In an interview with ETMarkets, Singh who has over 2 decades of experience and manages over $100 mn in AUM said: “IT, power utilities, Urban discretionary and manufacturing part of the economy will continue to do well once the rural side of the demand speeds up” Edited excerpts:
Q) Your India Value and Growth Fund as well as Emerging Business Fund have created impressive alpha since its inception. Take us through a 1-year performance of the fund.
A) Our India Value and Growth Fund (IVGF) completed more than three years and on May 31, 2023, it has garnered a CAGR return of ~19.3% since inception. Similarly, EBF has given close to 17% of returns in one year.
Both of the AIFs have different objectives and different investment strategies, IVGF is more GARP oriented whereas Emerging Business Fund has a value bent and thus the portfolio composition for these two also differs from each other.
We believe in practicing the right investment style and stock-picking approach based on intensive research, combined with portfolio management skills to deliver alpha as well as great customer experience.
Two different approaches also signify recognition on our part that there can be multiple successful investing styles based on how the market presents itself at various stages.
Q) Tell us more about the India Value & Growth Fund. How do you pick stocks under this strategy?
A) Our approach has been very classical in terms of selecting good management, good business, and good valuation. The choice of stocks we make is not necessarily based on the index constituents, which when practiced judiciously can deliver outsized alpha over the long term.
For IVGF, we continue to refine our positioning to meet the challenges of today but continue to maintain high conviction in the companies we own and their long-term prospects.
We have increased the level of concentration in the portfolio. The top 10 holdings account for 53.4% of the portfolio and out of the top 10 stocks in the portfolio 42.4% are small and midcap stocks, given our positive views on small and midcaps.
Q) Tell me more about the Emerging Business Fund. How do you pick stocks under this strategy?
A) Emerging Business Fund was launched at a time when we believe the Indian market was going through a lot of volatility, we saw an environment that we have not seen for a considerable time, and the uncertainty was reflected not just in rising stock volatility, excessive volatility in currency markets and erratic bond markets as well.
The data revisions by India suggested that the economy has fared better than previously believed despite continuing global uncertainties.
In EBF, we are particularly looking at companies that are on the path to establishing themselves with a large manufacturing base, strong track record of execution, leadership in their respective category, and adding significant capex to cater to the rising demand both domestically and internationally.
It’s clearly a value-conscious approach and that’s the best approach to take in such uncertain times where the economy is taking a turn and uncertainty is in plenty.
Q) We hit record highs earlier in June. What is the sense you making of the markets?
A) Indian economy is well placed for growth driven by domestic demand and gains from global supply chain shifts. The rural economy has likely bottomed out and volume will very likely pick up in 2024, this is where we would like to keep a close watch.
Early indicators are clearly pointing to capex-led growth going ahead. The market is likely to show return divergence across sectors.
Earning Growth will not be broad-based and hence stock selection will play a crucial role.
Manufacturing is well poised to benefit from an overall demand environment. There is an interesting valuation in IT & Urban Discretionary.
Healthcare also seems very interesting given cost pressures reducing & realizations improving.
We believe the monsoon seems delayed and so is the sowing data and hopefully rainfall will be normal with a lag and good distribution.
Q) Small & midcaps have outperformed – how should one play this theme in 2H2023?
A) After two years of tepid returns in small caps, this space has become attractive from an earnings growth point of view, if we look at the data, during the last five years, NSE midcaps/ small caps have underperformed large caps by 4%/25%, respectively.
Over that period NIFTY 50 has generated 11.5 % CAGR returns, Midcap has generated 12.3% CAGR returns whereas the smallcap index has generated 5.4% CAGR.
We believe small-cap space is the most rewarding sub-segment of the market, if one must allocate capital from a long-term perspective.
We have also launched our Small Cap PMS scheme looking at the interesting valuations in this space, there may be intermittent periods of volatility where a constant evaluation of risk-reward propositions needs to be made which we think can be well managed by an experienced of fund management. It is advisable to invest in this segment with the help of quality advice.
Q) Which sectors are you overweight and underweight on?
A) We like Auto & Auto ancillary, Consumer, Healthcare, Industrials, chemicals, and IT & telecom. We are quite watchful of sectors such as financials. We strongly believe that the next decade will be of India, and manufacturing will be at the forefront of it.
We are also very positive about the rural demand recovery that India should see over the next 1-2 years given the run-up to elections.
IT, power utilities, Urban discretionary, and manufacturing part of the economy will continue to do well once the rural side of the demand speeds up.
Q) What are the risk management practices that you follow?
A) We have quite robust risk management practices in-house. Sectoral concentration, stock concentration, liquidity constraints, operational risk, balance sheet/leverage risk, obsolescence/ disruption, etc are some risks we take care of through processes and boundary conditions.
Besides this, interest rate and currency risk also play a part wherein we use sensitivity and scenario analysis during our research and modeling process to analyse them. The rest of the other stock and business-specific risks are taken care of by us on a case-to-case basis.
Q) Are any important points that you want to highlight for investors for 2H2023?
A) We see signs of improvement across the macro indicators, and we would like to reemphasize that the current market is a very healthy market for long-term investors.
The reasonable valuations post the time-correction over the past two years, offer an opportunity to garner attractive returns.
For our investors we have launched a Small and Mid-cap PMS and a Category III AIF- Equity Advantage Fund, our small-cap PMS is a fund where we choose companies with strong capital allocation skills, superior management, its potential for sustainable growth, and reasonable valuation with enough margin of safety.
Our AIF aims to invest in companies that are in the stage of mean reversion in the space of Rural consumption and urban discretionary, Capex-oriented business, healthcare, telecom, etc.
We believe any incremental allocation towards equity at this time can reap good benefits in the long term for investors.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
