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00:00Hello and welcome to NDTV Profit.
00:08You are watching the Mutual Fund Show with me, Neeraj Shah.
00:11And we are talking about an interesting concept today because at times of scare, people say
00:14buy greed, sell fear.
00:15I don't think this is fear to an extent, but when somebody launches a small cap fund at
00:20a point of time, when things in people's minds are not exactly hunky-dory, you would want
00:25to try and understand what's the rationale of doing that at a current point of time.
00:29And I think that's what we are trying to do with Mihir Vora, CEO of Trust Mutual Fund
00:33because they have indeed launched or in the throes of launching a small cap fund.
00:38Mihir, great having you.
00:39Thanks for taking the time out.
00:40Hope all is well.
00:41Absolutely.
00:42Thank you so much for having me.
00:43So I will not say it's a good time.
00:44I will not say it's a bad time.
00:45I'm saying it's an interesting time to launch a small cap fund.
00:48What's the rationale of the timing?
00:50See, first of all, the small cap category, you know, is a large category on its own now.
00:57If you see the fund flows, that's the category getting the maximum inflows and the other
01:02category which is getting the maximum inflows is thematic funds.
01:06And if you look at the thematic funds, a significant portion of those funds are also invested in
01:11mid and small caps.
01:12So small caps as a category is getting a lot of money, that's one, but more importantly
01:17from the investor and the fund manager point of view, the canvas has become very big for
01:21the small cap category.
01:22You know, just to give you a few data points, four years ago, if I were to just take 2,000
01:28crores as a market cap cut off, right, and remove the top 100 and top next 150, which
01:35is large caps and mid caps, so remove the top 250 out of that, there are about 470 stocks
01:40out of which if you remove 250 stocks, which is large and mid, 220 small cap stocks with
01:45a market cap of more than 2,000 crores.
01:472,000 crore being just a cut off for convenience.
01:51Today, that 220 number is closer to 800, right, so you've got 800 small caps with a market
01:59cap of more than 2,000 crores and if you go below 2,000 crores, then lots more stock to
02:03choose from.
02:04So that's one data point to understand that the canvas has become very large.
02:09Second is the 251st stock, which is where the small cap definition starts, used to be
02:15about 7,000 crores in market cap.
02:18Today it's closer to 30,000 crores, right.
02:21So that's another data point.
02:22So it's become again, number of stocks wise and market cap wise also, small caps have
02:26become quite large, so to say.
02:29Third is 15, 20 years ago, the top 100 stocks used to comprise of about 80% of the total
02:36market cap.
02:37Today, that number is closer to 60%, which means 40%…
02:4268 you think?
02:4360.
02:4460.
02:4562.
02:4662, okay.
02:47So approximately 38% market cap is now mid and small, divided equally into mid and small,
02:53which individually are 1 trillion each.
02:56The small caps are 1 trillion in size, the large caps, the mid caps are also 1 trillion
03:01in size, so to say.
03:02So it's become a large market in absolute terms by global standards also.
03:06So that's one.
03:08Second is it actually fits in very well with our investment philosophy of terminal value
03:12investing.
03:13Okay.
03:14The terminal value investing philosophy basically looks at not only high growth rates, which
03:18is good in the short term, but more importantly, what is the sustainability of the growth rate?
03:24Is it a long runway of growth?
03:26Small caps, because they are beginning from a low base, and they have something which
03:30is different from other companies, are in a high growth phase, which can last for a
03:35very long period of time, giving you that compounding impact.
03:38So it actually is a perfect fit for our terminal value investment philosophy.
03:42Okay.
03:43And the fourth most important reason, I would say, is that in certain high growth segments
03:50and sectors, you don't have many choices in large caps.
03:55For example, if you are bullish on the China plus one theory on chemicals, there are probably
04:00two large cap chemical stocks.
04:02Well, there'll be 60 small cap stocks, auto, pharma.
04:08In fact, we just made out a list of a few sectors, which we consider the high growth,
04:13the auto, pharma, chemicals, then say, for example, travel and tourism, all those.
