Sonam Udasi, fund manager, Tata India Consumer Fund, gives his views on the outperforming fund.
What has resulted in the outperformance by the fund in the last one year?
We have been prudent in following the discipline of stock selection and allocation. Our mandate is to invest in the following sectors: consumer, auto, media, textile and retail, with the benchmark being Nifty Consumption Index. We invested in fairly diverse segments across the Indian consumption space which we view to be the future compounding growth themes. We had high allocations in the market leaders in the auto and media sectors. We had high allocations in some of our strong-conviction ideas that have no weightage in the index.
How do you pick stocks for the fund?
We try to find themes that are differentiated from the conventional representation of the consumer sector in the index and that have strong growth potential. A bottom-up approach is conducted for stock selection, with focus on industry dynamics and management's execution ability.
When do you exit a stock?
We set a clear price objective at the time of investment in a stock. Once the price objective has been met, we revisit our core arguments. In case there is no fundamental/material change in the same to suggest a further upside, we exit our investment.
How do you determine allocations across stocks of various market caps?
Though we prefer large-cap opportunities, we realise that India is a wide consumer market and new avenues of the consumption theme are continuously evolving. We choose to look at these opportunities, focusing on the growth potential and longevity of their business frameworks.
Your current portfolio has more than 50 per cent allocation to mid and small caps. How do you manage volatility in the fund?
We have a fair balance between large and mid/small- cap stocks in our portfolio. Within the mid/small-cap portfolio, we focus on our stocks being fairly liquid. One must keep in mind that today's small/mid caps are actually emerging large caps and historically, that's how wealth has been created in the India consumption space.
The portfolio P/E, at around 35, looks stretched. How do you see that?
Our benchmark, the Nifty Consumption Index, is trading at a P/E of 40 times on the CY16 basis. Our portfolio is at a discount to that. Historically, the Indian consumer sector has always traded at a significant premium to the broader index. Hence, relative to the broader market, our portfolio's P/E seems stretched. The investible opportunities in India consumer space have rarely been at a discount.
The top three sectors make almost three-fourth of the portfolio. Could this concentration be risky?
Inherently, sectoral funds tend to have very high concentration. However, within the consumer sector, Tata India Consumer Fund would be the most diversified due to our investment ability in the auto, media, retail and textile sectors apart from the consumer.
What areas are especially attractive in India's consumption story?
The following areas look attractive: categories which are under-penetrated, those that are strong plays on the consumer shift to the organised segment and companies operating in the discretionary segment to leverage on the theme of rising disposable income of Indian consumers.
This article was originally published on May 17, 2017.
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