“Given the current values, one should carefully assess these sectors. If one can withstand further short-term downside, this could be an excellent chance to add to these names,” says Viraj Gandhi, CEO of Samco Mutual Fund.
Edited excerpts from an interview:
Help us understand the rationale behind the launch of a multi-cap fund at this stage. And how does it differ from a flexicap fund?
The multi cap category’s market share has increased from 2.5% in November 2021 to nearly 6% by August 2024. Over the last 36 months, this category has grown at the quickest rate.We think that this category is a special opportunity since it offers development of small caps, stability of large caps, and quality of midcaps. Compared to flexi cap funds, the Multicap category has the distinct advantage of maintaining a fund manager’s discipline to invest a minimum of 25% of the portfolio in midcap and smallcap companies, each of which contributes to stronger alpha generation over the long term and during bull markets. It will be evident from the following table what we mean.
With Samco’s multi cap fund we have decided to add smallcaps beyond Nifty 500 TRI which provide investors with an additional alpha generating opportunity.
Given that you intend to have up to 25% exposure in smallcap stocks outside the Nifty500 depending on the opportunity in hand, tell us how bullish or bearish you are on smallcaps now.In the long run, the most differentiating factor for smaller market capitalisation companies is proper exit strategy and then buying strategy.
Our in-house developed algorithm, which shows the momentum of the index and the stock, recommends entry and exit points based on the strength of the stock’s momentum. Given that this process is entirely driven by the system, long-term performance can be expected to be consistent and predictable.
Defence and rail PSU stocks have corrected up to 40% from their 52-week highs. A majority of them are in bear grip. What do you think? Have they corrected enough?
The long-term prospects for these two sectors is still positive, in large part because of the government spending meant to realise the Amrit Kal vision of the government and Atmanirbharta in defence.
The market may have already factored in part of this rise, based on the recent decreases in stock prices. These industries will also be very important to India’s economy as it grows to be a $5 trillion economy. Improvements made to the railways, such the launch of the new Vande Bharat trains and modernisation initiatives, suggest possible future expansion.
The excitement that had been shown in these industries over the previous few months has, however, subsided as a result of recent business results that were below expectations.
Given the current values, one should carefully assess these sectors. If one can withstand further short-term downside, this could be an excellent chance to add to these names.
At this stage, Nifty looks fairly valued to most investors. Within the large cap basket, which pockets of the market do you think are undervalued?
From a valuation standpoint, some of the undervalued sectors are utilities, telecom, and private banks.
These industries appear attractive from a value standpoint, but they run the risk of continuing to lag behind and perform poorly as long as they don’t demonstrate growth in revenue and profitability.
What is the kind of stance that you have on bank stocks ahead of the rate cut cycle?
Falling rates won’t be any easier in a situation where banks are finding it more difficult to raise deposits at higher interest rates. The banks’ primary concern, though, is the slowing growth of deposits as more Indians switch from being savers to investors. This pattern may result in less liquidity for banks, which would limit their capacity to extend credit and expand. A long-term strategic realignment of the business model was necessary due to a long-term changing and evolving behaviour. We anticipate that the banking industry as a whole will innovate, much as what happened with the liberalisation of savings rates, which will trigger the next economic cycle.
Take us through your expectations from the Q2 earnings season. Which sectors are likely to disappoint the most?
As India’s Q2 results season draws near, several industries are predicted to perform steadily, including the financial, IT, and pharmaceutical sectors. Because there is a high demand for financial services, the industry including wealth managers, AMCs, and broking should prosper. As interest rates level out and technology spending picks up, the IT sector might rebound. The healthcare sector is anticipated to generate consistent profits because there are established structural growth factors. Positive earnings trends in the power sector are anticipated, supported by both government initiatives in renewable energy and strong demand.
Regarding the industries that might still show weakness, the Chemicals industry might have difficulties with supply-side constraints and shifting worldwide prices, while the Quick Service Restaurant (QSR) industry might be vulnerable to shifts in consumer spending habits and the effects of inflation. FMCG and other defensives are also likely to underperform in terms of earnings growth.
Given the valuations that we are trading at and the global set-up, how bullish are you on gold and silver? Where do you see the two precious metals headed in the rest of FY25 and is it time to raise allocation?
Overall, we continue to be bullish on both gold and silver. Global central banks, most notably China, have been buying a lot more gold, which is supportive of a rising price trajectory.
Rising economic pressures and geopolitical concerns may further increase the allure of precious metals as safe-haven investments. We think that gold might hit all-time highs, and that industrial demand and investor interest could help silver too. From the standpoint of portfolio diversification, both metals provide compelling potential given these trends.
For someone who is in a moderate risk profile, what would be the best asset allocation strategy you would recommend?
A person with a moderate to high level of risk can choose funds that can protect against negative returns by dynamically adapting to shifting market patterns. Samco Multicap Fund’s strategy is for it to be fully invested in stocks during a market uptrend while lowering its net equity exposures through the use of arbitrage and hedging strategies to better protect against losses. This protects against downside risk in the event that the market trend reverses and allows one to participate in bull markets. Other funds that provide this form of dynamic rebalancing between debt, equity, and arbitrage are also available to investors.