Match the investment horizon and risk appetite to the scheme selection<
08-May-17   14:53 Hrs IST

Mr. Sachin Relekar

In an interview with Anjali Raulgaonkar from Capital Market Publishers, SachinRelekar, fund manager equity at LIC Mutual Fundsaid, our investment strategy is dynamic to take advantage of the ever-changing contours of equity markets.


    1. Which sectors have been the best gainers and losers in FY17?
    2. The best performing sectors for FY 17 were Industrial metals and Oil & gas. BSE metal index and BSE oil & gas index, appreciated by 57% & 48%, respectively. While healthcare, IT, and telecom gave marginally negative returns.

    3. How to you choose the stocks in your fund portfolio? Kindly elaborate.

As a fund house, we have equity schemes that are categorized as per market capitalization. This determines the investment universe for the portfolios.

Our investment philosophy is clearly articulated:

  1. We care about the corporate governance, sustainability and capital efficiency of the business
  2. We follow bottoms-up investment approach. We do not to bias ourselves on macro, but rather treat macro exposures as risk factors that need to be hedged.
  3. The Investment process is designed to look through current market perception and focus on the intrinsic value

We follow two investment approaches: growth and value investing. Each of the equity scheme is mapped to either of these two approaches. Important overlap between the two approaches is emphasis on risk management. However, subtle difference in the factors emphasized in stock selection, leads to different portfolios.

    1. What was your investment style and criteria in FY17? And what new strategy you are adopting in FY18?
    2. That said, our investment strategy is dynamic to take advantage of the ever-changing contours of equity markets.

    3. Among mid-caps, large-cap and small-cap which stocks are your favorite and why? Kindly elaborate.
    4. We are positive on businesses oriented towards domestic economy. There can be substantial value (e.g. niche IT) and growth (e.g. auto ancillaries) opportunities in export oriented businesses as well.

      Among the large caps, we are positive on corporate focused banks as the asset quality issues are likely to show improvement. Similarly,the investment cycle is showing early signs of improvement, leading to interesting opportunities in this space as well.

      Among mid and small caps, we will look for companies having clear niche and scalable opportunities. However, one should be careful about the liquidity and valuation ofthese businesses.

    5. Where should an investor invest-in funds focusing on large-cap stocks or mid-cap or small-cap and why?

There is very wide variance in performance of these categories in last three years. This has also led to trailing earnings multiple to differ substantially. Trailing multiple is more of indication of growth expectations.

PriceCurr. EPSEst. EPSCurr. PEEst. PE
BSE Small-Cap1443425280257.218.0
BSE Mid-Cap1409747476629.818.4
S&P BSE Largecap358215120623.717.4
BSE Sensex296211348171022.017.3

Source: Bloomberg, price as on March 31, 2017

This suggests that earnings growth expectations in small and mid-cap stocks is substantially higher than that of large cap category, making it potentially riskier. However, investment universe is quite large and there could several under researched ideas. We would like to pay more attention to risk parameters, while choosing small cap ideas. Small and mid-cap investments tends to be volatile as well, so investment horizon should be longer.

We more positive on large cap and sizable mid cap stocks for FY 18. Our advice to investors is to match the investment horizon and risk appetite to the scheme selection.

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