MUTUAL FUNDS

We are interested in sectors in which it is not too difficult to consistently earn an above average return on capital<
18-Dec-15   14:24 Hrs IST

Mr. Raunak Onkar
In an interview with Anjali Raulgaonkar from Capital Market Publishers, Raunak Onkar Head - Research PPFAS Mutual Fund said, Our focus is on identifying good businesses at reasonable valuations that have the capacity to grow profitably in the future.

Excerpts:

1.The equity markets are turning volatile? What will the key driving factors for markets going ahead?

The equity markets is a very vague term for a bottom-up investor. The direction they will move in, is anybody's guess. Our focus is on identifying good businesses at reasonable valuations that have the capacity to grow profitably in the future.

2. What are the essential traits for the stocks to be in your portfolio?

We invest in businesses run by competent & trustworthy managements. We would also like to avoid overpaying for an opportunity to invest in them, so we are very conscious about how much we will pay to own that business. Of course the business also needs to have a large addressable market to grow & has to be capable of earning above average return on capital.

3.How are the market positioned to face global clues?

We take a longer term perspective & focus on individual businesses. There will always be impacts from global cues but it's too difficult to pin point any specific argument for how the equity markets in general are positioned.

4.Which sectors you are considering attractive from investment point of view and why and which sectors you are avoiding and why? What kind of stocks never enters your portfolio?

To put it simply, we are interested in sectors in which it is not too difficult to consistently earn an above average return on capital. Also competitive intensity should be in the favour of the business we want to own. We generally avoid highly levered businesses (with the exception of banks). We avoid businesses where the management has been proven to have lacked the moral fortitude to look after the rights of other minority investors. Although we keep tracking several businesses & sectors it really takes many variables to align, for us to make an investment decision.

5.What are the opportunities you have derived from the reforms that have happened such as reforms in the coal-auction, mining, etc.

We haven't used the reforms as a theme when we picked any of our investments. We have looked at the individual features of those businesses & decided to invest in them when the valuation made sense to us. There might be an indirect benefit of the reforms to some of our holdings but that was not the initial investment thesis.

6.How often do you re-balance your equity allocation?

We believe in low churn at the portfolio level. To achieve that we need to have a really long time horizon for holding those businesses. We rebalance it opportunistically & not by design.

7.What would you like to advice to the investors in the current scenario?

Think beyond the quarter & focus on the long term sustainability of the business. If possible (& if required) avoid having home bias & also look at opportunities in firms listed outside of India. Sometimes there are really good businesses available at reasonable valuations in some other markets besides India. Lastly, know what you're paying for & don't overpay for it.

8.Kindly share your investment strategy with us. Are you making any changes to your scheme's portfolio as we witness change in market?

We have a go anywhere equity fund. We have deliberately kept only one scheme which can invest in any opportunity we see fit. We are not restricted to invest only in the Indian equity markets. We can opportunistically hold cash or have arbitrage positions if we don't find the valuations attractive enough to stay invested. We can also take advantage of special situations like buybacks / open offers in a tax efficient way.

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