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00:00Hi, thanks so much for joining in. You're watching the Mutual Fund Show on NDTV Profit
00:11and my name is Alex Mathew. This show gets you actionable insight on everything mutual
00:16fund related. We speak about everything under the sun related to mutual funds, but sometimes
00:22we get you the people that manage your money because it's important to understand how they
00:27think, how they're constructing portfolios and what is the approach that they're taking.
00:32And today in studio I've got with me Tridib Bhattacharya, the CIO Equities at Edelweiss
00:38AMC. Tridib, thanks so much for taking the time.
00:40Thank you for inviting me.
00:42It's an interesting time that we are at. We've just seen the Fed rate cut. This is something
00:46that the global market was looking forward to and we're currently in the midst of what
00:51seems to be a rally post that. In the Indian equity markets, momentum seems to be flagging
00:57just a tad bit, just shy of 26,000. Did you think a year back that we'd be talking about
01:0326,000 on the nifty-fifty?
01:07Good opening line. I would say, you know, we don't think in terms of numbers, but if
01:11you ask me whether about a year back we were constructive, yes, we were certainly constructive
01:16on Indian equities, not just for this year, but I would argue that over the next three
01:21to five years and even probably as long as the policy continuity stands to happen, you
01:26know, Indian markets are in good shape with regards to earnings and hence as a source
01:31of wealth creation for investors. In this context, the rate cut that we saw is probably
01:38a step in the right direction for those economies where growth has been flagging over a period
01:43of time.
01:44Okay. So, but let's talk about the most recent update. Of course, we've seen certain moves
01:49by the Chinese Central Bank that was this morning where, you know, they're trying to
01:55make money available to banks. There was a little bit of a rally in metal stocks today
02:00on account of that. How much of a factor do you think China is going to play in everything
02:06that goes forward? And there's also geopolitics, which is the joker in the pack. There seems
02:11to be more on that front every day. Oil prices have been benign. How many moving parts from
02:16the global scenario are you watching?
02:19Trust me, there are quite a few. I think the importance of China is in certain sectors
02:25more than others. These certain sectors usually tend to be commodities led or for that matter,
02:32as you're saying, metals, mining and, you know, chemicals. These are certain sectors
02:37which are very directly linked with demand scenario in China. But I think if I look at
02:43the most important thing that I watch globally is global companies' earnings. And I think
02:48if you look at global companies' earnings, people have been or companies have been talking
02:51about weakness in China and have been cutting guidances driven by weakness coming out from
02:58there. So this recent move in China is probably a response to that. Now, the other calibrated
03:06stance that one needs to understand when it comes to China is while growth will rebound,
03:11the pace of growth ain't going back to what we saw in 2000s or earlier. And I think that
03:18is what companies need to adjust in terms of their own expectations coming out of China
03:23and calibrate growth accordingly. So a whole bunch of data points, but most importantly
03:28from my companies, from a portfolio standpoint, we watch out global companies' earnings, particularly
03:34the industry leaders in the individual segments.
03:37Okay, fair point. Let's turn the conversation now to India. We've laid the global context.
03:44From the perspective of India, we've seen more conversations and the data as well supporting
03:49that more fund managers are holding on to cash. Now, I'm curious about this because
03:56there was a recent article that talked about Warren Buffett himself, the great man holding
04:01on to cash and a considerable amount of it and having missed the opportunity to gain
04:07in what has been a raging bull market, not just in India, but globally. Is that a dangerous
04:12approach? What is your own approach to keeping cash?
04:16I must admit, I have a stance. There is a way we manage portfolios. It may not be the
04:22best way, but it's a sensible way for sure. And in my opinion, a sensible way is to stay
04:28invested because ultimately from a medium-term standpoint, we are constructive in markets.
04:34So holding cash and trying to time the market has been a mugs game for centuries together.
04:39It continues to remain the same. Time in the market is sort of very important, hence we
04:44stay invested. But majority of me, myself and my team's time is spent on where we want
04:51to put the money to work. On a relative basis, where are the alpha opportunities that are
04:55there in the market? Which are those areas where earnings are likely to be more resilient
05:00than that of others and they stand up better than that of other sectors, so to speak.
05:04If we did the same, then irrespective of whether markets go up or down, we remain one of the
05:10best ways to create wealth for investors in absolute terms as well as in relative terms
05:16versus the benchmark that we sort of compete against.
05:19So how much cash on an ongoing basis are you comfortable holding?