04:21We could find about 50 large caps, and against that, we could find close to 500 small caps,
04:26almost 10 times the number of choices.
04:28So number of choices is large, and as I said, in certain segments and stocks, there are
04:32no options in the large cap space.
04:34So I think that's what makes the small cap universe a very exciting space to be in.
04:38Okay.
04:39Especially the current times.
04:40And I'm guessing if the universe is so large, then the investable universe is large, and
04:45you will find your share of value as well as growth options within that universe too.
04:51Absolutely.
04:52So I need to build a portfolio of 60 stocks.
04:54Right.
04:556-0.
04:566-0.
04:57Right.
04:58So there are people who say there are small caps which are expensive.
04:59I said, yeah, of course, out of 800 stocks, there will be some expensive stocks, but there
05:03will be some stocks where we can find a good balance of growth versus valuations, as you
05:08would like to look at it.
05:09Got it.
05:10So what would be the methodology?
05:11I mean, are you adopting a value or a growth at a reasonable price, if that is the mandate,
05:17or are the balance sheet, et cetera, parameters, which are always the case, I'm sure, but do
05:21they take the prominence?
05:22How would you go about choosing this?
05:24What kind of investors should look to invest in the trust small cap fund, for example?
05:29So our philosophy is basically growth, and growth at reasonable valuations, and as I
05:35said, our North Star is terminal value investing, where the longevity of the growth path is
05:40very important.
05:41So that's the approach we are following for our FlexiCap fund.
05:44So the stock picking and the stock selection methodology and approach remains the same.
05:48It's just that we are going down the market cap curve.
05:51Okay, fine.
05:52Okay.
05:53And there are enough options available.
05:54Okay.
05:55Just one thing, the timing is, I don't think you planned it that way.
05:59But because we are coming at a point of time when for the first time in the last some quarters,
06:06that we've seen the market not necessarily be a buy at any dip, but look, investors starting
06:12to feel, you know, market is going up, but my portfolio is not going up because a lot
06:17of mid cap, small cap valuations are now starting to come off a little bit from those highs.
06:21So is the timing a worrying part, or do you reckon that it is actually better for you
06:27because you get to pick in stocks at better valuations than maybe two months ago?
06:32I think the only concerns that I hear is from people like us, the thinkers, the distributors
06:39and investors, frankly, are still voting with their checkbooks.
06:43And as you know, in the monthly numbers, as you can see, the thematic funds and the small
06:47cap funds are still getting a lot of money.
06:49And I was on the road for quite a few days, and I don't see any real major pushback on,
06:55you know, the concept of valuations, etc.
06:57And just a bit on valuations, I would say, I'm not a big fan of aggregates and generalizations
07:04because I really want to look at it stock by stock.
07:06But if you were to look at aggregates in any case, and if you remove the just loss making
07:11stocks over a period of time, the P ratio for the large cap universe is approximately
07:20the same as that for the small cap universe, the index, the P ratio for the large cap index
07:27and the small cap index one year forward, both are approximately 20 to 23.
07:31I thought the small caps were a lot higher.
07:33No, that's the mid caps are far higher.
07:35Mid caps is closer to 27.
07:37So it's those 150 sandwiched between the small caps and the large caps, which are probably
07:42standing out sticking out in terms of valuations.
07:45And while I say the P ratio is similar for the large cap indices and the small cap index,
07:50I'm just ignoring loss making companies on both sides.
07:54The growth rate for the small cap index, the earnings growth expectations in the next couple
07:58of years is closer to 18%, whereas it's probably 8-10% for the large cap index.
08:02So growth adjusted valuations are still okay on the small cap space.
08:06Got it.
08:07So and therefore, you don't, I mean, you don't foresee.
08:08So because you got this nuance, which is great, you'll probably get the companies which is
08:12great as well.
08:13But could the index or the space, the valuations for the space at large remain under a cloud
08:19or you don't foresee?
08:20I mean, because in the past, it's happened, right when, when, when mid caps take a beating
08:24then or small caps take a beating, then even the good companies get pissed out with the
08:28bad.
08:29Absolutely.
08:30Could it happen this time as well?
