Seeking value in growth and growth in value is the basic investment principle that Manish Kumar at ICICI follows. In an interview with Jitendra Kumar Gupta, he spoke on how he’s dealing with the current volatility among other things. Excerpts:
What is your view of the markets post correction?
If we take a 12-month or a two year view we still believe the markets will go up gradually, since the situation has not changed much. It is not that valuations are very cheap, but in the medium term we think there could be moderate upward trend. However, in the short term, we are having a negative bias.
What is the potential down side from the current levels?
After the recent correction in the markets we are reaching the fair-value zone. One will really want to buy into as it becomes quite attractive for long term investors. However, there are two concerns. If the inflation continues to be where it is today, it will have some implication on growth. Secomd, the US as an economy has started doing quite well. There is a possibility that the money coming in to India may come down in terms of intensity or there could be some outflow.
Are there chances of earnings downgrades?
Yes, there are chances of downgrades. But, can it be avoided? The answer is again yes. So, a lot will depend on the political will of the policy makers.
How are you positioned to deal with the situation?
We are focused on businesses that have better earnings visibility and are better placed in their respective sectors, because the quality of the portfolio itself ensures outperformance in bad times. Second, focus on businesses which have greater secularity. Third, taking some tactical calls. In the last three months we have cut our exposure to financials due to the inflation and monetary tightening issues and auto sector, as cost headwinds appear to be quite strong and unlike earlier the pricing power has come down. So, there is a possibility of some negative margin surprises. Second, once interest rates cross certain threshold limits, they start impacting the demand momentum.
What are you overweight on?
We are adding utilities. These have underperformed in the past due to high valuations. They have also shown some earnings growth over the last two years, it is looking valued relatively less richly. We have also increased our exposure to commodities, because we are now seeing that the global economy is coming back.
Do you put more emphasis on growth rather than on value?
I would say we look for value in growth and growth in value. One reason for this is if we look for pure value there are so many sectors which are in the high growth phase and typically you do not get them at good value in the beginning. In this country one cannot avoid sectors that are in the growth phase. At the same time, if you categorise yourself as growth investor and not seek value in it, then you could be investing in technology in the 1999 or in infrastructure space in 2007, only to realise that you have lost a lot of money in this process. So, look at valuations in the context of growth, otherwise, it could become a value trap.
Where does telecom fits now?
It is moving from growth to the value paradigm. Some of the market leaders are in value zone. But, we would like to evaluate if there is any stock within the sector, which is still offering us growth.
