In a chat with ET Now, Rajeev Thakkar, CIO, PPFAS MF, says one should be wary of betting on companies like Coal India, NTPC and ONGC for too long.

ET Now: The world is changing, isn't it? If I look a most valuable companies in the world, all of them are either IT companies or there are IT product companies.

Rajeev Thakkar: Amazon whether we call it ecommerce or IT, at the backbone it is an IT driven company, yes.

ET Now: If they get 50% or 50% plus business profits from their cloud business, it has to be IT, it is just not an online retailer. We think Amazon is an online retailer but actually it is a cloud business which gets the real chunky part of the revenue. While we talk about global IT companies, Indian IT is in a bit of a cloud any which ways. The moot point is I do not know if we have a line of questioning here but otherwise I just thought we will get your opening thoughts on what are you seeing the Indian markets doing in the near term?

Rajeev Thakkar: Our markets near term I have no view usually...

ET Now: I have been told that fund managers always have a view and that view is largely bullish. It is like saying never ask barber if you need the haircut, say yes. Long term fund managers, the hedge funds can be short too.

Rajeev Thakkar: Sure. I think it is liquidity driven and one can argue it both ways. Whenever anyone does a DCF, the denominator is the cost of capital. When the cost of capital is driven very low, you can justify any valuation that you want but at the same time we have to recognise that we are at above average valuations in terms of historical averages that we have seen in the Indian markets as well as globally. So one has to be cautious at this time. One cannot get carried away in terms of what is happening in the market place and just go out and buy any story which is being promoted.

ET Now: So what are you doing right now? How has been the fund situation been for you inflows versus outflows and if you have gotten net inflows where are you deploying them today?

Rajeev Thakkar: So we have not got too much net inflows of late so it has not been too much of a worry in terms of deploying fresh funds but our approach is bottom up so rather than taking a market call we are looking at each company on its own merits and trying to decide whether it is worthwhile investing at these levels.

ET Now: I am looking at some of your global holdings because 35% of the funds is exposed to globally listed companies . You have Alphabet, which is Google where you have an exposure of about 11%, United Parcel Services, IBM, 3M, Nestle this is like a fairly decent portfolio. But are you looking to churn it or are you looking at increasing it in some way because valuations is a key concern and we know that the NASDAQ is at an all time high. So you have made money on your current portfolio but how do you kind of monetise it? How do you take the story forward? How do you kind of manage the exposure on this side?

Rajeev Thakkar: So just a small correction. We can be up to 35% in global stocks, currently it would be about 29-30% in that range. NASDAQ in terms of absolute values it is at highs sure but it is nowhere near the past NASDAQ bubble that we had seen earlier so the largest market cap in company in the world which is Apple currently it is about 10 times earnings so it is not that it is a dot.com kind of frenzy. Nikunj was just mentioning about the top five companies coming from the IT space and so one can argue whether Amazon can be valued at the current levels but I do not think there is any dispute that Apple is attractively valued in terms of sheer names leave aside the growth prospects or Microsoft is not factoring in any fancy growth coming forward or even Alphabet has not ridiculously valued it is about 30 times earnings and if you remove cash it is may be closer to 25. So I do not see worry in terms of valuations globally.

ET Now: You have done well on your portfolio I am just saying what is the strategy? Would you be looking to churn this or booking profits or perhaps increasing right now? It is 29% increasing so the worry comes in if you are looking to extend your portfolio? The valuation of your global exposure than is a concern?

Rajeev Thakkar: Well some of these are core holdings we plan on holding for a very very long time and the prospects continue to look good. So we are not looking at churning it in a big way and the weightages keep moving depending on inflows, outflows how much we deploy in various places so since 35 is a outer limit we would not want to straight too close to that so we might at the margin increase the exposure a bit but not very significantly it would be somewhere where it is right now.

ET Now: I know you are largely bottom up but we cannot obviously talk about individual names out here. What is your favourite theme within the Indian markets right now? What sector if you are at liberty to talk a recent purchase that you have done or what theme what works for you?

Rajeev Thakkar: I think the financial services space overall and I am including banks, NBFCs even the fee-based activities, is looking good especially given the fact that PSUs are expected to seed a lot of market share going forward. Given this scenario, any play where it is either a fee-based or a fund-based activity, if they control the risk on the lending side, I think they should do well. So, private sector banks look good. May be some of the services related spaces things like asset management or wealth advisory or credit rating etc. Some of these look good and of course some of these have run up quite a bit. So one has to be mindful of the valuations that one gives them but that is a space which we see growing for quite a few years down the line.

ET Now: Any sector that you would want completely to avoid right now or where you will be booking profits, my thing that the fund managers is essentially is about yes you make good investments, you make prudent calls to take the right exposure but at what point in time do you say this is a good price, this is a good profit let me cash on it?

Rajeev Thakkar: So cashing on may be either valuation driven or it may be purely in terms of the business fundamentals changing and the flip side to the top five companies coming from a particular area is that a lot of sectors are threatened right now -- things like traditional energy, auto, transportation in general, retailing. So one should be wary of paying too higher price in some of these. I was just reading given the good amount of rainfall and hydroelectricity generation being up a lot of thermal power plants are running at 50% plant to load factors. So in a scenario where our markets are dominated by Coal India and NTPC and ONGC,s one should be wary of paying of betting on these companies for too longer time, a lot of changes are coming up in this space.

The original article could be seen here.