08:31Or do you believe the texture is slightly different and more nuanced?
08:33So as I said, if you look at the valuations versus growth equation, there is no reason
08:37to believe that there should be a panicky correction or sharp correction.
08:40So as long as there is normal volatility, markets go down by 5-7% or so, I don't think
08:45there's too much of a problem.
08:46Because as I said, I need to select 60 stocks from over 1000 stocks, you know, that's true.
08:52That's true.
08:53Amir, you may or may not have a hybrid fund currently or in the planning stage as well.
08:57But it's a question that comes to many.
08:59So firstly, thank you for talking about the small caps fund and to you and your team,
09:03wishing you all the best.
09:04May you create great wealth for investors.
09:07I'm just moving tracks now.
09:09And a lot of people are now starting to put this question and hence I thought it is best
09:12to ask you as well.
09:14That as the Indian markets turn a bit more volatile, are hybrid funds a good option in
09:20the current times?
09:21Independent of whether you have it now or in the planning stage, what's your view on
09:25the same?
09:26Certainly.
09:27So, if you really don't want to take the headache of asset allocation on your side, then it's
09:32a good idea to put money in a balanced or a hybrid fund because then you're leaving
09:36the call of asset allocation to the fund manager.
09:40So it does make sense and there are various structures in which it can be a little more
09:44tax efficient also.
09:45There are some grey areas still or there are some gaps which still can be exploited as
09:50far as the taxation is concerned.
09:52It's certainly a good idea for people who don't want to take the asset allocation call
09:56themselves.
09:57Okay.
09:58And would it help beat the volatility in the current times or again you are dispelling
10:02that notion?
10:03You know, I love for example the presentation that you guys have made in your small cap
10:07fund is spotting big in small.
10:09So you believe that there are big gains to be made there.
10:12The reason why I'm asking this question again to you is that the fear factor when it comes
10:16over leads people who might otherwise want to stay invested in a pure equity fund to
10:20move to a hybrid fund because they think that everyone is saying that there might be volatility
10:24etc.
10:25Let me take the safety of hybrids.
10:26Correct.
10:27Now, for a risk averse investor, I agree it might be a great idea.
10:31But for somebody who is not averse to taking risk and doesn't mind a little bit of volatility,
10:35should that person also look at hybrids currently or is it okay to be in equity linked funds
10:39completely?
10:40See, if the objective is to maximize wealth, then equity is a full fledged equity fund
10:47whether it's flexi cap or mid cap or small cap, it doesn't matter.
10:50But equities in general are the way to go, right?
10:53But if you are at a stage in life or your socio-economic circumstances don't allow you
10:58to take that much of a risk, then you might want to look at a more balanced kind of a
11:01portfolio.
11:02Okay.
11:03But otherwise, for somebody who is young, who is not averse to taking risks, you would
11:07suggest that having an all-out equity portfolio even at the current juncture is not a bad
11:11idea.
11:12Absolutely.
11:13The earlier you start, the better.
11:14The earlier you start, the better.
11:15Absolutely.
11:16Okay.
11:17My last question because, or last couple of questions really, because you are coming out
11:18with this fund and we've established viewers that we want to believe that if you are okay
11:22to take and digest a little bit of volatility and maybe even, who knows, I mean who can
11:27time the market.
11:28If the markets were to come off a little bit and you can take that volatility, then having
11:32an all-equity exposure and a small cap exposure is not a bad idea.
11:36I would love to understand when you're traveling through the length and breadth of the country,
11:40meeting companies, talking to investors, etc., what are the kind of stories that stand out
11:45for you?
11:46Because if there are 800 companies which are over 2,000 crores, which means a lot of them
11:50are doing, have done really well in the last 36 or 48 months and are much larger than what
11:56they used to be and therefore the probability of them doing better business is higher as
12:00well.
12:01What are the stories that are standing out for you?
12:03Is it in the manufacturing space?
12:05Is it in services?
12:06Is it, you know, power, energy, renewables?
12:10What is standing out for you?
12:11I think exactly these places, a lot of work happening in energy, sorry, in energy and
12:16engineering both.
