#PSU stocks see a sharp fall. Do these funds have enough incentive to be part of your mutual funds portfolio?
Niraj Shah in conversation with Tarun Birani and Ruchi Sankhe on 'The Mutual Fund Show.'
Niraj Shah in conversation with Tarun Birani and Ruchi Sankhe on 'The Mutual Fund Show.'
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00:00 (upbeat music)
00:02 - Hello and welcome to the Mutual Fund Show.
00:11 Over the next 25, 30 minutes,
00:13 we'll talk all about mutual funds.
00:15 And the show, of course, aims to bring you advice
00:17 from industry experts so that you can make smart choices
00:20 in your MF investment journey.
00:23 Yesterday, some PSU stocks dragged
00:25 the nifty PSU Bank Index in the red.
00:27 Defense stocks were in the red.
00:29 And overall, the PSU performance was looking wobbly.
00:32 Can this performance be used as a lesson
00:35 when it comes to investing in PSU funds
00:36 through mutual fund route?
00:37 Have these funds corrected enough
00:40 for them to become a part of your portfolio?
00:43 The answer is likely not
00:44 because there could be more in store.
00:45 I think that is what we'll try and talk to our experts today.
00:48 On the show a bit later on,
00:49 we'll get in Tarun Birani and Ruchi Sankhe
00:52 to talk about their thoughts.
00:53 Tarun, of course, is the founder, CEO
00:55 of TBNG Capital Advisors.
00:58 So that will be a conversation
01:00 that you should look forward to as well,
01:02 especially on the PSUs.
01:03 And of course, also get in Ruchi Sankhe
01:05 to talk about her thoughts.
01:07 Just a quick update on the numbers
01:08 that are flashing on your screen.
01:09 Need to not forget that it is the bank
01:12 in the midst of the earning season,
01:13 so we can't really take our eyes off the ball.
01:15 There's West Coast paper that has come out with numbers
01:17 wherein the net profit at 158 crores is nearly half
01:21 of what they did in the corresponding quarter last year
01:23 at 310, and therein lies the problem for West Coast.
01:27 So about some bit of a correction.
01:30 Even the revenue is about 15 to 20% lower, I believe.
01:34 A bit down 52%, as I said,
01:36 and as a result of which the stock
01:38 is looking slightly weak.
01:39 Remember, it's not a very thickly traded stock,
01:41 so the volumes could be a bit suspect here and there,
01:44 but per se, the numbers don't inspire
01:47 too much of confidence.
01:48 Net profit down about 48% or 49% at 158 crores,
01:53 and revenues at 1,045 are about 15% lower.
01:58 But while the Nifty is up and about,
02:02 there are a few other stocks which have looked wobbly
02:04 on the Nifty finder, the BSE 500 list,
02:07 and some which have looked strong.
02:09 So of course, the key culprit in today's session
02:12 has to be Hindalco.
02:13 Sharp pullback there, 14% lower even now
02:17 for a Hindalco, 14.16, about 30 million shares traded,
02:20 post-Novelis CapEx announcement.
02:22 So that stock's certainly in focus.
02:25 You know, Paytm has dragged some of the tech names
02:28 lower yet again.
02:29 It's down about 10%, and I wonder what's happening
02:32 to some of the tech funds.
02:33 So I think we'll kind of talk about that as well
02:35 with our experts about whether some of those tech funds
02:38 remain interesting to invest into or no
02:42 at the current point of time.
02:44 So that comes firmly in focus.
02:47 There's some weakness today, I must say,
02:49 in companies on the tech space by and large,
02:51 because KPIT Tech, for example, is down about 6%.
02:54 Remember, it's an expensive stock,
02:56 so would correct at any given day,
02:58 significantly insurance, surprise anybody in terms of,
03:01 because it did not necessarily be only news flow
03:04 which drags KPIT down.
03:06 Profit booking could also be one of the reasons.
03:08 But PSUs are having a Nifty day yet again,
03:12 because I saw SJVN earlier on in the day,
03:14 and that stock was down about 6%, 7%.
03:18 Though some like IRFC are bouncing back as well.
03:22 Let's try and understand what to do about this aspect.
03:27 Our experts, Ruchi Sankhen, Tarun Birani,
03:31 are with us on the show.
03:33 Both of you, thanks so much for taking the time out
03:35 and being with us on the Mutual Fund Show.
03:37 Ruchi, I'll start off with you.
