In this interview, the final take of a four-part series for Smart Portfolios Season 2, Phani Sekhar, fund manager-PMS at Angel Broking, reconfirms his trading strategy while sharing his experience with Smart Portfolios to Rex Cano. Sekhar's net returns till date stand at 10.8 per cent with a portfolio value of Rs 11.08 lakh. Meanwhile, the S&P CNX benchmark's networth is at Rs 11.83 lakh, up 18.3 per cent. Other fund managers Amar Ambani, Ajay Parmar and Vinay Khattar have logged gains of 51.3 per cent, 42.2 per cent and 26.5 per cent, respectively. Excerpts:
You have held on to the first three investments in Smart Portfolios — viz Axis Bank, RIL and Reliance Infrastructure. What is your outlook on these stocks?
I am positive on the outlook of all the three stocks among the large caps from a long term point of view. RIL and Reliance Infrastructure have underperformed the index in the last 12 months. However, it is difficult to time equity investments. We continue to stay invested as we find value and growth in both these businesses and over a 1-2 year time frame, we are confident of the relative outperformance of both these stocks.
In your previous interview in January, you had mentioned this year may not be for extraordinary gains. So far we have seen marginal gains, but with heavy FIIs flow, would you like to change your outlook for the rest of the year?
The heavy FII flows have been met with systematic outflows from domestic MFs that have created material under ownership of domestic investors. We believe that the trend of domestic investor redemption is unsustainable and will reverse itself over the next 12 months.
However, the outlook for the broader indices remains muted for the next four months on the back of valuations and possible hardening of rates by another 50 basis points. At the same time, it is difficult to forecast a correction due to lack of ownership and participation of domestic investors. Post Diwali, as the market warms up to the earnings estimates for 2011-12, one can witness another 15 per cent move in the indices before Budget 2011.
Auto, banks and FMCG stocks have been the major achievers so far this year. Do you see the trend continuing?
It is likely to be tough going for FMCGs and maintain double-digit volume growth with improving price realisations to protect margins in the face of increasing commodity prices. Automobiles on the other hand are likely to witness another good year, especially in the second half, as they might exercise their pricing power to fight rising raw material prices. However, the auto universe except Maruti is almost priced to perfection. Banks on the other hand are likely to deliver strong returns.
What stocks/sectors would you recommend for short- and medium-term investment?
Crystal ball gazing is always challenging. So I would not hazard a guess on the likely winners in the next three months. However, from a 12 to 18 month perspective, we continue to like Jyoti Structures and JK Tyres along with Patni Computers.
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How do you see India’s growth story vis-a-vis global peers?
India’s GDP is likely to grow in excess of 8 per cent in 2010-11, as compared to the US which might manage 1.5 per cent expansion and Europe which will be lucky to stay flat. We have already seen the positive fallout of this development in the form of increased FII inflows to the tune of Rs 52,000 crore year-to-date. Our growth story is sustainable as compared to the developed markets, which is evident from indicators such as Wealth/GDP or per capita income among other parameters that are a fraction of our global peers.
Finally, as we come to the end of Smart Portfolios season 2, could you please share your experience and advise our readers?
I had indicated my reasons and expectations from Smart Portfolios in my first interaction. I view Smart Portfolios as a platform to communicate with investors about equity as an asset class and investing as a virtue.
Unfortunately, equity is still viewed by many as an instrument to make a lot of quick money or to make the highest returns. While it is not unreasonable to expect higher returns, I would highlight to the investors that it is not merely important to secure higher returns for one year.
It is the phenomenon of compounding that creates wealth over a period of time. It may not appeal to many investors but it is sufficient to generate 20 per cent returns on your investment over a longer period of time (more than 20 years) to make you one of the best and wealthier investors.
To generate 20 per cent returns over a period of time, it takes method and a process which needs to be understood and followed early on. Momentum investing will only give you momentary pleasure but it will never take you there. It is precisely for this reason, that I have chosen stocks that I believe will be excellent compounding stories over a period of time to help investors build a strong portfolio.
