'Large caps attractive after recent market correction'

As the markets correct, Krishna Sanghavi of Mahindra Manulife AMC views this as a a chance for mid and small caps to 'consolidate', noting that these stocks need time to align with their earnings after a strong rally. While their valuations remain high, they typically correct over time. Sanghavi, CIO - Equities of Mahindra Manulife Mutual Fund, manages a portfolio worth Rs 11,517 crore across four equity schemes, including the four-star rated Mahindra Manulife Focused Fund. In this interview, he shares his views on the current market corrections, the principles driving his investing strategy, the GCMV (growth, cash flows, management and valuation) framework followed by the fund house and the reasons for the outperformance of his funds. How would you describe your investment philosophy? The thought process has been that as the economy grows, the incremental profit pool participation changes across sectors. Along with changes in profit participation, the multiples associated with those sectors also change, a phenomenon termed 're-rating'. The idea is to concentrate on companies that have the potential to increase their current multiples to a higher level. Typically, a shift in corporate earnings profile or management drives these changes. Occasionally, a change in management initiates a new growth phase for the company, as the new management may be slightly more ambitious and dynamic. Usually, the re-rating opportunity is evaluated in a span of around 18 months. Anything longer represents a potentially challenging decision, as visibility may suddenly diminish when the timeframe is extended. What key factors do you look for when deciding to buy a stock? At Mahindra Manulife Mutual Fund, we select stocks using a framework known as GCMV. Regarding growth, the idea is simple - we try to evaluate every company based on its merit. Is there growth potential? Does the company's growth stem from volume growth or the pricing power of premium products? The second aspect involves the company's ability to generate cash flow independently, which is crucial for future growth. We have observed numerous instances where companies with growth find themselves increasingly dependent on external funding. Therefore, they either continue to raise funds or use leverage to achieve their growth. The third variable is management quality, which is determined by the management's track record of delivery, corporate governance, related party transactions, etc. This leads us to believe certain management teams have the potential to generat