05:23So we hold usually less than 5% of our fund in the form of cash on an ongoing basis and
05:32basically the cash that we hold is mostly transient in nature. Either we are getting
05:36in or out of certain stocks or for that matter, we are trying to manage the liquidity from
05:41a fund perspective, not trying to time the market.
05:43Okay, then how do you manage the stretch, some would say stretch valuation on the higher
05:51end? Because the natural expectation then would be that you rotate into sectors that
05:56are relatively under. Can you put that into context for us? What are you seeing right
06:02now and how are you rotating?
06:03Great question. So I would provide two cuts of the same, one by market cap and second
06:09by sectors. So if you split the market into two parts by market cap, one is a large cap
06:15and the second is mid and small caps. I would say that or I would argue that the large cap
06:20valuations are at par with their 10-year average. So there is no valuation fraud or
06:25excess in there. On the middle small cap, the valuations are 20 to 45% higher than 10-year
06:33average, but that's only half the story. The other half of the story is that earnings growth
06:37of mid and small caps are close to double that you find in large caps. So you can't
06:42completely ignore the mid and small caps either. So the best approach from this point of view
06:47I would recommend is basically having a right mix between large, mid and small in the portfolio
06:53and allocate basis where the price value equation looks the best. So that's one way to slice
06:58the market. Hence our favourite portfolios in the current markets are flexi-cap funds
07:04or for that matter multi-cap funds. The other way to slice and dice the market is by the
07:09sectors. So on a relative basis, whichever sector's earnings are likely to be more resilient
07:14than others will most likely hold up better. And to position the portfolios in those areas
07:20on a bottom-up basis is what we do on a day-on-day basis. So in that context for instance, since
07:25we talked about rate cuts, incrementally we know that the sectors that benefit from rate
07:30cuts are non-banking financial companies, they are real estate and they are also IT
07:36services over a period of time. So over the last 3 to 6 months, these are the areas that
07:41we have allocated more capital to in the context of our portfolios. So two curves of the same.
07:47And that's an interesting perspective. I want to talk a little bit more about certain other
07:52sectors and delve a little deeper into the financial space because it's been said that
07:57the banking stocks have incredible promise but are under-represented right now. People
08:05are not yet rotating into them. Earnings is not something that they are comfortable with.
08:09There are large private sector banks, some in particular. There are certain other issues
08:13in terms of deposit growth. What is your opinion on the sector?
08:17So financials, Alex, today is a reasonably heterogeneous sector. So there are banks and
08:23within banks there are private sector banks, public sector banks. There are insurance companies.
08:28There are capital markets companies and then there are NBFCs, the two non-banking financial
08:33services companies. If I were to lay the land in front of you in this way, sub-aggregating
08:38the financial sector, we would be most positive at the moment on NBFCs. This is where we think
08:44over the next 6, 12, 18 months as rate curves take their shape, would stand to benefit with
08:50regards to their financials and hopefully their share prices.
08:52The large ones or the small ones?
08:55Depends on what segments they are in rather than large or small is the way I would put
08:59it. With regards to banks, I must admit we have been taking profits on the PSU banks
09:07because we thought the easy money has been made over the last couple of years. The valuation
09:12catch-up has happened and now they have to showcase better earnings growth, so to speak.
09:16On a relative basis, we have overweight private sector banks, but overall I would say that
09:22the best times of banks are what we have right now. They have the best of credit growth.
09:28They have the least of asset quality worries and the best of margins. As the business cycle
09:34turns going forward, some of these parameters may not be as good as what it has been in
09:39the past, but for areas like NBFCs, insurance, capital markets, we think are probably better
09:47positioned on a going forward basis over the 6 to 12 months within financials. So a more
09:51nuanced view, but well, that's one third of the market.
09:57And that's how you think about constructing your portfolio, so that's interesting insight
10:00to have. I'm curious about what you think, and we've spoken about a few sectors, but
10:04I'm curious what you think about whether there is a need to review certain tried and tested
10:13valuation methodologies from the perspective of what we've seen over the last 2 or 3 years
10:18in India, particularly over the last year and a half, because every dip has been very
10:24aggressively bought and liquidity has been absolutely flush. And so from that perspective,
10:30what you were saying at the start, waiting on the sidelines may not be the best approach.
10:35Having said that, on the upside as well, you said that you booked out of PSU banks, but
10:42there might be a worry that says that that rally is not going anywhere.