12:19And you can see there are some IPOs which have come up in that space also, in manufacturing
12:24and engineering companies also.
12:25If you look at the export data for India, for example, machinery exports seems to be
12:29a, you know, a good growth area.
12:32So I think on the general theme of manufacturing, we are seeing a lot of action.
12:38If you look at the capital good companies also, you are seeing a lot of traction in
12:41the order book, which means that there is a trickle-down effect.
12:44So once the machinery manufacturers, the component manufacturers, who need more machines?
12:49So we are seeing that kind of traction happening.
12:52The other thing that I noticed over the road show is not really linked to any sector or
12:55something, but the bullishness in the second-tier towns is far more than the bullishness that
13:00you can see in Bombay or Delhi.
13:03Absolutely.
13:04Is it a left-out feeling of sorts?
13:05No, no.
13:06No, not left out.
13:07They are all in already.
13:08They are all in.
13:09They are all in already.
13:10And, you know, they are all in and everybody has a couple of stock ticks to give you.
13:14Why would that be the reason you think?
13:17Sorry?
13:18Why would that be the reason you think?
13:19Because you have seen almost six, seven years of, you know, money-making continuously.
13:24And as I said, you know, the width of the market has increased, you know, small caps
13:29and mid-caps have become a large portion of the market, number of stocks-wise.
13:32And from places like in Gujarat, for example, in Jaipur, etc., there are companies which
13:38have gotten listed from those cities.
13:40So people, local people can see that their friends who used to be, you know, a small
13:45guy ten years ago suddenly is now worth a thousand, two thousand crores in market cap.
13:49So all those, you know, feel-good is rubbing off in places like Surat and Ahmedabad and
13:55Jaipur and all those kind of cities.
13:57Interesting.
13:58Okay.
13:59And last question really on the show.
14:00You reckon that this will continue, you reckon this based on your assessment because you
14:04look at the global economy, local economy, the confluence of them and the contrast thereof
14:10and the correlations too.
14:11What's your view on growth in GDP and thereby growth in the markets for the next three years?
14:19Let's leave out just FY25 out.
14:21Sure.
14:22So, see, large-cap indices earnings growth are not going to be more than 10-15% for the
14:27next three years, if I say compounded-wise, you know, maybe a little higher initially
14:31than tapering off.
14:32So let's say 12% earnings growth.
14:35That's the kind of returns one can expect from large-caps, right, with a little bit
14:39of stock-ping, etc., in the mid and small-caps, you can enhance those results to probably
14:4215% if things go okay.
14:45But India standalone as a story continues to be very strong.
14:49I think this China hulaboo that we have seen in the last couple of weeks is going to fizzle
14:53out.
14:54My logic being that if in the last 25 years when China was at its peak in terms of growth
15:02rate and in terms of progress and development, the stock market gave you zero returns, right,
15:09and this was the time when China came from nothing to become a world-dominant manufacturer
15:14and this was like the golden year of China, the golden years, 25 years of China.
15:19You didn't make money, right, and now you are past your peak in terms of demographics
15:24and the government is trying to desperately shore up the consumption and equity markets.
15:28I mean, if you couldn't make money in the peak of the golden years, how are you going
15:33to make money in the down cycle?
15:35Why has that been the case, Mihir, you think, and what does that indicate for, I mean, you
15:39gave your answer, but I'm just trying to understand, why is it that the case, because normally
15:43people would argue that growth or stock price returns could, if not would, but could follow
15:51growth.
15:52Now, why is it that this happened in China and therefore the assessment that who knows
15:58what kind of returns come in now, that they are past their prime?
16:01I think the key reason is that it's not a free market, you know, whenever a sector does
16:07too badly, etc., or too well, or doesn't meet the government social and economic objectives
16:13or strategic objectives, the government clamps down on that.
16:16We saw that, you know, in the internet space, in some of the, you know, large companies
16:22where promoters were asked to just stay out of the limelight and, you know, sometimes
16:27some of them also disappear.
16:28It's not a free market, and ultimately that matters.
