ETMarkets Smart Talk: Amit Premchandani shares 7 investment mantras to pick winners for your portfolio

What is your view on the US Fed policy meeting? How will it impact India?
Inflation in the US has been on a multi-decade high for the last few months. The last 2.5 years has seen unprecedented fiscal expansion to mitigate the impact from the pandemic which has contributed to inflation in the developed markets, this has been exacerbated by supply dynamics getting disrupted due to lockdowns and ongoing war.

As inflation in the goods sector has started to taper down, services sector inflation has inched up, hence, core inflation has been much stickier than expected while unemployment rates are at low levels triggering wage inflation which is turning into a negative feedback loop.

The US Fed as well as a most central bank have been behind the curve on inflation; hence, aggressive rate hikes is the preferred option for reducing inflation expectation as well as inflation.

Exports out of India are likely to get impacted on account of a sharp slowdown in developed markets.

Do you see further tightening by RBI and will that derail momentum on D-St?
Fiscal deficit in India has been managed prudently and expansion during the pandemic was driven by food subsidy and health-related expenditure, while some of the off-balance sheet numbers were bought in the books.

Hence, the fiscal push to inflation has been muted. The Reserve Bank of India (RBI) has the mandate to manage inflation in the 2%-6% corridor.

CPI has inched up and remained above 6% for the last few months, but unlike the west, its only marginally above the target while fiscal stimulus in India has been limited during the pandemic.

Hence, action by RBI is largely towards normalisation of monetary policy rather than targeted towards demand reduction.

On the margin, it will have an impact in terms of the interest rate-sensitive sector, but the overall impact is likely to be limited. RBI is likely moving to a neutral stance which would entail a further increase in interest rates.

MF data is encouraging when it comes to equity funds, but the pace seems to be slowing down. More money is moving towards debt – why are investors putting money in haven?
The last 2.5 years have seen interest rates at low levels as compared to history while equity returns have been strong.

As interest rates rise its natural for some asset allocation to move towards fixed income be it bank deposits/corporate bonds or Debt MFs.

The gap between earning yields and 10 Year GSEC yields are also at high levels suggesting fixed income instruments offer more value at this point of time.

How are you viewing manufacturing sector?
Capacity utilisation in India had fallen to as early 60s in FY21 which has now inched up to mid-70s, as utilisation inches up to early 80s, we can expect expansion plan announcements from corporates.

Steel and cement are sectors that have seen the announcement of capex.

Unlike the 2008-12 cycle when thermal power and telecom drove capex, the drivers this time could be renewable power, EV ecosystem, and sectors that have seen PLI benefits.

Real estate is a large part of the overall capex in the country, post 2012-20 downcycle, we are seeing early signs of revival with demand inching up and inventory going down. Launch activity is yet to pick up meaningfully.

How UTI Value Opportunities Fund performing amid volatility in the markets?
UTI Value Opportunities Fund is an open-ended equity scheme following a value investment strategy.

• We have a flexible approach in terms of investing across sectors and market cap spectrum based on where we find the valuation opportunities to be attractive. We have a set of guiding principles to bring stability and consistency in approach.

• We follow a barbell strategy as far as stock picking is concerned on one hand, we buy cyclical stocks which are growing through downcycle and are likely to emerge strong out of it, while at the other end we of the barbell we buy companies with long runway for growth with demonstrated record of RoE and superior cash flow generation metrics.

• We use UTI score alpha approach in selecting stocks on both side of the barbell with consistency of OCF a hygiene factor while average ROCE providing a filter to select stocks on both sides of the barbell.

• High conviction approach – overweight in portfolio companies versus benchmark or zero positions, active share is high ~65%.

• UTI Value Opportunity fund has overweight exposure on BFSI, Auto, real estate and pharma as far as sectoral allocation is concerned while portfolio has underweight exposure to FMCG and IT on account of valuation consideration.

Please share your investment mantra. Any checklist you follow before buying the stock?
I have a set of guiding principles to bring stability and consistency to the approach

1) In evaluating companies facing a challenging environment, we focus on strength of the balance sheet and past track record during favourable conditions

2) Look for investment opportunities in sectors that have seen supply cuts/disruption

3) Avoid value traps that are generated from sharp erosion in terminal value or weak cash flow

4) At the other end of the barbell the high-growth companies should have a demonstrated record of RoE and superior cash flow generation metrics

5) In growth companies what matters most is how embedded growth expectations are compared to the history and size of adjacent opportunities for the company

6) Valuation’s considerations are more important when investing in companies facing challenges than in the growth opportunities

How important is booking profits in MFs or direct investing? Or should one adopt a buy-and-hold strategy?
Investing in equity should follow an asset allocation approach. This would depend on return expectation as well as the time horizon of investments.

The allocation would also depend on the age profile of the investors, at the initial phase of career larger share of saving should be allocated to equity while as one approaches retirement allocation to fixed income should increase relative to equity.

We recommend a buy and hold strategy for equity investments keeping asset allocation framework in mind.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)