The Portfolio Manager | Portfolio Construct Of PPFAS Flexicap Fund | NDTV Profit

Summary

In this insightful discussion, portfolio manager Rajiv Tuker of PPFAS explains his investment strategy, focusing on sectors like financials and select utilities. He addresses concerns about liquidity, valuations, and the impact of regulations on capital markets. Rajiv shares his views on the banking sector, preferring large private banks over PSUs and NBFCs due to cost of funds and diversification. He also discusses the cyclicality in capital markets, the potential of IT services, and the challenges of investing in real estate, emphasizing a medium to long-term investment thesis.

Takeaways

• 📈 The portfolio stance is not heavily tilted towards any particular sector or theme, but financials and select utilities are currently seen as attractive.
• 🏦 Despite leadership transitions and mergers causing temporary disfavor, the banking sector is considered undervalued with good asset quality and potential for growth.
• 🤖 Concerns about AI and generative AI's impact on the IT sector are not as severe as feared, with the belief that while some tasks may be automated, the need for human understanding and integration remains.
• 🏢 The real estate sector is avoided due to its project-based unpredictability and accounting challenges, making it less attractive for investment.
• 💼 The IT services sector is experiencing a period of subdued growth due to concerns about near-term demand, but past cycles suggest a potential resurgence.
• 💡 There is a preference for banks over NBFCs (Non-Banking Financial Companies) due to the cost of funds advantage and diversified opportunities in banking.
• 🌐 International exposure is present in the flexi-fund, which includes companies in software services, cloud computing, and digital advertising.
• 📉 The capital markets sector has seen regulatory actions, but the decision to reduce exposure was more due to concerns about cyclicality and high valuations rather than regulations.
• 📊 The mutual fund has underperformed in the last one year, but this is attributed more to market conditions and valuations rather than size or lack of global exposure.
• 🛑 The building materials sector, while predictable, currently appears expensive and is not heavily represented in the portfolio.
• 🚫 The fund manager is willing to underperform in markets where valuations are high, preferring to wait for better opportunities rather than chase returns.

Q & A

What is the current portfolio stance according to the transcript?

The portfolio stance is not sectorally tilted towards any particular theme more than the weightages might be, and the strategy is not high churn. It's largely a buy and hold kind of fund, with sectoral preferences for financials and select utilities due to attractive valuations and good asset quality.

How does the size of the fund impact its strategy and performance?

Despite being smaller in active AUM compared to larger fund houses, liquidity is not a challenge due to the fund's strategy of not requiring daily turnover of the full portfolio. The size has not significantly impacted the fund's performance, as underperformance has occurred even when managing smaller funds.

What is the view on the financial sector, specifically banks, according to the portfolio manager?

The financial sector, particularly banks, is seen as attractive due to cheap valuations, good asset quality, and concerns over growth rates being temporary. The portfolio manager prefers public sector banks over private sector banks and NBFCs due to the cost of funds advantage and diversified opportunities.

What are the concerns regarding the IT services sector?

There are concerns about the near-term growth of the IT services sector, which has led to subdued performance. However, the portfolio manager is not overly worried about the impact of AI and generative AI on the sector, expecting some impact but not as much as generally feared.

How does the portfolio manager view the role of banks in India's growth?

The portfolio manager believes that for India to grow, banks need to become bigger as they play a crucial role in funding real estate sales, car sales, and infrastructure. Near-term challenges are seen as temporary, and growth is expected to return as credit growth normalizes.

What is the portfolio manager's stance on the consumption FMCG space?

The portfolio manager does not favor the consumption FMCG space overall due to high valuations. However, there is an exception for a one-off company that was found attractive and continues to be held in the portfolio.

What are the portfolio manager's thoughts on the real estate sector?

The real estate sector is considered difficult to invest in due to its project-to-project basis and unpredictability. The portfolio manager prefers to spend time analyzing and investing in more predictable businesses, leading to the absence of real estate in the portfolio.

How does the portfolio manager approach the building materials sector?

While the building materials sector is more predictable than real estate, the portfolio manager has not invested in it due to valuations appearing a bit expensive. The sector is still noted for its potential, but current investments are not present.

What is the portfolio manager's view on the impact of regulations in the capital markets?

The portfolio manager sees regulatory measures as a part of life and not very unusual. The concern is more around the cyclicality of the capital markets rather than regulatory changes, leading to a reduction in exposure due to high valuations and cyclicality.

How does the portfolio manager address the underperformance in the last one year?

The portfolio manager attributes underperformance to valuations and the time it takes to find suitable opportunities rather than size. They are comfortable with underperformance in such markets and are willing to wait for the next big opportunity.