16:32Well, thankfully, we are not them, and our markets have done really well, given great
16:37returns, and as ace investors talk about that, the probability of these returns continuing
16:43might be very strong in the future as well, hence a small cap NFO at the current times
16:47too, from Trust Mutual Fund.
16:49But Meer Wada, take a moment to thank you for joining in today, explaining the details,
16:53once again, from all of us, wishing you all the best for the new fund offer.
16:55Thank you so much.
16:57That's the view from Trust Mutual Fund, and what to watch out for when it comes to the
17:02small cap space, because remember, it's an interesting IPO that has come in as well.
17:06Now, keep in mind, I mean, you know, viewers, amongst the other things that sat well for
17:10me when I was looking at the brochure that they put out, or the deck that they've given,
17:15they're calling it spotting big in small, and the data points that Meer Wada gave to
17:20us, right?
17:21Over 800 companies now, over the 2,000 crore market cap, and if you whittle out the loss-making
17:26companies within the large cap and the small cap universe, the multiples of the small cap
17:30and the large cap universe are pretty much the same.
17:33And that's a very telling statistic, that at point of time, people get fearful about
17:37what's happening in the small cap space, but it may not necessarily be the case that you've
17:41got to be worried about the same.
17:43So that's something that you want to keep in mind when you're thinking of either investing
17:47in the small cap space, or the NFOs in the small cap universe as well, or funds that
17:53are currently existing in the small cap universe, because that's the set of companies that you
17:57might want to bet on, and not be fearful about.
18:01India might well be the story wherein the growth will actually come in, in the small
18:06cap universe, and not necessarily be restricted to the larger companies.
18:11Yes, big get better with time, but in a lot of cases, that may not necessarily be the
18:15case.
18:16So that's to be kept in mind.
18:17By the way, just take a small detour while we are on the Mutual Fund show.
18:20There are some flashes on your screen, Finmin sources suggesting that the State Panel on
18:24Compensation SES held its first meeting early this month.
18:28I think some more details will combine as we speak, but this is what we are, at least
18:33the first set of flashes that have come out, are suggesting.
18:35So keep an eye out, we'll actually get in some more details about this as well.
18:39This is coming in from the Finmin sources, so bear that in mind.
18:44What else?
18:46We did speak to Mihir Vohra about his views on whether people should move to hybrids,
18:51because in the current volatile market, the most common adage used is that move to hybrid
18:56funds because the volatility will be lower, and people will be able to, the fund manager
19:00will be able to take advantage of the fixed income market too.
19:05He's of course clearly stated that if you have the long term view in mind, that you
19:08don't really have to bother too much about these things, because of the reasons that
19:13were mentioned on the show, that a lot of small cap companies, or a lot of equity linked
19:18companies are showing very promising growth, and sure you might miss out on returns in
19:21the initial half, but if you have a five year view in mind, then it really wouldn't matter
19:25at the end of the day.
19:26And frankly viewers, if you look at an SIP into an equity linked fund, or an equity fund,
19:34over any five year period in the recent past, say for one or two if your luck is really
19:39bad, you've actually made money.
19:41It's virtually impossible to predict what the markets will do in the medium term really,
19:45so keep the faith maybe in the India growth story, and having an investment in the equity
19:52linked funds might not be a bad idea.
19:55Okay, I think we've got our next guest coming in moments from now, Varun Fatehpuria, who
20:01is the founder and CEO of Daulat Wealth Management with us on the show as well.
20:04Varun, good having you, thanks for joining in.
20:05We have about four or five minutes, so we'll have to make this quick Varun, but I want
20:09to start off with your first view on an NFO.
20:12Varun, can you hear me?
20:13Yes, hi Neeraj.
20:14Good afternoon.
20:15Good afternoon Varun.
20:16Varun, paucity of time, so I'm going to make this quick, maybe make it a bit of a rapid
20:20fire.
20:21We also have a couple of queries.
20:22So first one.
20:23Sure.
20:24A trust mutual fund is launching a small cap NFO.
20:26Are small cap funds a good option at the current times?
20:31Why or why not?