03:41 What's your sense around some of these PSU funds
03:44 or funds which have got a higher PSU weightage,
03:47 because they've been the talk of town
03:49 for the last two or three years.
03:50 We are doing an analysis of how the PSU stock index
03:54 has gained very splendidly over the last three years.
03:58 For the first time,
03:59 it is starting to see some bit of a corrective move.
04:01 Is this move to be utilized to invest further
04:04 into these funds, or would you stay away from these?
04:07 - So I think you're absolutely right.
04:11 PSU funds have seen a very good performance
04:14 over the last two, three years.
04:15 In fact, even if you look at the last one year,
04:17 some of the PSU focused funds like Aditya Birla
04:20 and ICICI have seen north of 50% returns
04:23 on just a one-year return basis.
04:25 So at this point of time,
04:27 with a lot of sort of return captured already
04:30 by these funds, I would suggest it may be time
04:33 to profit book and move out of these funds
04:36 and really position your portfolios elsewhere.
04:39 So at this point of time,
04:40 my view is that let's profit book
04:43 and move out of the PSU funds,
04:45 because of the strong returns
04:47 that we've seen already in this space.
04:50 - Okay.
04:52 Tarun, what's your sense?
04:54 - Yeah, hi.
04:57 Good afternoon, Aniraj. - Good afternoon.
04:58 - And again, as usual, I'm a strong believer of suitability.
05:03 I think suitability defines what needs to be done
05:06 by the client, and there's a core and satellite approach,
05:09 and core approach talks about strategic portfolio,
05:12 which is there for long-term wealth creation of the client.
05:16 But from a satellite perspective is where you can look
05:19 at tactical opportunities from time to time.
05:21 We have seen the category which you are talking about,
05:24 PSU, I think from (audio cuts out)
05:29 - Tarun, I'm sorry, but I've gotten your feed
05:37 slightly patchy.
05:38 I can't quite hear you,
05:40 but I think the earlier part of his answer,
05:43 where Tarun said that he's a strong believer of suitability,
05:46 would possibly mean, and we'll wait for him
05:49 to confirm this, of course,
05:50 but could possibly mean that what he's indicating
05:53 is that if portfolios are bent towards possibility
05:57 of taking a little bit of a risk,
06:00 and a little bit of risk might enable the portfolio
06:04 to have that desired alpha, and who knows,
06:07 maybe some of these PSU funds at a right level
06:09 might be a good idea as well.
06:11 He's, of course, speaking about how PSU banks,
06:14 for example, a lot of reasons and a lot of factors
06:16 which will help the PSU banks going ahead,
06:19 and some of the banking, PSU bank index,
06:21 or otherwise, might not be bad plays as well.
06:24 He, of course, believes that there's significant exposure
06:28 showing some positive signs to some key sectors,
06:31 and regulatory support and reforms in banking
06:34 are bolstering confidence.
06:35 And viewers, if you see the last five-year perspective
06:39 of what the PSU banks have done
06:43 versus how the private banks have done,
06:48 you will get a sense of how the market kind of recognized it
06:53 and for funds which had a higher proportion
06:55 of PSU banks in their portfolio,
06:57 they would have done much better.
06:58 Similarly, PSUs by and large,
07:02 or having a larger PSU presence,
07:05 would have meant quite significantly
07:08 for some of the funds which would have
07:10 either be PSU-centric funds
07:12 or would have had some PSU exposure.
07:14 So I think you've got to keep that at the back of your mind.
07:19 Ruchi, I don't know if you are at a liberty to,
07:22 or if you've looked at some of these PSU funds as well,
07:25 but is there something that stands out?
07:27 Is there some fund which,
07:29 by virtue of its past investment practices
07:32 or the portfolio, stands out versus the rest?
07:35 Do you, can you recommend that at all?
07:37 - Actually, to tell you the truth, Neeraj,
07:42 I, you know, while I did here on the sector focus,
07:46 we are definitely straight away from sector focus
07:49 in my advisory practice
07:51 and I do not create a satellite portfolio
07:53 that will be based on certain sectors.
07:56 So my information to you was more broad-based,
07:58 but I have not looked at the PSU fund space
08:01 so much in detail and I wouldn't recommend thematic
08:05 or sector funds to my clients.
08:06 So I'll have to sort of refrain
08:09 from answering this question to you.
08:10 - Fair call, fair call, completely understand.
