Rajeev Thakkar, CIO, Parag Parikh Financial Advisory Services Mutual Fund, says while the market momentum is clearly upward, things have been hard on a stock-specific basis and it is difficult to find meaningful ideas. Excerpts from an interview with ETNow.
ET Now: Does the market valuation perturb you? Because you are one of those long-haul investors and you continue to hold stocks irrespective?
Rajeev Thakkar: We have been holding on to what we own. The difficulty is that if something is looking expensive on a stock-specific basis, and if you end up trimming positions, there are not many alternatives to deploy.
Secondly, whatever inflows come in, the immediate outlet may not be there. So over time we have ended up with about 17 per cent cash as on date. We are working hard to deploy it, but have not been too successful of late.
ET Now: Are you thinking of increasing cash holdings? What is your own sense on the direction of the market, because if you are sitting at 17 per cent cash, which is higher than the average industry cash levels, or rather cash balance, do it mean fewer opportunities to invest in right now? Where can we make money?
Rajeev Thakkar: We do not have a market view per se, the momentum is clearly upward. We have not seen a meaningful reversal in a while. On a stock-specific basis, if things are hard, we are spending more hours in office reading and attending to con-calls, but failing to come up with meaningful ideas. We hope we will get something soon to deploy cash.
Even IPOs, CDSL for example anything that looks reasonable and reasonably attractive, you see huge oversubscriptions. So that is the time we are in.
ET Now: So there has been no new addition in your portfolio since the last time we spoke about three months back?
Rajeev Thakkar: That is true.
ET Now: Have you trimmed positions somewhere?
Rajeev Thakkar: We have trimmed some positions, I think, something like Icra.
ET Now: How do you think the market behaviour is going to change in the coming months given the liquidity flow we have seen thus far? Do you think with a 20 per cent return, the market has done its best for the year?
Rajeev Thakkar: That is difficult to say. When the momentum is strong, you can see stock prices go anywhere on the upside, even if the fundamentals do not support it. What we need to see is meaningful supply of stock coming in.
So the mutual fund industry has worked towards creating a big SIP book. Regular flows keep coming to invest, but what we have not seen is more capital raising by companies and it is not that they do not need capital. A lot of bank recapitalisation has to happen, lot of infrastructure projects have to happen, the real estate sector is having cash crunch.
ET Now: But so many companies are coming with issues.
Rajeev Thakkar: True, the number is large, but the quantum is not that large. So essentially if we are talking about $1 billion worth of inflows each month, we need an equivalent or more kind of supply to soak up the liquidity that is coming in.
ET Now: What is changing in the market right now is that the new USFDA chief at the helm seems to be a little dovish. He has talked about getting clearances faster and a softer stance. We have also seen some positive news here and there as well trickle in for Sun Pharma, Cadila. Is pharma at all getting to that inflection point where you would try and deploy money or do you think that continues to be an 'avoid' for you?
Rajeev Thakkar: Pharma and IT are two sectors that have not really participated in the rally. While IT is undergoing a lot of change, the underlying premise for pharma remains, meaning a market like the US has to shift to generics to curb the healthcare course.
So, if they are able to get out of the current quality issues in the FDA warning letters, then they should be back on track. However, things may not go back to the glory days, because overall there may be more competition and pricing may not be that favourable as in the past.
ET Now: So it continues to be an 'avoid'?
Rajeev Thakkar: Selectively, one could look at buying in the pharma space, given the uncertainties. We do not have very large positions, we hold positions in a couple of generic names and we could look to add going forward, rather than buying more in the same companies. We would build a basket of stocks in that space.
ET Now: What did you make of the Nasscom guidance? The composite guidance still works out to be 8-9 per cent, which many analysts on the Street are saying, they are being bullish given their own track record and predicting the growth. Do you buy that?
Rajeev Thakkar: I think the IT sector is undergoing a transition phase. The earlier model, where you employed more and more engineering graduates, trained them and deployed them either onsite or offshore is broken now. Increasingly, technologies are changing. The method of working is changing. So companies which are able to make the transition will grow. In fact, they may grow at above-average rates, whereas others could degrow or be flattish and see margin pressures on an ongoing basis.
ET Now: Among the top five names, which ones do you think will be able to see through that challenge?
Rajeev Thakkar: That is a difficult question, and it takes me into stock-specific territory. But I will offer a general view on that. Infosys has seen a battle between the founding team and the current management. Again the CFO was on record about pricing pressure and then retracted the statement. TCS has had management change, again because of outside factors. In Wipro, there have been rumours about some stake sale or some strategic thing.
So, essentially, everyone is worried or trying to work their way out. What we are looking at is maybe some niche companies. Again, our portfolio is public information. So we own a stake in Persistent System, which is more focused on new technologies.
It is difficult to say who will make the transition, and who will not. One needs to monitor it carefully and take decisions as we go along, depending on how the execution happens. Everyone talks about these things. Execution is what will matter.
ET Now: Any change in your global portfolio? Any change in Alphabet, etc, that you own?
Rajeev Thakkar: No, there has not been much activity over there. The developments are interesting. Amazon has been doing interesting things in the global space, but we do not own it.
ET Now: Do you have that left-out feeling? Warren Buffett has joined the bandwagon; you are little behind on that.
Rajeev Thakkar: Yes, everyone has a left-out feeling in Amazon I guess.
ET Now: So are you contemplating to look at it?
Rajeev Thakkar: No, cannot value that. It is the difficult part about Amazon, but as a founder and as a business, we love it.
The original article could be seen here.