10:46So in order to understand how much rally is enough, we did a bit of a study. We looked
10:53at other countries which have gone through similar transitions in the past. This is going
10:59to be a verbose answer, so bear with me with the mantra too. We looked at Japan, we looked
11:04at Korea, we looked at Taiwan. During 1950s to 1990s, the transition period as they went
11:11from an emerging market to a developed market, and what it meant from an equity market standpoint.
11:17And what we came back with is during periods when they had strong policy continuity, when
11:23they favoured certain sectors and that of others, as long as they created global competitive
11:28industries, the GDP per capita went multifold and along with the stock markets over a period
11:34of two or three decades. So rather than getting into numbers, for example, Japan went almost
11:39like 30 to 40x over that time frame, 20 to 30 years. So in that context, as long as the
11:45policy continuity stands to happen in India, which seems to be the case, as long as there
11:49are certain sectors where we have competitive advantage and they do well over a long period
11:54of time, I think the story is just about starting rather than coming to an end.
12:00So from that perspective, what I get from that is that you're not too worried about
12:04valuations, you're worried about the underlying story, which is not going anywhere, and want
12:12to be focused in those areas where the earnings are going somewhere, which is hopefully up
12:16rather than stagnating. So as long as we are invested in those sectors where earnings
12:22are kind of growing at a reasonable clip and valuations are reasonable, that's the
12:26sweet spot which we want to operate.
12:29Interesting, because a lot of investors, Tradeep, a lot of your investors as well, who have
12:35come in over the last two or three years might have been completely spoilt by the kind of
12:40returns that you and your peers have managed to deliver, the market as a whole has managed
12:44to deliver. And so from that perspective, I get it. You are saying that you believe
12:49in the fundamental growth story of India. But having said that, how do you benchmark
12:54your return expectations? And this coming from a fund manager would be very important.
12:59In your opinion, how should an investor benchmark their return expectations?
13:05The true calibration of returns from stock markets are basically earnings growth. And
13:13if you look at last 20 years, India's earnings growth has been somewhere between 15% to 20%.
13:20And I think as long as an investor sticks along for 5 to 10 years, this is a reasonably
13:24long period of time, which is what is needed for investing in equities. I think an expectation
13:31in sync with the earnings growth that we have seen is something that one should come by.
13:35Now sometimes the investor's entry point might be at a high point or low point. The longer
13:40the period of time, the importance of entry point kind of subsides. And the earnings growth
13:44takes over. So on a systematic basis, I can't put numbers as to what expectations are. But
13:50I think the earnings growth is a true calibration of what returns that people should expect
13:56from equities over a decade or so.
14:00Absolutely. I have enjoyed this conversation, Srideep. Thank you so much for joining me
14:04in the studio. Pleasure having you as always.
14:06Pleasure is mine.
14:08Now, we have to take this conversation forward. But let's take an aspect of what we were talking
14:13to Srideep about, which is the holding of cash. We've got Vishal Dhawan, Founder and
14:18Chief Executive Officer of Planahead Wealth Advisors joining in. And Vishal, hopefully
14:23you've managed to catch a portion of the conversation that I had with Srideep. What do you make
14:27of the higher amount of cash that fund managers are holding?
14:32So I think it's a reflection on two different things that could be there. One is that for
14:37a set of managers who are holding excess cash, it could be just driven by monies flowing
14:43at this particular point in time. So inflows coming in need time to get deployed. And therefore,
14:49if you have very strong inflows, the deployment can end up taking a little bit of time. And
14:53we're clearly seeing fairly strong flows coming in from retail investors.
14:58The second element could be deliberate, where cash is being used as a protection tool because
15:04of the way valuations may be. And therefore, there aren't enough opportunities available
15:09to deploy that cash. And I think it really depends from manager to manager in terms of
15:14how they run their own portfolios, in terms of how they're looking at cash as a part of
15:19their strategy.
15:22But to take this forward then, I was looking at the numbers and we've played some of that
15:28on the screen while we talk about it. Maybe we can do so again. But there are a few fund
15:33managers and fund houses that have stated in the past that they are comfortable going
15:39very high on the amount of cash they hold if the valuation methodology or the valuation
15:45picture demands that. One of them is Parag Parikh FlexiCap Fund, which is currently at
15:51about 13 percent. You have the Motila Loswal Midcap Fund, which is at cash and cash equivalents
15:57of over 20 percent. The question is, if somebody is uncomfortable with that idea, saying that,
16:03look, I'm giving a fund manager money so that they can deploy it into the equity markets,
16:08then what should their approach be?
