Kenneth Andrade, CIO, IDFC Asset Management, spoke with Abhay Rao of the Financial Express about investing in the stock markets, strategies used and what one should keep in mind while investing in such times. Excerpts:
What has helped you’ll move up the ladder in the mutual fund space and how do you stand out as a firm?
We have a pretty consistent track record, we have being receiving market recognition and are now in the top 10 fund houses of the country. We have also sold virtually across the platform. We operate with a team of five investment professionals in equity and four in debt. We are now going to close a new product of ours, which is a mixture of private equity and a listed space product. This is in the portfolio management space, and we are hoping to raise around Rs 500 crore, out of which 75% will be in unlisted firms and 25% in listed companies. This is called the hybrid infrastructure portfolio and has a tenure of 5+1+1. We have four products on the listed space, which have completed three-plus years. Each has a unique management style and imperial is our large cap-focussed product, which was launched in February 2006. On a three to three and a half year basis it has a good track record with an absolute return of close to 60% at least.
Are a majority of your funds primarily focussed on the large cap sector or are there other areas of the market that is targeted as well?
We look at equity investing in the diversified space, large caps and mid caps as well. The benchmark in the large caps is the Nifty. The benchmark in diversified funds is a broader index, which is the BSE 200 or 500. In the mid cap space we use the CNX Mid Cap or one of the smaller indices. We have nine funds out of which two are ELSS funds, which leaves seven. Out of these we have three products in the large cap space, one is enterprise, one is Imperial and one is called the strategic sector fund, which invests 50% of the money in one sector and the rest is diversified. The funds are run by different measures of a risk return profile based on the underlining index. So, in enterprise we have a +/- 2% and so this largely acts as a low profile entry level product for an investor who wants to come into equity. For them this is a good starting point. Imperial is the actively managed large cap fund and the return profile is in the range of 10-15% of the Nifty.The strategic sector fund is the high risk product we have, and the risk profile can be 30% plus or minus of the Nifty. The return profile of this fund is by getting the sector right and the sector calls we take are usually long term in nature. In the diversified sector we have a classic and a GDP growth fund. Both these funds are diversified and are indexed to the BSE 200 and 500. Based on the sector weightages of the index, classic will run a similar sector weightage but with different stocks of course and so this also acts like an index fund. The GDP growth fund is indexed to the GDP of the country. This means the services, industry and agro sectors will all be seen in the fund. In the mid cap part of our portfolio we have the premier fund and the SME fund, which is the small and mid cap fund. The premier is a growth fund and the SME is an opportunities fund.
How have people reacted to the boom and bust that your funds saw with the rising and then falling NAV?
The large caps are the backbone of corporate India and the markets allocate 75% of the market share to these businesses. So investors too should skew their portfolios accordingly. On both, the way up and down, this sector continued to grow. A large part of most assets under management in the country are in the large cap space. These companies offer growth and not high returns like 30-40%, but they provide more consistency so what we faced was no different from the other companies.
What do you feel investors are looking for right now? Where are they more comfortable investing in right now?
Every investor has a certain risk profile. Some may like the volatility of the market but most people don’t. So it depends heavily on the risk profile of investors. I feel investors will look at more large cap companies as of now. These are the only set of companies that fell the last on the way down and are as such more steady in volatile conditions as well and so I feel people will prefer dealing within this space. We had gone down to Rs 170 crore in the imperial fund and have now come up to Rs 300 crore, so it looks like people have come back to the large cap funds as of now.
Which are the key areas you would look at as the CIO of the firm right now? Would you be investing heavily in the markets or wait and watch for a while longer or sit on higher cash reserves?
We as such do not take a very active call on cash. We want to make money consistently over a period of time and a lot of our strategies depend on how we structure the product and what are its mandates. The maximum we have held is 16% in cash but as such we like to be invested as much as 90-95% at least. We are not major asset allocators and are more investors.
How do you choose which companies to invest in the large cap sector that you feel is they key for most investors currently?
Philosophically we are primarily growth investors and we believe that since we are an emerging market and the second fastest growing country in the world, there is no option but to skew our portfolio heavily towards growth. So that is where we mainly put our money in. The large cap space has most of the companies very well tracked and information is easily available and only sometimes we have to actually go down to the company to clarify points. As far as stock selection goes, we look at background trends, we build our portfolio based on the business leaders in each sector and we do not really invest in the number twos and threes in our portfolio. So in the banking sector we will have an HDFC or SBI while an AXIS bank may come into some of our other funds or have a lesser weightage if we hold it in say the imperial fund. The valuations here are very important.
What do you feel about the debt market as of now?
Debt is still as important as equity for us as we are an asset management company. We do try and cover the entire spectrum with accrual funds and long bond funds, among others. The bond market did do very well last year and fixed income was very popular then. Interest rates and yields are relatively volatile right now and I do not expect any sharp movements in the fixed income space as of now. It is good for investors looking for low risk investments and can give returns from 5-12% at the most.
How do you feel the equity markets will fare over the next year?
There is an opportunity available here to capture the underlining growth of a company. As long as companies keep growing, profitability will increase, leading to higher prices in sometime. There is currently a fair amount of visibility going forwards. There is a demand on the table. There is volatility as well but it is more from an external environment than from within. Given the constraint of the external environment, we will want to have a portfolio with a lot of liquidity, so one can change things around when needed. This comes back to the point of large caps since they do offer high liquidity. The biggest concern I have is that of liquidity as I cannot predict how much money will be in the system at any point in time.
What would you advise investors who are now willing to invest again or who are still waiting by the sidelines?
I feel the opportunity is always there and they can enter the markets when they want. Asset allocation is a key for such investors and they should not overdo it in a bullish market and under do it in a bearish market as business is all about buying low and selling high. People should book their profits periodically and maintain good asset allocation.