Alliance Basic Industries has been on a constant upmove since late 2001. What do you think has contributed to the funds improved performance?
Since the very beginning- like in all our funds- we have been managing Alliance Basic Industries Fund on a bottom up basis. We have made - at various points of time - the right calls on being overweight on auto stocks, then PSU refinery stocks and all along maintaining significant positions in stocks like Punjab National Bank and Jammu and Kashmir Bank.
With stocks like J&K Bank, Hero Honda, BHEL the buy and hold strategy seems to have worked well. But in some stocks such as Cummins India, Grasim Industries, ICICI Bank, the same strategy has not worked.
That is right. The advantage of a portfolio is that each separate decision does not have to prove right. As long as we get more right decisions than wrong and get the bigger decisions right, the returns are satisfying.
What is your outlook on banking stocks and the allocation strategy of Alliance Basic Industries fund?
We are overweight on banking stocks but not very significantly. Please remember that this fund does not invest in technology stocks or consumer and pharmaceutical stocks so the weightage of other sectors goes up. Within the banking sector we have both private sector banks like HDFC Bank and Vysya Bank and Kotak Bank and PSU banks like PNB, J&K etc. The recent run in banking sector has primarily been restricted to PSU banks because of their extreme undervaluation to begin with. Even after this run, these banks trade at less than 1 times Price to Book and less than 5 times historic earnings. The only thing negative could be the pace at which these stocks have run up but that is no reason to feel nervous for any medium to long term investor.
Wasn't the fund late in acquiring PSU bank stocks such as Bank of Baroda, Bank of India and Canara Bank?
The Fund was late in acquiring BOB and Canara Bank and early in acquiring PNB and J&K Bank- the problem is that this sector had not been re-rated for years despite good fundamentals so no one really knew who or what will trigger it. Therefore we had some stocks -like PNB and J&K in the portfolio and some on our radar screen to be bought only if the market was willing to oblige us by re rating them. At the first sign of interest and shift in perceptions towards this sector we bought these stocks. As the internal work required needed before buying any stock had already been done we were able to buy them relatively quickly.
What kind of investors should buy into Alliance Basic Industries?
Every investor should consider some exposure towards this fund for it provides a good exposure to the underlying changes in our economy in terms of reforms and privatizations, restructuring in the real economy and the significantly low valuations in the banking and finance sector.