ETMarkets Fund Manager Talk: MF cash holdings to find its way into equities once volatility stabilises: Equitree Capital

What’s your overall view on equities? Is the risk and reward evenly balanced?
We are optimistic and are expecting equities and India to do well over a mid-to-long term period. With commodity prices cooling off from its peak, we believe that corporates should post better results. Even on the macro front, news flows seem to be getting better.

There is enough capital waiting on the sidelines for deployment. For example, mutual funds are sitting on close to Rs 63,000 crore cash (6.2% of AUM) right now, and we believe this will find its way in the equity markets as the volatility stabilizes.

We have seen the markets going up 3% in the first 15 days of April on the back of some positivity due to $1.2 billion of FII buying alone.

We strongly believe that the risk-reward scenario looks favourable at the moment as most of the known risks have been factored into prices, and any positive news could lead to buying.

We believe that the recent correction caused by the global volatility can be used by investors as an opportunity to build strong portfolios with an 18-24 month view.

How has Equitree Emerging Opportunities PMS fared over the last 12 months? Any major rejigs in this portfolio?
In the last 12 months despite the volatility, we have been marginally down by about 2.3% where the benchmark Nifty Smallcap 100 has delivered -13.8%. While at that, as long term investors, our preferred performance evaluation tenure is 3-year time frame over which, we have delivered 45.37% CAGR returns.

We typically have a low churn and are adding more of the same stocks. After the recent price corrections and continued business visibility, we believe these companies have started looking even more attractive.

Have you increased your cash holdings in the recent months?
No, in fact our cash holding has come down from 8-9% to 5-6% as we took advantage of the recent correction to add more of the same stocks.

In such volatile market conditions where knowns and unknowns persist, how should one seek alpha?
Volatility is inevitable, more so in the smallcap space. Volatility can test an investor’s conviction, but it can also be an investor’s ally by giving an opportunity to buy. At Equitree, we follow a staggered investment approach to take advantage of the volatility. This practice has been one of the cornerstones for the alpha we have generated.

Smallcaps have seen a good correction over the last 1 year when compared to the largecaps. Which sectors look good both from a valuation and growth perspective?
As you have rightly pointed out, over the last 15 months, small caps have indeed seen a much deeper correction than the large caps – the intensity has been such that 2 out of 3 stocks are down on an average by about 30%+. Our sense is that this correction has been caused more by global sentiments and the sudden and sharp correction in the margins impacting the profit growth rather than any negative impact on the structural India story.

India is poised to see a massive structural growth, led by the manufacturing and industrial sectors thanks to various initiatives like Make in India, PLI schemes, supply chain diversification etc. Riding on this, we highly recommend investors to look at sectors such as capital goods, infrastructure, engineering, defense and manufacturing.

The recent correction has rendered the valuation in these segments also extremely attractive.

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