You are getting a mutual fund. When is it coming?
We have applied for the flexi-cap and if it comes on as per regulator, then hopefully by the end of October, before Dussehra.
So, Diwali is the big launch?
It should close before Diwali because the auspicious period is the Navratri or Navami whatever, so in that range sometime.
How will this fund be different?
From?
From the ones which currently are there, apart from the fact that you are there.
If you look at historical performances, they are very different. So, there must be something different. But the difference in philosophy is very high, which is that we are basically not willing to make trade-offs in stocks. The whole industry does trade-offs. What does that mean? That if a stock is very good, has good history, we will pay a very high valuation or if a stock has poor history and everybody knows it is poor more or less, it is not that only we have discovered, but they will say it is very cheap and discounted.
So, effectively, you are doing a trade-off between different factors which are supposed to help a fund do well or a stock do well. We do not do trade-offs because we have realised that so many stocks do well that there is no need to make a trade-off. The end result of that is, at least past performance is materially different from the crowd, but our cost of error is low because we are rejecting even for a single excuse which might be to somebody else too small but we have figured out that so many stocks do well, if I think that a stock will do badly and it ends up doing well, how does it matter? So many stocks are doing well, if the one which I thought will not do well, ends up doing well, that’s okay.When you first bought into ITC, what was the rationale behind it?
We bought ITC, so that is a positive. We are talking about the ones we do not buy thinking that you will do badly and you end up doing well. So, according to us, all the times, by the way, we show this in one of our presentations that no fund, nearly ever, has got even the performance which the 150th stock of the index has.So, there is no FOMO, you are saying.
Correct, because there are so many of them. Last year’s 150th ranked stock from the index was up 16% while the general diversified fund was up 16%, none. In the 18 years, I have only managed to get the 150th stock performance three-four times for the full fund and really nobody ever gets it or once in a while somebody gets it.
So, if so many stocks do well, why bother about FOMO? You could use that for Tata Motor if you so desired. It does not matter, you are not going up alone. So, let me choose my factors which I like and maybe 10 stocks I thought will not do well. So, in theory, there are some 140 more that are going up and I can choose from that but I do not need to compromise. I think that is the big picture.
But since you talked about it being a flexi-cap fund, is there a bias that you have right now given that midcaps are at an all-time high and maybe there’s some value in largecaps right now?
We do not know that. The fund manager will decide. But broadly in a big picture sense, if we look at our history, it will be 50-60% largecap because we like the big fellows which are the banks.
Which are not doing anything right now.
No, no, that is good, that is you are storing something for the future. Means you have to keep chiselling away. The good thing is now midcaps…
They are charging.
They are charging or waiting like in a relay you are waiting for your turn. There is no way that if flows are coming in from domestics and from foreigners that one day plus-minus a few months it would not happen.
Most of the banks are quite proud of their retail growth. Even PSU banks are now saying that they want to move towards retail growth. But if I look at the construct of the economy, whichever alphabet you want to use, the economy can be divided in two parts. Urban India is doing very well. Semi-urban and rural India are under stress. If the retail franchises of banks are doing well, then how come it has not captured the real on-ground economy?
Because you yourself just now said that the rural is not doing well and the urban is doing well and mostly these loans are going to urban guys or to the salaried guys or to the guys who are earning more and also we are not saying and nobody is saying that this is forever that the rural is gone forever, then elections would be decided on these things.
We are talking right now in a big picture sense that if you look at the fact that the banking sector is strong and doing well and has not done anything for at least the calendar year and maybe even some part of last year. It is a big part of the market and we are getting foreign flows and can buy things like HDFC Bank at three-year-old prices, it is the easiest thing for the world to do and in whatever way you say it, if somebody is overweight or underweight they will buy maybe 25% financials.
So, if you think foreigners are coming in, then 25% they are buying and actually for the tech and others, they are making yes-no decisions or for consumer stocks they are deciding whether it is too highly valued or too lowly valued compared to their own. Financials are the easiest to buy. From the domestic side, if we are saying domestic flows will be strong, you are supposed to deposit 10% with HDFC Bank every time you raise a dollar. Technical issues like that mutual funds crossed 10% or that the FIIs including me bought more thinking that it will be in MSCI fully and it did not come – will get sorted out. So, although excess speculation had to be unwound, broadly the concept will remain.
But since you did talk about elections, when will the market start building in the pre-election narrative?
I do not know exactly but first of all we do not know the date. Now people are saying it is now.
Next year.
Nahi abhi toh aaya hai ki in November-December mein kardenge (Recently news came that it will happen in November-December) which Mamata Banerjee and a few others have said. Maybe that will not happen. So, then the issue will be, if the state elections are not in favour of the BJP, then the market will immediately say that these two things are different, which they are. But will everybody say, let me hold back a little bit? Actually, the next four-five months are aimed at making us invest in our mutual funds properly.
I know that Zomato is the stock that you look at very closely. But recently, there have been so many IPOs hitting the market, but you have said that they are very overpriced. What is the view?
You were the first guys we told when Zomato was at Rs 52. The thing is when it is falling every day, to come and say that we own it or we have just bought it, rather than now when everybody is buying it.
Are you selling it now then?
No, we are not selling now because now it is alright and the Blinkit story is coming up. They are doing well.
On the new IPOs, I mean I have not seen all of them but the ones which our fellows saw broadly are like that drone fellow, there is too much.
Why are there so many block deals happening?
No but this is showing the appetite of the foreign investor on the other side because the seller is also mostly foreign and these….
But even promoters are selling this.
Yes, but PE guys mostly, and the other side is that the domestic investors feel that you would not be able to buy it on the screen because they are slightly liquid or the size of the Indian industry has become so big. We never had it in our Alliance days when I was the biggest mutual fund manager in private space in equity. So, it is just the size.
But the main thing is that you are supposed to have this in every market. For example, if somebody says India’s GDP will grow 7%, we do not question. We say, yes, good. But that 7% GDP growth implies so many things, that roads will be made, that new investors will come, that capital will be raised, Otherwise from where will that 7% come? But when that happens, we take it as if it is over and above the fact that we had already, without questioning, accepted the 7%.
It is like the IT guys. If an IT guy comes and says that I will grow 8%, we say, very good. The next day he announces an order – you are supposed to have that order, otherwise you are not growing 7%. But we take these as additional pieces of good news. So, the fact that more investors are coming, more demat accounts are opening, is not supposed to change the returns of the market. It is needed as it becomes bigger and bigger and bigger.
