Talking to ET Now, Raunak Onkar, Research Head, PPFAS MF, says if tomorrow an idea comes in, 5% or 10% will go into two stocks and cash holding will reduce to 10%.
Edited excerpts:The road sector is a go-to sector. You guys do not own it but it is a sector where in general there is optimism. Do you think markets are getting slightly excited about owning road companies because the NHAI order book is strong. But there is a question mark about availability of credit for some of these road companies, given the state of PSU banks?
We have never tracked the road companies as such and the reason was that we owned an infrastructure in our portfolio called Noida Toll Bridge BSE -1.55 % and we realised…
|Zydus Well||-20.85 (-1.78%)||+|
|Noida Toll Bridge||-0.15 (-1.23%)||+|
And it was not a good experience?
It is not about that experience but the learning is that a lot of people do not want to pay for these infrastructure projects. So, the revenue models that are trying to be worked out in terms of how these projects get funded and how the cash flows will accrue to the private company which is helping build those roads.
Those things are something difficult to understand. Even though it is clear cut on paper today, a lot of things do tend to change as the traffic expectations build up and people see the actual traffic on the roads and people figure out how the business model should evolve.
So, credit availability is one problem, on the other end of the side, the businesses that are running also need some cash flow availability over a period of time when the roads are in use.In middle February, as a house you were not very excited about the current market levels. Your cash levels were also significantly higher. Are you still sitting on those high cash levels or are you looking at putting money to work?
We still have those cash levels, we are about 22-23% in cash.That is very large number for a mutual fund to have?
I agree, but instead of chasing ideas which we do not have conviction in, we would rather wait for the right idea to arrive and it has nothing to do with market levels. So, market can be wherever it is, if tomorrow an idea comes in, the residual cash will be immediately deployed, say 5% or 10% will go into two stocks and you will see a 10% cash holding. The point is to have conviction in the ideas we own and only go for ideas where we are sure that we have some edge and understanding how the business works and have some visibility how the business will grow.Are you looking at buying new ideas or you will be happy to put this 23-24% cash what you have in the existing ideas or existing stocks at lower levels?
New plus existing. Depending on valuations, if something in the portfolio has already run up, it should be replaced by something which has a growth trajectory over the next five to 10 years. We look at it that way.What is it that you are making of the tech debacle that is playing out on the NASDAQ? Every morning we hear about how much Facebook has lost in market cap and now Mark Zuckerberg has issued an apology. Again Apple has fallen overnight quite a bit. Is that making you trim your exposure to some of these US stocks?
It is an interesting thing that is happening in the US where tech companies are taking the flak for the privacy concerns that people have and the government is getting involved in trying to understand how pervasive that privacy problems were and the companies will obviously try and fix it, it is a technology company and it is a software fix, which will happen.
In terms of legal ramifications, we are yet to see what is going to happen. But on the other hand, what I understand is targeting the technologies that are available, they are made for targeted advertisements and the technology works and the platforms work and advertisers need something which can help them target advertisements better to users and customers.
On one hand, the platform works in the economic sense but at the other end, you have to be very conscious about how privacy is being handled by all these platforms. So, we have to wait and watch and see how it plays out.Are we staring at some big correction in the FANG stocks in some time to come?
Very difficult to say how the corrections will play out or even how the stocks will move up but the point I was trying to make is that if the business models are sound, all we have to do is wait and watch to see the peripheral corrections that will happen over fines or whatever restrictions will be put on these platforms. And then we have to see that even that point of view how the companies perform.You also have a very large exposure to consumer names. Zydus WellnessBSE -1.37 % is part of your portfolio; you also have a Persistent System in your portfolio. Do you think the worst of IT is behind us and it is time to buy a name like Persistent?
It is tough to take a call whether the worst is behind because they still have a chunk of their business coming from the independent software vendors like Microsoft, IBM who…IBM business has not improved?
Yes, so IBM is two parts of the business for them; one is the newer business where they engage in digital initiatives, the other is the software part where they provide software development as a service to software vendors. That business has been shrinking and they have been guiding it for the past four years and trying to move to a direction where they will be the IP providers and to some extent, they will also be partners in digital transformation for some enterprise companies.
These things will take time to play out because it is a challenge for them since they do not have the enterprise relationships like the bigger IT players. Once that thing is on track, once the sales engine works, then we will see the benefits of the nonlinear growth that comes into the company in terms of operating leverage, in terms of margins improving over a period of time.
I think right now they have to take short term pain in terms of spending on marketing and sales and growing their business and investors will have to wait for the actual results to show up.Zydus Wellness was at Rs 250 two and a half years or a year ago when your fund invested in it. It was a concept stock and you were betting on the fact that Indians being prone to diabetes, with economic growth, Indians would get more conscious about the sugar consumption. That script has played out and the stock has moved from three digit to four digit. Is ZydusBSE -1.37 % Wellness now fully priced? The big picture will never change because Indians have a genetic pool which has a problem with diabetes but in terms of the promise of growth, is everything in the price?
The market share of Zydus is still north of 90%, based on various estimates that are available. They are also in products which are in categories of non-sugar based products like Sucralose, Stevia, the natural ingredient in terms of artificial sweeteners. They have a market share and a reach. The only thing that has to work now is the consumer adoption at a large scale as people will move from regular sugar to sweeteners because they have diabetes. It is a distribution game, it is a consumer play and we will have to figure out how to reach as many customers as possible and make the product as relevant as possible.You own MNC pharma companies?
Only one, in a very small capacity.Are you happy to own it because the stock has run up?
Yes, it has been there in the portfolio. We used to invest in Wyeth a while back and it became Pfizer and we still own the stock. But it is a very marginal position. We keep track of it in terms of adding or subtracting and will make a call when it happens.
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