08:13 I'm glad you called it out,
08:15 but I believe we have Tarun back
08:16 and Tarun, sorry, you were finishing your point.
08:18 So can I ask you to finish your point around the PSU funds?
08:21 - So Neeraj, is the question for me, right?
08:24 - Yes, please.
08:25 - Yeah, so Neeraj, sorry for the network issue.
08:28 What I was talking about was suitability should define
08:32 what needs to be there in the portfolio.
08:34 And as I mentioned that the client has suitability
08:38 in terms of liquidity, in terms of taking higher risk,
08:43 looking at sector specific fund,
08:45 yes, they need to take it, right?
08:47 So from a suitability perspective,
08:48 safety, stability, aspiration,
08:50 these are the three metrics we look at.
08:52 And I feel any high-risk investment
08:55 should come in the aspirational investment,
08:58 which one can look at concentrated investing
09:01 only if they have that kind of risk appetite.
09:04 From a PSU sector as such,
09:06 if I look at last 10 year, a decade,
09:09 this sector has not done well
09:11 and government is not considered
09:13 as a great capital allocator,
09:15 at least from a long-term data, if I look at.
09:18 But last two, three years,
09:19 we are beginning to see a lot of macroeconomic changes,
09:22 lot of data is changing for us,
09:24 inflation, interest rates,
09:26 as well as we are seeing these PSU companies
09:29 are allocating capital in a much efficient way.
09:32 So that is one very big reason
09:33 we start to see a lot of action happening
09:36 in terms of their market cap performance also.
09:39 So looking at that,
09:40 investors who are ready to look at this story
09:43 from a five to 10 year
09:44 in their satellite portion of the portfolio
09:47 can actually definitely look at this opportunity,
09:49 but I would strongly recommend
09:52 for anybody who don't understand this space
09:55 to look at diversified fund
09:56 because a diversified fund manager
09:58 always have a ability to buy any sector what he wants,
10:03 so one can anyway participate there.
10:06 - Okay, that's a fair call too.
10:07 Now,
10:08 the other pieces,
10:14 momentum funds which have been launched recently,
10:17 and there are a few of them
10:18 available in the mutual fund space,
10:19 available in the small cash space, et cetera.
10:22 We were looking at the HDFC mutual fund launch
10:24 of the HDFC NIFTY 200 Momentum 30 Index Fund.
10:28 The larger question,
10:29 and Tarun, this theme I'll start with you,
10:31 the larger question,
10:33 is it advisable to invest in momentum funds
10:35 under the current market scenario?
10:37 I don't know if you've looked at this NFO
10:40 and whether you can recommend a yes or a no,
10:43 but is it good vis-a-vis some of the other NFO,
10:45 other funds on the momentum side that might be existing?
10:48 What is your views?
10:50 - So Neeraj, I can't talk specific to any fund,
10:54 but what I can talk about is this index,
10:57 and I think this index is a very popular index,
10:59 which is form of top 200 stocks,
11:02 and out of those 200 stocks,
11:04 based on a Z-score,
11:05 and Z-score basically calculates
11:08 the momentum characteristics of a portfolio.
11:11 So this Z-score identified top 30 stocks,
11:14 and the theory of momentum investing
11:17 is what is doing well currently
11:19 has a certificate of market
11:22 and it will continue to do well in future.
11:24 So it is a kind of investing
11:27 which looks at current opportunities
11:29 and which market is favoring currently.
11:31 If I look at last 20 year data,
11:33 and there's a lot of data available
11:34 in momentum investing index,
11:37 and last 20 years,
11:39 this index out of 17 year data,
11:42 in five years, it has underperformed Nifty,
11:44 otherwise all the other years,
11:46 it has outperformed Nifty by a good margin.
11:48 My call is if somebody is looking
11:52 at a good large to mid-cap mix in the portfolio,
11:55 because this index will have
11:57 top 100 large cap stocks
11:59 and top 100 mid-cap stocks.
12:01 So it is like, I would say,
12:03 large and mid-cap index kind of index.
12:06 And looking at aggressive investment portfolio,
12:11 this could be a great addition in their portfolio.
12:14 This index could be a great addition,
12:16 but it should be taken with a five-year horizon
12:19 because the rolling return data,
12:21 if I look at from a three-year and five-year,
12:23 there's a good 97% chances on a rolling return data
12:27 that this index has outperformed Nifty by a good margin.
