP philosophy focuses on the value segment but only if there are visible catalysts for re-rating over next 6-12 months.
In your view, what is more important – fund manager’s ability or fund house’s process?
Investment process is a necessary but not sufficient condition for performance. Ultimately, it has to be backed by sound analysis, strong research team and fund manager’s experience.
Tata Mutual Fund has launched Tata Focused Equity Fund. Tell us the rationale for launching this. Also, share the fund management strategy of this fund.
Our investment style has lower churn than industry average in various categories and we do not believe in holding a long tail of stocks. So, our fund approach is very much in sync with what is needed for Tata Focused Equity Fund. Given the benchmark obsession prevalent today, we believe that traditional diversified fund cannot fully leverage the potential change in market trends i.e. I) broadening of markets and ii) repeating of value segments. Tata Focused Equity Fund will have a benchmark-agnostic and sector-agnostic approach so it intends to work like a pure bottom-up fund. The fund cannot own more than 30 stocks and will have a healthy mix of large-cap, mid-cap and small-cap.
What is your three-year outlook for the equity markets?
We expect core earnings growth 10-12%, higher than the normalised nominal GDP growth of 9-10%. The returns should track the earnings growth as the index valuation is already at 10% premium to 10-year historical average. However, the real opportunity can be from broadening of markets (mid-cap valuation at a discount) and change in leadership within the large-cap. It already happened in 2019 vs. an extremely narrow market in 2018. That trend could continue in 2020-21 thus providing an opportunity for Tata Focused Equity Fund to outperform.
