We did a one-year rolling return analysis of multi-cap fund category for the period of 12 years. The analysis shows IDFC Multicap Fund is a best performing fund which has given the highest CAGR of 26% over this period (daily rolling returns on yearly basis since 2006). Yet from AUM perspective, it’s not even in the top 10 funds in the industry. It is often seen that good performing funds of small fund houses fail to garner assets. It could be because consumers usually take time to trust the new brands or it could be because of lesser brokerage commissions.
Anoop Bhaskar, Head of Equities at IDFC Asset Management Company Ltd and the primary fund manager of this fund, says, “While the fund has strong 10 year performance, a predominant portion of it is front ended. While there are challenges faced by smaller AMCs, it also reflects the philosophy of the fund house. Between 2010-2016, this fund would easily have featured as one of the most profitable funds in the industry.”
Bhaskar has been associated with IDFC AMC since February 2016. Previously, he served as Head of Equity and Fund Manager at UTI Asset Management Company (P) Ltd. (from 2007 to 2016), and was responsible for overall domestic equity fund management. He was also the Head of Equity and Fund Manager at Sundaram BNP Paribas Asset Management Co. Ltd. from August 2003 to March 2007. Bhaskar, who started his mutual funds career at Kothari pioneer, has also served in Templeton Asset Management Ltd and Shriram Financial Services Ltd. He holds a Masters in Business Administration in Finance from Symbiosis Institute of Business Management, Pune and a Bachelor’s degree in Commerce with honours from Shri Ram College of Commerce, Delhi University. Excerpts from our exclusive interview:
It’s been almost three years that you have been managing this fund. What changes have you implemented in this fund.
Over the last year, my colleague Kartik Mehta has also joined as Co-Fund Manager of the fund. The focus has been at the following levels – at the investor communication level, to begin with, we focused on positioning this fund as a Multi Cap Fund as it was perceived as a mid and small cap fund before; focusing on domestic consumption in the current market scenario as the overarching theme of the investment universe from which stocks are selected; improving the liquidity of the fund; restructuring sector weightages – increasing weight to financials sector.
Investors in this fund had to bear some stress last year as the fund has given negative returns to the tune of 8-10%. By when can they expect the performance of this fund to come back on track? And what’s your strategy for recouping the fund performance.
Fund performance last year has been impacted by the stress in small cap segment. Our research shows that small caps tend to outperform large caps over the long term, hence we feel this exposure could be a driver for clawing back the under-performance in CY 18. Also over the last 12-15 years, domestic consumption has been a segment which has generated long term wealth creation –the fund’s success too can be reflected with stocks like Page Industries; Asian Paints; Pidilite Industries; Bata to name some of the significant winners identified in the past.
Do you think that small and midcap stocks have bottomed out? If so, are you looking at increasing the fund’s exposure to these stocks in the near future?
Small and mid-cap performance during CY 18 reflected the stress some segments experienced. We believe, most of the factors which contributed to this stress included – deteriorating domestic macros driven by rising US yields; US Fed contracting its balance sheet by selling US treasury notes; the strengthening of US$; rising crude oil prices (which corrected in Oct-Dec’18) and domestic election uncertainty. With a benign RBI policy outlook and fears of global growth slowing down, yields internationally could remain subdued for a large part of CY 19. In a domestic focused economy like India, global economic slowdown does not impact as much as export oriented economies like South Korea, Taiwan and even China. However, foreign flows may pick in such a scenario, as is visible in FII flows turning positive in March’19. Moreover, we believe valuations have come off from the peaks of December’17 and are more moderate and in-line with long term averages.
What is your view on the slowdown in GDP growth in the recent quarter? Is it an indication of consumption not picking up at the expected pace? If so, how will that affect the portfolio since its significant exposure to consumer-oriented stocks?
The slowdown in GDP is a matter of concern, the way we record it, perhaps, a tad more! While the mechanics of GDP calculation for a quarter or two may be impacted, a trend line of 7-7.5% appears to be a long term average. Consumption could remain the key driver of GDP growth, as replicating the investment-led GDP growth model of China may not be possible. Modest inflation, improving corporate business confidence and bottoming out of real estate could boost consumer confidence in the quarters to come.
Which sectors do you see operating leverage coming into play? How much is it dependent on the incumbent government retaining power in the upcoming elections?
Operating leverage should be visible across most industries, as average capacity utilisation has hovered between 73-76%. Among the sectors which could benefit from the return of the current government would be infrastructure, especially construction sector.
The earnings have picked up going by Q3FY2019 results. Yet the market indices are continuing their downward movement. Is this just a lag effect or the markets are wary of other factors like elections?
Investor confidence follows certainty of earnings. As we go into Q4 Fy 19, the corporate earnings could jump smartly aided by the low base – Q4 Fy 18 was impacted by RBI’s February circular, which laid down the framework for provision across NPAs on their books. Going forward, we estimate, earnings growth recovery plus a favourable election outcome should boost investor sentiment.
What would be your advice to retail investors? Where should they allocate their incremental money?
Sensex has registered returns of 15% (CAGR) since inception, however, as this asset class has high volatility, most investors get coloured by the steep declines. To be a successful equity investor, one should follow the “Mahi” way (as calm as former cricketer Mahendra Singh Dhoni), be neither be stressed by a negative year nor get too excited in a positive year. Since 1980, when the BSE Sensex was launched, there are more years of double digit positive annual returns than negative annual returns – the index of 100 has moved to 11,000+. Profitable equity investing requires patience over long period of time.