12:30 So I think data is clearly favoring this index,
12:34 but again, this index with a combination
12:36 of a low volatility index could also be explored
12:39 because it can really smoothen out
12:41 the investment journey for a client.
12:43 So if that low volatility index,
12:46 as well as momentum is taken in the portfolio,
12:49 this can really give a very good client experience
12:51 from a five-year point of view.
12:52 - Okay.
12:53 Ruchi, you have any thoughts on momentum investing
12:56 via mutual fund route and this particular one?
12:59 - Definitely do.
13:00 You know, obviously you've seen that
13:02 passive strategies have really taken,
13:05 you know, it's a different way of investing.
13:07 So while we've had active managers,
13:09 index funds have also now really gained a lot of traction.
13:13 This strategy is also attracting a lot of flows
13:15 and it's good to have a passive investment strategy.
13:20 You know, like this is basically a quant-based strategy
13:22 also as part of your portfolio
13:24 from a diversification standpoint.
13:26 Now, if you want to talk about the HDFC NFO,
13:30 again, I would say that there is a strategy
13:32 which is similar, which was launched
13:33 about two years ago by UTI.
13:36 And obviously you can see the track record
13:38 and the history over there.
13:39 And what's obvious is that when the markets are doing well,
13:43 obviously this overperforms the market,
13:45 but the drawdown is also higher
13:46 when the markets are in a bearish phase.
13:49 So it is a high risk, high return strategy.
13:53 And, you know, you may want to sort of consider that
13:56 as a small allocation to the portfolio
13:58 because you want to, you know,
14:00 sort of diversify by different ways of strategies.
14:03 But, you know, I would obviously take something
14:05 which is tried and tested and already there in the market
14:07 versus something that's getting launched newly.
14:10 And be careful of the fact that it's not going to be
14:14 just a one way kind of return journey
14:17 because the drawdowns when the market,
14:19 it will see much higher volatility
14:21 when the market is sort of in a bearish phase.
14:25 So having said that, you know,
14:27 my view would be yes, add it,
14:31 but definitely be careful of the risks associated with it
14:34 and look at a tested strategy
14:36 rather than a new strategy that's getting launched,
14:39 you know, so those would be a nutshell what my view will be.
14:43 - Got it, got it. No, fair call.
14:45 And viewers, please understand,
14:46 before we take that break though,
14:47 just remember for almost every single NFO that comes out,
14:51 the advice is pretty similar,
14:53 that there are tried and tested strategies existing,
14:55 whether this category or others,
14:56 and maybe those might be better.
14:58 But there's so many queries around NFOs
14:59 that we are forced to ask our guests,
15:01 but usually viewers remember, if you don't get advice,
15:04 most advice is tuned to that,
15:07 look at a tried and tested strategy,
15:09 might be a great bet, performance is known,
15:11 portfolios are known, and you can analyse it much better
15:15 vis-a-vis maybe NFOs.
15:16 Because there are a couple of queries that have come in,
15:18 we'll try and start off with those
15:19 and try and help both our,
15:21 both our, two of some of our viewers today.
15:26 The first one is Pankaj Pandey, he's aged 41 years,
15:30 and Tarun and Ruchi, I'd love for you
15:33 to be able to help out if you can.
15:34 He says that he's currently investing
15:38 50,000 rupees via SIPs in eight to 10
15:42 different regular funds,
15:44 most of them are multi-cap or flexi-cap schemes.
15:48 His question is, what should he do
15:50 with the accumulated corpus?
15:52 Should he keep it in regular mode
15:53 or move it to a direct plan?
15:55 Should he make additional investments to a direct plan?
15:58 Because now he probably knows
16:00 which schemes he wants to invest in.
16:02 What would your views be?
16:04 Ruchi, I'll start off with you on this.
16:07 - So as an advisor, I would never recommend anyone
16:10 to invest in a regular plan.
16:11 In the equity side, especially in the multi-cap
16:14 and the flexi-cap side, the differences
16:16 in the expense ratios can be as high as,
16:19 you know, one to one and a half percent.
16:20 So you're losing that out of your annual return.
16:24 Every year, basically, you are losing
16:26 that compounding effect as well.
16:29 So definitely, all incremental investments
16:31 need to go in the direct plan.
16:34 And what he has already invested,
16:38 he should look at, at least, you know,
16:41 look at the exit costs.
