Investing is all about taking a qualitative call in a scenario that is neither a bubble market, nor a buyer's market, Rajeev Thakkar tells ET.
What is your assessment of the recently concluded earnings season?
Except for the known problem areas like banks, commodity-linked firms and some overleveraged infrastructure names, results have been largely good and the trajectory is looking up. The commodity price fall has been corrected and it is on the upswing. Therefore, pressure on these players may recede, going forward.
However, banks in the public sector could remain under pressure for a year or two. The clean-up is not going to happen overnight. Besides, export driven companies are still seeing some headwinds. It is not that you will see a uniform upswing immediately. Some will come out of the slump earlier, others will take more time. But overall, the earnings for 2016-17 should be better than that in 2015-16.
Are you betting on the monsoon to provide a leg-up to the economy?
Apart from direct corporate earnings impact, a good monsoon will enable the government to focus on different areas, rather than just drought alleviation. We have had two straight years of below par monsoon. If that happens for a third time, there will be a lot of difficulty, s ince resources will have to be diverted towards providing relief.
If that overhang is not there, agricultural produce is good and inflation is under control, the government will be able to do much more. There is a sense that if the monsoon is good, the rural economy will get a boost, thereby enhancing tractor and two-wheeler sales as well as FMCG volumes. Contrary to such a simplistic correlation, I think the availability of water, which is a basic necessity, enables people to focus on a lot of other activities rather than worrying about droughts.
Are you seeing any good investing opportunities now?
A lot of long-term measures are being taken by a business friendly government in a largely stable political environment. Interest rates are still on the downward path. But on the depressed earnings, the valuations still appear high, especially after the big run up we have seen of late. Nothing is obviously cheap right now. Since there are no low hanging fruits, it's a qualitative call in most cases. Opportunities exist, but they will take time to play out. We are neither in a bubble market nor in a buyers' market. We are still looking out for better opportunities as corporate earnings improve.
has been among the top performers of late. What has worked for the fund?
Our broad mandate and flexibility helps work in our favour. We can invest in foreign equities and change the mix between largecaps and mid-caps. Since we are not bound by market capitalisation or geographies, we can avail of opportunities across a wider set of companies. That has clearly worked. Many times, we take advantage of valuation arbitrage.
For instance, if FMCG stocks are expensive in India, we can go overseas and buy FMCG companies which have a strong emerging market presence. When you are invested in more than one country, the portfolio volatility declines. Country-specific risks do not affect the fund as much. This has helped us in delivering good returns.
What is the rationale behind this 'go anywhere' approach? Will it not dilute your focus?
Your success rate in any endeavour primarily depends on how attractive that field is. If you are fishing, the number of fish in the pond will be a factor in determining whether you catch one. If the area that you are trying to focus on is dry in terms of opportunities, it makes sense to move to another area. Having the option of looking at a wider set of opportunities always helps.
The world that we live in today is interconnected. Whether a fund manager in India likes it or not, he has to be cognizant of what is happening across the world. If as a fund manager, you are buying Tata Motors, you are also buying JLR. You have to have an idea about what is happening in the international auto market. When you look at a broader set of companies, it gives you more insight into Indian companies as well, because you become aware of other markets.
Wherever there are glaring valuations mismatches, you can avail of these opportunities. So, when we say that we have a mandate to go overseas, it is not that we are analysing each and every company. We stick to the sectors that we understand, and to countries which have good shareholder protection. We are not investing in any exotic companies. Essentially we are buying global multinationals which do not depend on very niche products or market segments.
Businesses like Nestle, UPS and Alphabet are easy to understand, as a result of which, the loss of focus does not occur. Our mandate allows us to invest upto 35% in international equities. Essentially it is bottomup stock picking. If there is a scenario where overseas stocks are expensive and India is relatively cheap, we could bring our overseas equities down to zero. There is no minimum investment that we need to keep in overseas stocks.
What is the reason for the focus on private banks ?
We see the private banking space as an area of opportunity. Public sector banks will take some time to come out of the mess. Particularly in leveraged firms, it makes sense to go for quality names rather than the cheapest stocks. This is especially true for banks. We expect private banks to take a lot of market share away from public sector banks. We will, therefore, stay invested in this segment.
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