At such a time, Motilal Oswal AMC has gone overweight on the sector and increased its holdings. “In the last 2 months, we have taken the opportunity to go significantly overweight on IT, as we believe the worst in terms of earnings downgrades are behind us and H2FY24 should start seeing strong growth coming back,” said Niket Shah, fund manager at Motilal Oswal AMC, in an interview with ETMarkets.
Edited excerpts:
Equities have rebounded sharply since April. Do you think stability is returning and so is investor confidence?
The bounce in equities is a function of a combination of factors: 1) USD has been on a weakening trend which has resulted in flows into EMs; 2) China’s unlocking recovery seems to be fading which in turn is pushing investors out of China, especially after the large outperformance and 3) India’s earnings season has been strong especially of domestic oriented companies. Most have seen margins expand after many quarters due to declining raw material.
How much AUM do you directly oversee at Motilal Oswal AMC and how have your funds performed over the last 1 year?
We have generated more than 20% cumulative alpha over the last 2 years. Since the last 8 months, I have taken over the flexi fund which has started to see early signs of turnaround by being in the top quartile within 3 months.
Do you think large caps will be the best choice for investors looking for long-term investment?
According to me, midcaps generate reasonable long-term returns. Midcaps have delivered in the last 10 years, 15% CAGR returns – higher than 12% delivered by Nifty.
Not only that, even if one had done an SIP since 2010, midcaps have delivered an IRR of 14.2% versus 12% of Nifty.
Also, the strike rate of generating higher returns in midcaps is high. For eg: Post the Great Financial Crisis, midcaps have delivered a rolling 5Y CAGR return of more than 15% returns on 1/3 occasions, while Nifty has delivered the same only 9% of the times.
Thus, whether one looks at consistency or sustainability, midcaps are more preferred than largecaps.
Thematic/sectoral funds have gained strong traction. Do you expect this category to continue to be in demand?
Yes, this should continue to gain traction. However, generally by the time a particular sectoral fund gets launched, a large part of the theme would have already played out. This is because of the time taken to catch eyeballs and regulatory requirements of the launch. A better approach can be to choose the fund manager who is able to spot some of these themes at the right time.
After the recent correction, valuations have turned in the broader market segments. Which sectors would you like to invest in the midcap and smallcap categories?
We have got most of our sector calls right in the last 2 years. We generally position ourselves 3-6 months before the sector starts seeing traction.
For example, we have been overweight on capital goods since the last 18 months now. Recently, in the last 2 months we have taken the opportunity to go significantly overweight on IT, as we believe the worst in terms of earnings downgrades are behind us and H2FY24 should start seeing strong growth coming back.
We have gone underweight banks and overweight NBFCs within our BFSI weights to be positioned ahead of the interest rate cuts cycle, which should start towards the end of the year.
What’s your fund house’s view on the overall IT sector and given the headwinds to growth in FY24, what would your allocation strategy be?
We have recently turned overweight on the sector. This is in line with our thought process that the current slowdown is a temporary blip. We believe H2FY24 should start seeing growth coming back . We also believe that the best way to play IT is through midcaps rather than large caps.
Would you recommend staggered investments for retail investors in the market or one can now look for some lumpsum investment?
We have always been of the philosophy that SIP is the best way to play the market. It’s more convenient and also removes the timing errors. It helps retail investors to focus on other aspects rather than track markets to get the timing right.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
