Multibaggers fund manager says be conservative

Rajeev Thakker, CIO, PPFAS MF, says “ at a time when US bond yields are around 4 to 5% and threatening to go higher and for longer, I do not think one should be really looking at hitting sixes right now. People have made a good amount of returns in the last few years, not the last two years, but maybe from a five-year perspective. I think it is time to be more conservative in terms of the future outlook. I do not think it is a time to be very aggressive in terms of investing.”

The PMS started with an AUM of less than Rs 500 crore, Is it worth Rs 20,000 crore now?

Equity scheme is Rs 45,000 crore.

So, Rs 45,000 crore of equity and you started in 2012?


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2013 and you started with Rs 100 crore?

Yes, NFO was less than Rs 100 crore but overall within a short span we were at Rs 300 crore, that was the PMS AUM prior to the shift to the fund.

Saying that you have been a multibagger, right?

Yes, you could say that.

So nice to hear that. A scheme which itself has become multibagger! Let us keep multibaggers only as the theme. Which of the stocks have become multibaggers and which of the stocks could become multibaggers according to you?

So sorry to be sharing some bad news in that sense, I do not have too many multibagger ideas to share. Firstly, as it is, we are not allowed to give stock recommendations, you know that and it was a trick question from your side. But overall, we are coming out of a 20-year period of falling interest rates and rates have started moving up globally and there was a valuation creep overall. So all asset classes world over went up in valuation.

So at a time when let us say US bond yields are around 4 to 5% and threatening to go higher and for longer, I do not think one should be really looking at hitting sixes right now. It is cricket season as well apart from Diwali. I think people have made a good amount of returns in the last few years, not the last two years, but maybe from a five-year perspective. I think it is time to be more conservative in terms of the future outlook. I do not think it is a time to be very aggressive in terms of investing.

Is it because of valuations? Is it because you think the economy will evolve? Is it election risk? Why do you say that?

I am not talking about any event risk or macro, I am not talking about the conflict in Israel or the conflict in Russia and Ukraine or elections and things like that. My thing is simple. See, for a very-very long time, fixed income investors were getting a raw deal. They were effectively subsidising governments and subsidising corporate profits, the corporates who were borrowers. Now the tables have turned, we are in a real positive, real rate environment and borrowers will have a pinch, whether it is a corporate borrowing money or whether it is an individual who has taken a mortgage loan on a floating rate basis. We have seen EMIs going up that will somewhere affect consumption down the road. That will affect things like real estate prices, real estate sales, auto sales.

This is why I am talking from a global context, developed world largely. So somewhere all these things will have an impact and the gradual creep in valuations that we saw at the broad level. It may not seem expensive. So a Nifty 21 multiple may not seem very, very expensive. But when you look at the individual company valuations, some trading at 70, 80, 100 times earnings or some of the newer listings coming on prospects of future profitability and just focusing on growth, that environment has changed and one should be cautious on that front.

Your holdings right now, include names like ITC, Bajaj Holdings, ICICI Bank, HCL Tech. There is no pattern here. I mean, it is not that you have got very large concentrated bets in IT or pharma or financials. Has that been done on purpose that you are not following the benchmark per se?

We have not been following the benchmark since day one. So from that perspective, it is nothing new. We have said that we are an active fund. We will go where we see the opportunities and we will not worry too much about what is the weight in the index at that point in time. Some of these names have been around for a while now in our portfolio. Bajaj Holdings has been there for long, ICICI Bank, HCL Tech has been there for long.

In post-Covid period, we actually moved out from small and midcap IT to larger IT names and that is where something like HCL Tech finds a position. ITC was a contrarian purchase a while back when people were not looking at it. It ran up quite significantly. We have trimmed some weight over there. But otherwise, these names have been around for a while. Coal India would be a more recent addition in that sense.

In which sectors are you adding weight? Is it those underdogs, the likes of pharma, etc., where you are adding position or sticking with the financials of the world?

I think almost any person that you get on the show, almost anyone from my colleagues in the fund management and the industry would say that banks are looking attractive in terms of the valuations that they are trading at and in terms of the clean balance sheets that they are having. The challenge that the fund managers are having is that banking as it is, is a large portion of the overall market cap and overall index.

Any fund will not go overboard in just one sector so to that extent, people are having to limit their exposure to the banking space. But banking is looking very, very attractive. You mentioned pharma. Pharma has not done well for the last few years and valuations are looking attractive. Even on the business side, some of the challenges that they were facing are increasingly behind them. So that space is also looking interesting. Auto is another space coming out of a long period of low growth or no growth kind of environment. That is one other space which is looking good.

Let me pick up on each of those spaces one by one because banking is getting pretty diversified. PSBs are chugging along in a different trajectory. ICICI Bank, of course, is in a different orbit. But I cannot say the same about HDFC Bank or Kotak or many others as well. Where within banks is your tilt?

To my mind, there are five banks in India, four in the private space and one in the public space, which have done well in terms of having a full range of product offering, having a good CASA share, having a well diversified product portfolio, well diversified branch network. That is a space that we are looking at. Some of the banks that you mentioned, because of a reason, they have taken credit losses in the past and now they are not having to provision so much. They may be looking attractive in terms of price to book or price to earning basis but the challenge is that many of them are ceding market share to the five players who really lead this space.

So I would not go purely tactically in terms of looking at the current result numbers and investing in them for a short period of time. Really these banks which are gaining market share are the banks where we are investing in. So we have three private sector banks in our portfolio and that is where we are investing.

Is it time to buy into the real estate sector? The stocks have even done rather well but this is a sector where RERA is at play, all the, do number has become ek number (number 2 has become number 1). Corporate real estate companies are clean in terms of corporate governance now. Instead of dozens of real estate builders in India, now there are a few big ones only left?

The bull case can be made at any time in the last decade or two decades but the experience of public market investors has not been that great in this space. We watch it periodically but we are not big fans of investing in this sector. And again, here, see, if you are buying a FMCG company, things move like clockwork.

If you are buying a soap manufacturer, you know that this much soap will be produced and sold and this will be the kind of margin and this is the ad spend and that is about it. Here, you have to have a view on project by project basis. For example, a Mumbai-based real estate developer could be doing very well in the western suburbs and then they may get stuck in a project in mid-Mumbai. And then what was looking hunky-dory suddenly became very challenging. Then you have all these CRZ regulations or sometimes something gets stuck in litigation and this and that. So we have been hearing consolidation and asset-light models and organised to organisze all that. We have been hearing for a while, but yes, we probably give it a pass.

Roy Walsh

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