16:43 If it is less than a year, sometimes there are exit loads
16:45 that are associated with it.
16:47 So one would hold on to those investments
16:49 and make sure that you cross that exit load
16:52 and, you know, also look at it from a tax perspective
16:54 and then switch it really to a direct plan
16:57 is what my view would be.
16:59 So that's in my nutshell.
17:02 And also look at the portfolio
17:03 and see that you've got, you know,
17:05 while you've got multi-caps and flexi-caps,
17:08 index funds is a great fund,
17:09 a way to invest in the large cap segment.
17:11 If you don't have that, include some of those.
17:14 Also, given the way the markets are today,
17:17 most of the funds are all growth-focused.
17:19 So if you don't have a value exposure,
17:21 then look at just adding some value funds as well.
17:25 And I would just construct a robust portfolio,
17:27 which will be more on the, through a direct route.
17:31 - Okay, Tarun, I presume that would be a fair deduction
17:36 with the presumption that he knows
17:38 how to analyze mutual funds
17:40 or has an advisor who's advising him
17:44 because else he might not know how to switch.
17:46 - So, Neeraj, I want to add one larger point
17:49 and I want to give a message to larger viewers
17:53 on this point that people tend to feel that mutual fund,
17:58 they need to put eight to 10 funds in their portfolio,
18:02 15 funds in their portfolio,
18:03 always keep adding new, new strategies based on FOMO,
18:07 sometime energy sector, sometime PSU sector, sometime this.
18:11 According to me, it's a operationally nightmare
18:14 and it's a very big energy loss.
18:17 A three to four good funds portfolio
18:19 can take care of the job.
18:20 Now he's talking about a 50,000 SIP.
18:23 I think a good two, three funds SIP, that's it.
18:26 They don't need anything else.
18:28 Mutual fund in itself is a very diversified portfolio,
18:31 50, 60 stocks.
18:33 And if you start allocating it
18:35 into eight to 10 different funds,
18:37 I don't feel benefits of diversification actually comes
18:40 and a lot of overlapping of stocks keeps happening.
18:44 So to keep it from a long-term perspective,
18:47 because operationally, if people keep adding new, new fund
18:50 based on listening to experts like us,
18:53 they will always keep adding new, new funds.
18:54 And I feel after three years, five years,
18:57 they will realize that actually it's not adding any value.
19:00 Long-term, the returns will keep coming,
19:02 but operationally it's a nightmare
19:04 to manage such portfolio.
19:05 - Fair call.
19:07 Okay, we just have about two minutes left.
19:09 So slightly shorter answers for the next query.
19:11 Clinton Ashley Sullivan, 54 years.
19:15 Interestingly, he's got some five funds
19:16 and he puts 2000 rupees per month in each fund.
19:20 So therefore the next fund will come,
19:21 the same fund will come for repetition
19:24 only after six months, something like that, right?
19:26 But ICSA approved Sensex, ICSA approved Balanced Advantage,
19:29 HDFC Balanced Advantage, HDFC Mid-Caps
19:31 and HDFC Focus 30.
19:33 He wants to invest 10,000 rupees additionally.
19:36 Ask him about what are the funds that he can look at?
19:38 We have about 40 seconds for each answer.
19:40 Tanunal, I'll start off with you, 40 seconds.
19:42 - Yeah, so looking at the age
19:44 and I can see he's closer to retirement.
19:46 He has a lot of balance advantage strategies
19:49 in the portfolio.
19:50 I don't have his risk tolerance
19:52 and in terms of his return expectations
19:54 and all that, but my suggestion would be
19:56 looking at the current market environment,
19:58 large cap strategies, as well as asset allocation,
20:01 dynamic multi-asset allocation strategies look best.
20:05 That is where, and maybe the existing funds he should add.
20:08 He should not try to add more funds.
20:10 - Okay, Ruchi, what would your advice be?
20:12 - I would actually concur with Tarun,
20:15 look at more large cap strategies and index funds,
20:18 but I also concur with what he said earlier.
20:22 That doesn't make sense in adding too many funds
20:24 for the quantum that he's looking at.
20:27 So, but large cap and index would be good additions.
20:30 - Hopefully all the viewers are listening to this.
20:32 Thank you so much, Ruchi, as well as Tarun
20:34 for joining in today on the show
20:35 and giving us your advice.
20:36 Really appreciate your time.
20:37 Viewers, thanks for tuning into this leg of the MF Show.
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