Keeping cash handy, expecting better buying opportunities: Aniruddha Naha

Given the present earnings trajectory and an environment of global uncertainty, it’s best to hold on to some cash, says Aniruddha Naha - head of equities — PGIM India Mutual Fund. In an interview with Abhishek Kumar, Naha says sectors like financials, automobiles and capital goods are expected to do better in the coming quarters. Edited excerpts:

Most fund houses, including PGIM India MF, have been sitting on high cash reserves. Is further correction expected?

While inflows continue to come in, we have not gone ahead and deployed aggressively, leading to higher cash levels. The third quarter results indicate some downtick in earnings and we believe that there will be another quarter of opportunities to invest in good businesses at more reasonable valuations. In the present earnings trajectory and an environment of global uncertainty, it’s best to hold on to some cash.

What are your key takeaways from the December quarter (Q3) results?

It has been a mixed bag with some sectors doing well and others disappointing vis-a-vis our expectations. Overall, the earnings growth isn’t very strong. Domestic-oriented businesses have mostly done well. Even IT companies have done better than expectations. But we will have to wait and see how sustainable this trajectory of improvement is.

Valuation wise, which market-cap segment is the most attractive?

Given how the earnings are playing out, we see a lot of value in the small-cap segment, from a 3-5 year investment horizon. Large caps are also reasonably valued. Over the next three years, they can generate good returns. At the end, it boils down to company specifics as there are a lot of disparities sectorally.

PGIM MF schemes had almost 14 per cent allocation in automobile stocks in January, the highest among the top-20 asset management companies (AMCs). Why are you so bullish on this sector?

We believe that the expected recovery in the economy, pick-up in investment cycle and the government’s focus on infrastructure augurs well for the medium and heavy commercial vehicles segment. The four-wheeler segment has long-term growth potential due to low penetration. Our conviction in the auto ancillary sector is driven by the profit-linked incentive (PLI) push. The order flow in this segment has been strong as they have been catering to demand from across the world. Valuations are also not very expensive. This is also the segment, which participates in upcoming technologies in terms of EV and battery, among others. We don’t have any exposure to the two-wheeler segment.

Which other sectors are you positive on?

In the latest quarterly results, one thing that stands out is the banks’ improved asset quality. Unlike the bankruptcy issues being played out globally, Indian lenders haven’t faced any asset quality downgrade. Otherwise also, financials have been strong. Capital goods and engineering is the other segment, which has done really well. Their order book inflow is very strong and there is reasonable revenue and profitability growth. On the other hand, sectors like consumer discretionary, energy and commodities have disappointed.

Which equity fund would you recommend to investors?

If anyone is coming to the equity market with at least a three-year investment horizon, flexicap funds should be preferred.