Our Markets are Volatile | Value Research Venugopal Manghat of L&T Mutual Fund is betting on large cap stocks for the next one year

Our Markets are Volatile

Venugopal Manghat of L&T Mutual Fund is betting on large cap stocks for the next one year

Be cautious in equity markets over the next one year with economic slowdown and general elections, says Venugopal Manghat, co-Head Equities at L&T Mutual Fund.

You manage three different schemes, which scheme would you suggest to investors for the next one year?
To me all the schemes are important, but the fact remains that our equity markets are volatile and are grappling with domestic as well as international issues. The next 12 months remains uncertain and difficult to predict as to how it will shape up in terms of fundamentals, risk appetite and liquidity. There could be global events like the QE tapering which could impact liquidity and risk appetite across emerging markets. Domestically, there is a severe growth slowdown and the country will go for national elections in the next year. Given such a scenario, investors with a one year investment time horizon need to be cautious. In this context I would continue to recommend the large cap scheme for the next one year.

What is the strategy for L&T India Large Cap fund?
This fund is focused on investing in top-100 companies in terms of market capitalisation. While constructing the portfolio there is no sector or style bias. The approach followed is bottom up with a strong focus on fundamentals. The fund endeavours to invest in good quality companies, run by good managements in scalable businesses which have the potential to grow and at reasonable valuations.

These businesses have to be attractive from a longer term perspective and should ideally have good return on capital employed. We prefer companies that have delivered strong shareholder returns over a period of time. The fund can also invest to a limited extent in companies outside the large cap universe which would typically be in the upper end of the mid cap range. The aim here is to look for companies which can become tomorrow's large caps or those that might have slipped for temporary reasons. In general we avoid investing in badly managed companies and companies with over leveraged balance sheets.

What is the strategy for India Value Fund?
This is a diversified equity fund with a focus on investing in undervalued companies. The portfolio of this fund is constructed with a completely bottom up approach. Here we look at stocks that are undervalued relatively either within their respective sectors, the broad market or on a historic basis. This would therefore include sectors and stocks that are out of demand for some reason and we try to exploit valuation or pricing anomalies.

Even in this fund the endeavour is to look for good quality companies that have the potential to grow over time. The portfolio has around 65 stocks.

Undervalued stocks could take time for their value to be realised and therefore the need to diversify and create a wider basket of stocks. The benchmark for this fund is the BSE 200. There is no sector or market cap bias. The idea is to manage downside risk by investing in undervalued companies with the potential to unlock value over time.

What is the strategy for L&T Indo Asia Fund?
The L&T Indo Asia Fund is a diversified equity fund with a mix of domestic and overseas investment. The fund invests a minimum of 65 per cent of its assets in domestic equities while the balance is invested in the overseas market with a bias towards Asia Pacific ex-Japan region. The overseas exposure is through 'Fidelity Asian Aggressive Fund'. The Indian portion of the portfolio is diversified with no sector, style or market cap bias. The focus would be to invest in good quality companies in attractive businesses and strong long term growth potential at reasonable valuations. Here also my preference would be for less leveraged companies with good return ratios and potential to scale up. The fund is suitable for investors looking for geographical diversification which could bring balance to the portfolio in such turbulent times.

What drives the Asian allocation for the L&T Indo Asia Fund?
As a rule we don't go below 65 per cent in domestic equities. Technically, we can even go to 80 per cent in Indian markets and invest the balance in overseas markets. But we will continue to invest around 70 per cent in Indian markets and the remaining overseas. We believe this strategy helps the fund in difficult market conditions. For example, in the recent past when Indian markets were volatile, L&T Indo Asia Fund managed to show good results. This was partly because investments in some of the other markets have fared well and also the currency depreciation against the dollar. So it gives a good balance to the portfolio.

Asian allocation is managed by 'Fidelity Asian Aggressive Fund'; as a fund manager do you have any say in the investments of foreign portion?
We don't have any say in the construction of their portfolio. The Indo Asia fund has invested in the 'Fidelity Asian Aggressive Fund' which is independently managed by the Fidelity fund manager. We don't play any role in managing the fund, either in the country allocation or stock selection process. However, as a fund manager for Indo-Asia fund we can reduce or hike our allocation in that fund depending on how different markets behave and our outlook on the same. 'Fidelity Asian Aggressive Funds' focus is on the Asia Pacific Ex-Japan region and as of end August, they have invested in countries like China, Australia, Hong Kong and Korea and those four markets constitute more than 70 per cent of the portfolio on a geographic basis.

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