In an interview with ETMarkets, Goel said: “We believe that with the October correction, we are in a better position, as expectations have come down. We have a clear runway of 2-3 months where the Indian economy can perform well, provided the global slowdown does not worsen,” Edited excerpts:
The SKG India Value fund rose more than 12% in September outpacing other PMS schemes in the category as well as other categories as well. What worked?
September was a great month for our strategy. It was one of those times when just staying invested in great quality stocks paid rich dividends.Some of our core portfolio companies had showed promising results at the end of Q2 FY25, which led to a follow-up buying in September.I must also acknowledge the market sentiment, which peaked by the end of September. A few factors aligned in our favor, and being fully invested at the time worked to our advantage.
The returns are super even if we look at the YTD period. The fund has risen more than 24% compared to the 12% rise seen in the benchmark. How do you pick Equity for the funds?
Our investment committee is very clear about the nature of the companies we invest in. While our stocks are micro and small cap, these businesses are not new.In most cases, they belong to promoters with experience spanning over 3-4 decades, who have seen enough cycles and have the capability to navigate them successfully.
We avoid companies with unproven or overly experimental business models. Our universe comprises robust, traditional companies that may be involved in something as basic as making steel pipes, but they excel in operational efficiency and operate a well-oiled machinery capable of generating incremental sales and profits quarter after quarter. It’s back to basics when it comes to our strategy.
Other important factors include zero promoter pledging of shares, low debt, strong corporate governance, low price-to-earnings ratios, quarter-on-quarter growth, and above all, promoter commitment. These criteria play a significant role in narrowing down our investment choices.
Fundamentally, our approach does not involve chasing the latest trends or fads, such as EVs, green energy, solar, or fintech, which may enjoy temporary popularity but often lack proven business models.
Instead, we focus on finding consistent players in established businesses that are undervalued and relatively unknown, allowing us to generate alpha and potentially outperform the benchmark by two times.
What key factors make you such a strong advocate for the India growth story?
We have been bullish on the India macro story for a long time. We believe India is in a great position, supported by several tailwinds, such as decreasing rural distress, a still robust corporate capex outlook, and a cyclical recovery in the festive and wedding seasons.
However, some headwinds have appeared on the horizon, including a global slowdown, high valuations, and a slowdown in corporate earnings growth.
We believe that with the October correction, we are in a better position, as expectations have come down. We have a clear runway of 2-3 months where the Indian economy can perform well, provided the global slowdown does not worsen.
How do you manage risk in the fund?
We are very particular about managing risk in our portfolios. We try to avoid portfolio concentration as much as possible, and our stock selection process is designed to minimize risk while acknowledging that it’s a high-risk, high-return strategy.
The biggest risk we face is managing portfolio liquidity. To mitigate this, we ensure that 20-25% of our allocation is in stocks that may not be alpha generators within the SME segment but will provide consistent benchmark returns while maintaining liquidity.
The remaining 75% allocation is where we aim to generate enough returns to outperform the benchmark and deliver the performance you see.
We are also not short-term investors. On average, our holding period per stock is around 15 months, which is considerably longer compared to many other PMS schemes in the same space, which are quick to buy and sell.
So even if there is some short-term liquidity pressure, we don’t panic or hit the panic button because we are in it for the long haul.
Another key risk mitigator is maintaining a cash position. As of mid-October, we were holding almost 30% in cash. Our stocks are high alpha generators, so to achieve benchmark-beating returns, I don’t need to deploy all of my funds.
I can afford to stay on the sidelines when market sentiment is low, deploying when the timing is right, and still deliver strong results for my investors.
The factsheet says that you are sitting on more than 30% in cash. Are you cautious at current levels and waiting for a big dip to enter?
We were very cautious on the market at the end of September as we felt the markets were too euphoric and were not discounting the economic and corporate reality.
We are now much more comfortable to invest with the correction that has set in. We are now buying the dips and will be almost fully invested by the end of the month.
What makes you so bullish on financial services as a theme followed by IT at a time when the world is showing signs of a slowdown?
The financial services sector in India has been growing steadily over the past decade. Our optimism is fueled by increasing financial inclusion, driven by initiatives like UPI, and a continuous rise in retail investor participation in capital markets.
We believe this trend will continue. When comparing India to the U.S., there is still significant room for growth; only about 11% of Indians have Demat accounts, whereas over 45% of Americans are stock investors.
It’s also interesting to observe long-term sectoral shifts in the economy. In the 1980s, the biggest companies were in the oil sector. In the 1990s, oil and consumer sectors dominated, with a few IT companies emerging.
Similarly, since the mid-2010s, financial services and tech have become major drivers of economic growth.
These views are widely accepted. Most large-cap mutual funds allocate 25%-30% of their portfolios to financial services, followed by tech, infrastructure, and consumer sectors. Fund managers recognize the importance of a robust financial sector in an emerging economy.
It forms the foundation for the country’s progress, so as India grows, this sector will grow along with it.
What is your take on markets at current levels as we have dropped more than 5% from highs? Do you see more pain in FY25?
We are right now very bullish on the equity markets for the next 2-3 months. However, the longer-term issues of over-valuation, economic slowdown and lacklustre corporate results remain.
We believe that there will be a great profit booking opportunity sometime between December to January and investors should lighten up their portfolios then.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)