A year after the departure of star fund manager Prashant Jain, HDFC Mutual Fund has remained stuck to its strengths while enhancing diversification within portfolios, says Chirag Setalvad, who took over as head of equities at the fund house. In an interaction with Abhishek Kumar in Mumbai, Setalvad talks about his first year at the helm of the equities management team, value versus growth dynamics, his sectoral preferences, and market valuations. Edited excerpts:
It has been a year since you took charge as head of equities. How difficult was it to fill the big shoes left behind by Prashant Jain?
The organisation, I believe, is far more important than any individual. Over the years, we have built a robust investment process. Our strong research team, along with fund managers, is the bedrock of HDFC Mutual Fund. Overall, the transition was smooth, thanks to the strong legacy I inherited.
Have you brought any change in the way equities are managed at HDFC MF?
Each individual brings his or her own approach and style. Earlier, there was a concentration of assets among a few managers but now we have greater diversity in style and a more balanced mix between growth, value, and GARP (growth at a reasonable price). This is reflected in a meaningful decline in the portfolio overlap between schemes. The aim is to blend the strengths of a team approach with the creativity and flair of individual managers.
Overall, our fundamental orientation has not changed, which is to build portfolios on a bottom-up basis with a focus on long-term investing.
HDFC MF’s schemes have performed well in the recent past because of the strong rally in the “value” pack. Is there more value left in the market? How long can the “value” theme continue to outperform vis à vis growth?
Performance is driven by several factors, ranging from stock selection, sectoral allocation, and style of fund management to luck, of course. Hence, it may not be appropriate to attribute the performance to one factor alone. Having said that, a resurgence in value has certainly helped. However, good stock selection and being in the right sectors have also contributed meaningfully.
For a long time, growth outperformed and more recently value has caught up. At present, the market seems balanced. Hence, there are opportunities across both spectra.
Which sectors are looking attractive right now?
At present, we are seeing a strong capex push driven by government expenditure and supported by rising private spending on real estate. Corporate capex, which has been muted, so far, may also revive considering the increase in capex announcements of late and the limited headroom in capacity utilisation. Hence, we are quite positive about various components of the industrial segment.
Financial services also remain attractive, given benign asset quality, strong credit growth, and sensible valuations.
Small-cap funds have been in the news over some fund houses restricting flows into them. Are you facing similar challenges, considering that your scheme is the second-largest in the category?
Our size may be large but we are one of the smallest in terms of weighted average market cap. The mid- and small-cap segment has seen a sharp rally but this does mean that it is harder to identify sensible opportunities.
What is your reading on market valuations? Does it make sense to take some money off the table and redeploy again at lower levels?
We are now trading at a premium to historical averages. Hence, it would seem prudent to commensurately moderate our return expectations.
India’s growth stands out from an absolute and relative standpoint. At the same time, our inflation, unlike that in the West, is largely under control. Finally, our politics appear to be comparatively stable. Hence some premium may be justified.
Investors with a long-term perspective and tolerance for volatility should remain invested and build assets via a systematic route while supplementing this with lump sums on market reversals.
HDFC MF schemes have seen a consistent rise in cash levels. Are you expecting a correction?
We do not take large cash calls. Cash levels may go up sometimes when we exit stocks and are re-deploying that surplus into new ideas. Timing the market is difficult and our focus is on delivering returns relative to the market.
PSUs (public sector undertakings) have always had a higher weighting in HDFC MF schemes. How is this segment of the market looking currently, considering many key PSUs have seen a sharp rally?
PSUs are often looked at as a homogenous unit but they are not. Within PSUs, there are banking, utilities, defence, and several other sectors. Each sector has its own unique dynamics. Even within sectors, companies differ in terms of profitability, growth profile and management quality. So, we think there is a need to look at companies individually rather than aggregating them under one PSU umbrella.