This week we kick off the Smart Portfolios interviews, where you will get to know how the fund managers invest.
Kashyap Pujara, fund manager, ENAM Direct talks to Rex Cano and Ram Prasad Sahu about his strategy and views on the current market situation, safe bets and top sectors going forward.
In Smart Portfolios, Pujara follows a research-based investment approach with a medium to long-term investment outlook along with appropriate portfolio diversification. His stock selection is largely driven by growth available at reasonable valuations. Portfolio construction would be a blend of large- and mid-caps.
Would you prefer large caps to counter market volatility?
If we are going into a rough patch on the economy front, large caps are considered a safe bet since they have the inherent strength to weather such storms. These stocks are liquid and have a track record in terms of numbers.
Mid-caps may not be able to outperform in turbulent times, but not all of them succumb to pressure. Many companies do emerge much stronger after such times. Hence, one should carry out proper research and understand which mid-cap companies may do well. Initially, there could be some volatility, but if the management approach is good, and they are a committed lot, they can manage difficult times and emerge much stronger.
During volatile periods, liquidity dries up in mid-caps and small-caps, hence the price discovery might not be perfect. Remember, in good times, mid-caps do exceeding well and the P/E (price-earnings ratio) gets re-rated dramatically. Similarly, in bad times too, the P/E gets de-rated dramatically.
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By this logic, a long-term investor with a horizon of at least two years should have some mid-caps exposure in his portfolio at such times. The best returns are made during sell-offs But, at the same time it does not mean investments during worst times means investment in any stock; you have to do your due diligence and analysis.
In your portfolio, would you prefer concentration or diversification?
Ideally, a portfolio should not be highly diversified or highly concentrated -- the idea is to find a middle path. For example, you should not have very little exposure in any scrip which you will feel is so insignificant that you will not be bothered by it whether it goes up or down, and at the same time the exposure should not be so high that you lose sleep in case you go wrong.
There is no one way that your portfolio can be concentrated or diversified. At the end of the day, it really depends on the individual’s risk appetite.
If your risk appetitive is high then you can have a concentrated portfolio of fewer stocks and in case you are risk averse, then you adopt appropriate portfolio diversification so as to ensure that your risk is well diversified.
To sum it up, an ideal portfolio should not have more than 20-25 stocks, and not have more that 25-30 per cent in any particular sector and not more than 15 per cent in a single stock. Always be in quality scrips, do not try to trade and have a continuity of approach/strategy with the right temperament and knowledge.
Is there an average duration for investment? When should you churn?
Most investors have a myth that long-term investment means a year, but that is only the income tax definition of long term.
In an investment, the idea is to participate in the long-term growth of a particular company and not just trade in and out. That should be the investment rationale if you have zeroed in on any particular company or sector. What we generally look for is the price we are paying for the growth we want.
If you have invested based on certain factors or parameters, which are likely to be played out in the next six months or one year, but during the course of the year, if you feel that things are not going the right way or the company is not delivering as expected or the fundamental equations on which you invested are changing, then clearly it might be time to exit.
Churn depends on two factors: one is fundamental and other is technical. When you are not investing in derivatives, cash level is the only option available as a hedge against the market.
What are the sectors you think will do well over the next three or four years?
Is that the reason for buying Reliance Industries? What about your investment in Reliance Communications?
In case of RIL, the overall oil and gas play looks good. As far as Reliance Communications is concerned, India is reporting extremely good subscriber adds and there is great opportunity in the non-voice segment.
The company is also going to roll out its GSM network nationwide and the stock is available at its 52-week low. Also, both companies have a good weightage in the market indices.
As an investor what kind of returns are you looking at?
The basic idea is to be an outperformer and beat the benchmark. At the same time, a compound average growth rate of 25 per cent over a period of three years means good returns.
What qualities must a fund manager have?
The most important quality is to have the right temperament. Second, he must have reasonable understanding of the market cycles. Third, he must have good understanding of valuations as to how he will be looking at companies.
A person with reasonable knowledge levels, reasonable stock picking levels and reasonable market acumen but with a fantastic temperament will do substantially well.
| SMARTPortfolios Last week, the Smart Portfolios fund managers began constructing their portfolios. With the 500-point rally the previous Friday, fund managers were hesitant to go shopping on Monday, when we started the investment initiative. The markets gained another 500 points the next day. After a holiday on Wednesday on account of Ganesh Chaturthi, the stock markets fell on Thursday and Friday. |
Reliance’s Anand Agarwal is in vested over 30 per cent in the first week, while Enam’s Kashyap Pujara is invested the least at 5 per cent. Stay tuned to business-standard.com/smartportfolios to find out what the fund managers are doing.
Happy investing!