16:09I think there are, again, two things to look at very carefully here. So one is the returns
16:15that you make off a fund may not only come through the cash positions or the excess or
16:22lack of it. They could be coming through the sectors that you're buying into, through the
16:27stock selection that you're doing. So there are multiple things coming together to ultimately
16:33define what kind of a return an investor makes. And what it could therefore mean is that just
16:39using cash as the basis to decide on whether it's a good idea to be in a fund or not, or
16:45a scheme or not, is probably not a great place to be in.
16:49The second thing we need to keep in mind is that, again, at certain points, like we've
16:55seen, historically seen, cash has a very valuable role to play in protecting downside.
17:01And what we've seen historically is that when downsides happen, which are steep, and because
17:06they haven't happened for the last two or three years, there is a recent bias clearly
17:10visible, saying that every correction will be short and it will be followed by a higher
17:18level on the index rather than a lower level.
17:21And if you do believe that mean reversion does end up happening, then you also want
17:25to be sure that when situations arise where you want to be able to deploy money, you have
17:31that available to take advantage of so that you can buy into opportunities that may be
17:35available at a stock level, or sometimes even at a sector level, where you might find that
17:40there is bad news around a sector that comes in and you want to buy multiple names within
17:45the same sector.
17:46Fair point.
17:47In your experience, having looked at some of these schemes over the years, has that
17:52panned out?
17:53And of course, in the near term, because you are holding a certain amount of cash, you
17:57are sacrificing on near term returns that some of your peers might have.
18:02But over the long term, one would assume that that results in both downside protection and
18:08the ability to deploy at a lower level whenever that situation emerges.
18:13So in your experience, have there been instances where this has panned out?
18:18So it has, I mean, I think just because you spoke of a particular scheme, if you go back
18:24and look at cash levels in that particular scheme, in the pre-COVID era, just before
18:30COVID happened, you'd notice that their cash positions were roughly about two times what
18:35a lot of other funds had at the same time.
18:39So obviously, there was a drag on performance leading into COVID.
18:42Of course, no one expected COVID to happen, just like no one expects a market correction
18:47to happen right now.
18:49But typically what happened is, as that correction happened, you did find that there were some
18:55benefits that came from holding that cash.
18:57Now what is difficult to establish is whether the benefits came from the cash that they
19:03held, or because the stocks that they held for the rest of the positions and the sectors
19:09that they had, were actually what contributed to the return rather than the cash.
19:13And I think that's where it gets very hard for investors to actually take out one particular
19:18factor like cash and say that something is appropriate or inappropriate, just because
19:23of that one driver.
19:24Because the returns in a fund are going to come from different constituents.
19:28It's not going to come only from the cash position.
19:30Yeah, that's a fair point.
19:32And some strategies require the holding of that cash.
19:35And some others, like Trideep was mentioning, his philosophy is to not hold cash and to
19:40deploy it and to rotate the portfolio as he sees fit.
19:45It's interesting, Vishal, we keep getting queries on our show, and there are several
19:49that have come through.
19:51I've sent some to you, and let's take some of them.
19:53We've got Shridinath, who's asked the first question.
19:56He's investing through SIPs for three months now.
20:00His portfolio currently consists of 75% in equity, 25% in debt and gold funds.
20:07He's seen gains of about 2%.
20:10He's not specified which his schemes are, so I'm not really sure whether he's asking
20:15about the overarching strategy in terms of asset allocation, but he's asking if this
20:20is feasible to continue.
20:24So I think this is a great question for everyone.
20:26I think there's been a lot of conversation, obviously, about the SIP flows.
20:31And in general, markets always go through three phases.
20:35And it doesn't matter whether it's equity or not, even gold, even debt, it goes through
20:41three phases.
20:42One is where you actually get a lot of returns in short periods of time.
20:47The second is when you just see a long period of flatness, or let's say a time correction.
20:53And third is when prices actually come down.
20:55Now, depending on where you are in the cycle, your return outcomes will be very different.
21:01And the whole idea about an SIP is to get away from this prediction of cycles saying,
21:07am I going to be in this upward moving cycle, flat cycle, downward moving cycle, etc.
21:12And just focus on saying, I'm going to invest in a disciplined manner, because I'm 25.
21:18And I want to put this money away for a long period of time.
21:20The fact that my returns are 2% actually does not really mean anything.
21:26Just like if the returns were minus two, would not mean anything.
