Rakshit Ranjan, Investment Management, Marcellus Investment Managers, says “in our Consistent Compounders portfolio, more recently we have added Trent, that was about four or five months ago and the reason for addition of Trent at this point of time is our conviction rising in this company, not being just an apparel retailer, but in fact being an incubator of various retail formats.”
In the light of the blockbuster IREDA IPO or the listing gains thereafter, is the meat of the rally over or do you think the story has just begun?
When you look at the GDP print from yesterday and the granular details within it, I think the economy is in a very good shape, one of the best positions that the economy currently is compared to any other situation over the last, say, 10-20 years, with regard to stability. Whether this is the beginning of a long rally in the market or it will be a lot more gradual, is slightly difficult to predict from a short-term perspective but from a long-term perspective, it looks pretty stable and healthy.
What is the take on the auto sector because in November, one expected some bumper sales but seems like they have missed the estimates by a bit. What would be your take on the auto sector?
When you look at the consumption piece, it is quite polarised. The urban consumption part of the economy is doing much better than the small-ticket consumption part and hence within the auto piece as well you would see those kinds of trends where small-ticket consumption versus large-ticket consumption would be affected by those two very different external environments facing that part of the economy. That is certainly underway.
Apart from that, yes, when it comes to stock picking, stock selection, we have relatively limited exposure here because barring a couple of companies. For instance, in some of our portfolios, we have got Eicher. Barring a couple of companies, we do not see too many OEMs or barring a couple of auto anc suppliers, we do not see too many companies having a lot of pricing power here vis-à-vis either the customer or their OEM customers.
Where have you added your position or which area of the market interests you most?
In our Consistent Compounders portfolio, more recently we have added Trent, that was about four or five months ago and the reason for addition of Trent at this point of time is our conviction rising in this company, not being just an apparel retailer, but in fact being an incubator of various retail formats.
Our understanding of how Star Bazaar is shaping up is adding to that conviction and that is one very big area of undervaluation of Star Bazaar when you look at Trent in terms of its expected fundamentals versus what it might deliver going forward.
Curious to know what have you done in the last two months? Anywhere where you have trimmed positions or added afresh?
Yes, quite a bit. So, in the banking space itself, we have increased allocation to some of the larger private sector banks because the share prices have lagged behind fundamentals by a very meaningful amount over the last two-three years there and we think that that is a big opportunity to benefit from.
Even otherwise, there have been several allocation changes. On average, we have been doing about, say, 8% to 10% portfolio churn only related to allocation over the last year or so and it has already started to yield healthy results. So, some of the diagnostic players, for instance, Dr Lal PathLabs, are in our portfolio. We increased its allocation some time back. Divi’s Lab we had increased. And as I said, financials as well. So, yes, those are some of the changes.
What about the speciality chemical space because that was one sector you guys used to focus a lot on. Any major additions or deletions there?
No, we are watching it very closely. We want to play it the way we see the external environment going through ups and downs. They were sort of inventory related or supply related challenges that the sector faced in the last 12 months. After a different series of challenges, some of these companies benefited from the Russia-Ukraine war and the supply chain challenges thereafter. So, yes, it has been a long time and we are watching this space very closely. We do have some exposures here which we are trying to play to our benefit in the portfolios through position sizing.
You just highlighted what you did with banks but specifically on the underperformance that you have seen from the likes of an HDFC Bank or a Kotak, is that likely to reverse in this very fast-paced shift that you continue to see in the markets of late?
Yes, we do expect to see that reversing. So all kinds of overhangs, either related to management succession planning in some of those companies’ cases or related to, say, some corporate actions. So, HDFC Bank and HDFC Limited merged. All of those concerns that at different points of time the market had over the last two, three years on some of these stocks are behind us. We do see, in particular, the benefits of HDFC Limited merger being very tangible now when you visit the branches and understand how the consolidated entity is benefiting from synergies.
Also valuations have become very attractive. When you look at some of the recent changes, for instance, RBI’s recent increase in risk rates for unsecured loans, those kinds of changes, they directly fall in the lap of well-capitalized lenders, including well-capitalised NBFCs as well as well-capitalised banks. So those are some of the tailwinds, the benefits of which we are looking forward to in the quarters to come.
Yes, it is a very big opportunity, I think, to benefit from the dislocation in share prices vis-à-vis fundamentals that these large private sector banks have witnessed in the last couple of years.
There has been a massive up move this year in the real estate sector. In fact, it is one of the best performing sectors. How would you suggest playing this directly through a developer, through probably some affordable housing financiers, cables and wires, durables?
We are playing this via affordable housing financiers and some home building material improvement companies. We are not directly invested in real estate companies because of the sort of lumpiness in their fundamentals over a longer period of time, after long periods of lull. The consistency in the fundamentals that we seek is something that we do not find available enough in this sector.
Hence, when you play it via the home building materials or affordable housing, not only new construction, even on existing housing, you tend to benefit from developments there, the economic changes happening there. So renovation of houses, upgradation of home decor are many drivers of growth in relation to just new construction of real estate which we try to benefit from these spaces.
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