20:32And if it's a yes, then is an NFO from trust a good option, or would you look at other
20:38options within the existing funds?
20:42So Neeraj, what I would just add to that is definitely see, we have been in a territory
20:45where valuations definitely look expensive on the small cap and the mid cap segment,
20:50but that has been the case over the last 12 to 18 months.
20:53Some of it has been a combination of the strong earnings growth that we have seen in small
20:57cap over the last three to four years, which has been in the range of 40 to 45% and coupled
21:02that with an PE expansion, which has led to some sort of a redating in the stocks.
21:07So yes, definitely small caps do look expensive, but that has been supported by the strong
21:11earnings growth that we have seen in the sector over the last three to four years.
21:16To your specific question, I think I would advise investors to continue to allocate to
21:20it, keeping in mind what the risk appetite is, but always use an SIP route today as we
21:26stand.
21:27I do not think adding an incremental lump sum today is a very good idea.
21:31So SIP is how you should look at and also to that point, keep some buffer in the form
21:38of a lump sum, because when the cycles turn and the dip in the small cap segment happens,
21:43that could be a good time to double up and double down on your investments.
21:47Would you look at an NFO, Varun, or would you stick to existing small cap funds?
21:52What are the recommendations, if so?
21:55We typically like to stay away from the NFO as a general practice, because we want to
22:00see how the fund manager has performed over multiple cycles, especially with respect to
22:05the small cap segment.
22:07Not sort of pointing on to the trust NFO, but in general, that is what our recommendation
22:12is.
22:13Until this, we have been comfortable with the fund manager over a couple of years, seen
22:17that cycle and not been a market, which is sort of like operating on the extremes.
22:23At that point in time, we try to stay away from the NFO.
22:26But today, if you want to look at specific funds in the small cap segment, which has
22:31the potential to create long term wealth, but at the same time protect you on the downside,
22:35I think SBI small cap fund really stands out in that respect, Nippon India small cap is
22:40a good bet as well.
22:41Okay, Varun, one last question, maybe I'm afraid we won't be able to take queries, but
22:45maybe I'll make a generalized query.
22:47Viewers, so all those who have written to us, we'll try and take some of the queries
22:50tomorrow because unfortunately, we are out of time on the show.
22:53But Varun, one more question, a lot of people are being advised that these are volatile
22:58times, move to hybrid funds, don't stay in pure play equity funds.
23:02For somebody who is in an SIP route, and okay to be invested for five years with the SIP
23:09or make the SIP payments monthly for the next five years as well, is moving to hybrid funds
23:15a good option or sticking to a pure play equity fund a good option?
23:20So I think Neeraj, in general, we always advise investors to build a well diversified
23:25portfolio across different asset classes.
23:28So when someone is investing in a pure equity fund, yes, by definition, it always sounds
23:33like a good practice on paper.
23:36But when you are in a strong bull market, where your allocations have moved beyond what
23:42your risk appetite is, and you do not have the behavioral check to keep those asset allocation
23:47in place.
23:48At that point in time, a hybrid fund, whether that could be a multi asset allocation fund
23:52or a balanced advantage fund, allocating certain percentage of your portfolio to that is definitely
23:57a good idea.
23:58Because by design, it keeps the asset allocation in place due to a objective rule based model
24:04with the fund managers follow.
24:06So you are not taking active asset allocations call, you're not taking active market cap
24:10calls, all of those decisions are automatically delegated to the fund manager.
24:15And you can relatively have a more comfortable and a peaceful investing journey, depending
24:21on what your risk appetite is.
24:23Even if you look at hybrid, I think there is a wide range, right from conservative hybrid
24:27to equity savings to a balanced advantage fund.
24:29So if you're more on the conservative side, we would advise go to an equity savings fund
24:34due to the taxation advantage.
24:36But if you're okay, taking certain amount of risk, then a balanced advantage fund or
24:40a multi asset fund is a good bet in today's market.
24:42Okay, Varun, we'll leave it at that.
24:44Thanks so much for taking the time out and being with us.
24:46And viewers, that's all the time that we have on The Mutual Fund Show.
24:49Thanks for tuning in.