We believe that an investor in a balance fund is a conservative investor and thus we maintain a very low risk profile on our equity investments. In Kotak Balance, we employ "value investing".
We try to pick stocks that are trading at a significant discount to their intrinsic value, and then hold them till they reach their fair valuation. This gives investors a potential upside, with a limited downside (since the stock is already undervalued).
The fund has a high exposure to stocks in the mid and small cap segment. Doesn't this strategy carry a higher risk?
No, because one needs to differentiate between risk and volatility. It's true that mid cap and small cap segment stocks have higher volatility in the short term, but over medium to longer term this segment has the highest growth potential. The key is to pick right businesses, backed with able management, at reasonable valuations.
What is your outlook on debt and equity markets?
Interest rates look stable in short to medium term. We believe that sufficient liquidity in the market will absorb the GOI bond issue program and credit off take requirement in the second half of the year.
On equity front, while the indices continue to trade at an all time high, stock specific valuations are not very high. We continue to maintain that while equity markets might remain volatile in the short term, over the long term, equity would continue to remain the most rewarding asset class.
