"In small caps, we like to evaluate if the stock can double in three to four years"

Exclusive conversation with Manish Gunwani, Head - Equity, Bandhan AMC

Exclusive interview with Manish Gunwani of Bandhan AMC

Manish Gunwani, who joined Bandhan AMC as head of equities earlier this year, has brought about a remarkable transformation in their equity schemes. In our recent interview with him, we delve into the changes he introduced at Bandhan, the enhanced performance of their equity funds, his overarching investment strategy, and current market perspectives.

Here is an excerpt from the interview.

Bandhan Core Equity Fund and Bandhan Small Cap Fund moved to the first quartile after you took over them. How did you reverse the underperformance of the latter, in particular?
On a broader level, the performance has been helped by our investment in building up an experienced research team, which has led to deeper and wider coverage of stocks. More specifically, this calendar year, the funds have participated in themes like energy transition and power capex, pharma, auto, real estate, etc., which has helped performance.

The markets have been on a roller-coaster this year. Now that we seem to be approaching the end of this monetary tightening cycle, what's your outlook on domestic equities in the near term vis-à-vis global markets?
Near-term tactical indicators of the market are not very promising - recent returns have been high, credit spreads globally are low, volatility is low, etc. However, in the medium term, apart from India's strong fundamentals, the liquidity angle also looks promising - the dollar is likely to be soft, competition for flows within emerging markets is not great, bond index inclusion, structural improvement in India's current account due to service exports, etc.

Thus, Indian equities are likely to be a bright spot in the global capital markets in the medium to long term.

What captures your interest in new-age businesses, as evident by your recent investments in Zomato and Paytm?
Most of the growth stocks in India, if looked from the perspective of discounted cash flow analysis (which is the core fundamental method for valuing stocks), would derive majority of their value from cash flows beyond the next ten years. In that context, current-year profits are not very relevant, and hence, ignoring stocks that are loss-making as a rule is not something that we favour. However, it is clearly important to buy loss-making stocks with enough margin of safety that the returns are in line with the risk that is being taken.

How do you select stocks in the mid and small-cap universe?
As you go down the curve of market capitalisation, in general, the liquidity risk goes up, so the thought process tends to move from benchmark orientation to absolute return over the medium to long term. From a target return viewpoint, in small caps often, we like to evaluate if the stock can double in three-four years. Also, one needs to focus a lot on ...To read the full conversation, subscribe to Value Research Premium.

Also read: Interview with Ajay Tyagi of UTI AMC

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