21:29In fact, what you want to do as a SIP investor is hope that a lot of your asset prices come
21:36down, so that you can keep on buying at lower and lower prices, rather than worrying about
21:42it.
21:43So I would say, don't focus on a three month basis on an SIP return.
21:47In fact, if you have to wish for something, wish that market's correct, so that you can
21:52put away and get more units for the same value of money, and you will see the benefits come
21:56out over a long period of time.
21:58That's a fair point, Vishal.
21:59And in fact, I read a study recently that said that it does not matter whether you start
22:04an SIP at the peak of a cycle or the trough, you will more or less get similar returns.
22:11And in fact, deploying early is always better.
22:14Rahul Panjiar has got the next question.
22:17He started investing in the Nifty 50 Index Fund, then shifted to the Nifty Next 50.
22:23And he's now also thinking about the Nifty 500 Momentum 50 Index Fund, which is the best
22:29for the next 40 years.
22:30Now it's a very, very long time horizon, Rahul.
22:34He's 20 years old, and he's thinking about it from the perspective of his retirement,
22:38which is a good thought.
22:40Vishal, what do you say about this?
22:43So I would say that the starting point of this decision has to be that it cannot be
22:47an either-or decision, which is what one is seeking here.
22:51It needs to be that you need to get a market cap rated index like the Nifty 50, or if you
22:56want participation of a slightly larger range, maybe you can get a Nifty 100 Index Fund,
23:01if you want all the top 100 large cap stocks represented in the index.
23:07But typically you would want one of those, either the Nifty 50 or the Nifty 100, becoming
23:12one part of your portfolio.
23:14The second part, which is linked to the momentum, is something that investors need to be very
23:20mindful of, that momentum does tend to be a great strategy and a great factor when markets
23:26are heading upwards.
23:28Because there is a tendency for momentum as a strategy to outperform a lot of other factors.
23:35But in much the same way, in a different cycle, you do end up finding that it also falls more.
23:41And the question therefore is that even though you have a 40-year investment horizon, are
23:46you willing enough to see our momentum fund underperform significantly when markets correct?
23:54Because that's what tends to happen very often.
23:56And still stay invested.
23:57In fact, maybe again, buy more, because that may be the time to take advantage of upward
24:02momentum as and when it comes back.
24:05And therefore, I would say that a larger allocation would have to go to a broad Nifty 50 or a
24:11Nifty 100 fund, while you could take a tactical allocation if you have the risk appetite to
24:19the momentum index, maybe anywhere between 10% to 20%.
24:23But you need to have the risk appetite clearly to be able to handle it.
24:26A fair point.
24:27And that's an important point to make as well.
24:29We've got a couple of minutes more, just about.
24:32Saurabh has asked the next question.
24:34Vishal, so a quick answer, 4,500 rupees per month is the amount that he can invest.
24:40He's 33 years old and he's looking for a few suggestions that he can look at.
24:44Now, I must state that this is not going to be a recommendation.
24:48This is simply what Vishal looks at and finds interesting.
24:51Vishal.
24:52So I think one of the missing links here is obviously, you know, how long he wants to
24:56invest for, which is very hard to figure out from this question.
24:59But let's assume that he's, you know, just because of his age, he's looking to put this
25:03away for retirement, for example.
25:06I would say that he needs to look at essentially three things that he can do together with
25:11this 4,500 per month.
25:13One is buy into a nifty-fifty index fund to give him broad market exposure to the Indian
25:20markets.
25:21Similarly, look at an S&P 500 index fund to get exposure to the U.S. markets and be geographically
25:29diversified to manage his risk.
25:31And the third bit is bring in an active fund like a Flexicap fund, where the fund manager
25:37can make decisions on moving across market caps, across sectors, and across stocks.
25:42This is what he or she believes is appropriate.
25:44So I think that those three put together should be good for Saurabh if he's thinking about
25:50a long-term.
25:51Flexicap that you like, one Flexicap that you like?
25:55So the Paragparik fund, even though we were just discussing it from a cash perspective,
26:00has an excellent track record, though there is near-term underperformance that is clearly
26:03corrected.
26:04Fair point.
26:05Vishal, thanks so much as always for taking the time.
26:07Pleasure speaking with you.
26:08Thank you so much.
26:09And that brings us to the end of this edition of The Mutual Fund Show, the number that you
26:13saw on your screen.
26:14That's where you send questions to us.
26:16Lots more coming up over the course of the day.
26:17And this is NDTV Profit.