"Kya Lagta Hai Market?" - The stock market participant's go-to icebreaker. In this series finale of our @PPFAS MF Distributor Concall Commentary, we are just going to have a conversation about that.
In this newsletter, we will discuss the fund houses’ views on everything related to markets, their portfolio holdings and the economy.
The Recessionary Fears
Has the volume been lowered, or they've stopped drumming about the recession as the markets are on the up? This is what the market ecosystem is like, folks. Better to cut the noise.
That's what the good folks at PPFAS do.
Rajeev Thakkar says they focus on researching and investing in companies not affected by the rising interest rate environment and those currently riding a trend that can sustain over economic cycles like some private banks. Similarly, the services and manufacturing businesses they invest in are cash-rich with low borrowing levels and thus are insulated from the effects of rising interest rates.
Their Investments in US-Tech Stocks
The shift toward cloud computing is a multi-decadal trend. Therefore, it's essential to ignore the current mayhem in their stock prices and have a long-term view of these investments. If the overseas limit were to open, PPFAS would look to add.
Whether it be the high-growth cloud computing space, digital marketing or desktop computing/enterprise software, their US-Tech holdings are winning the market share at a tremendous scale.
Meta, Alphabet and Microsoft are either mono/duopolies in each of these segments, which results in high return ratios and cash-generating ability. In addition, value/employee creation is significant in these companies, with their intellectual property giving them an edge over others globally.
The Domestic vs the Foreign Portfolio Debate
Rajeev quashes the claims that it is due to their US allocation that PPFAS were able to generate alpha. He points out that their Tax-Saver fund, which recently completed its three years, indicates their performance in pure India-play.
Overseas allocation was always meant to provide geographical risk diversification. Moreover, according to his estimates, the domestic allocation has performed better than the overseas one over the life of their Flexi-Cap Fund.
Raj Mehta on Auto Sector
The timing of their entry into the auto stocks was not at the right point of the cycle. Still, Raj emphasizes that today, with rising income levels, people will continue moving up a level across the product segments as far as automobiles are concerned.
Rural Markets had been under duress for the last few years. However, with the economy picking up and good monsoons, rural demand should pick up. Also, with the semiconductor supply chain opening up and raw-material costs down, PPFAS see a good opportunity in the Auto industry.
Raunak Onkar on IT Sector
Tech has encompassed every walk of our lives, and the same can be seen in every vertical of the businesses - legacy or new, manufacturing or services. Plus, the shift toward cloud computing has accelerated the growth of an already growing IT industry.
Fragmentation of SaaS and the requirement of handholding of organizations through the intricacies of software has IT service providers. The volume of work across the verticals in the industry is only going to increase with the modernization of businesses.
The slowdown in the economy might put brakes on the pace of the spending on tech adaptation. However, the IT Sector is currently in a SUPER-cycle and will continue to grow in the coming years.
Rajeev on the Burgeoning AUM
The AUM of the flagship fund is not large relative to the entire mutual fund industry. With the size of the equity market increasing, he feels that they are not anywhere close to a situation where they will have difficulties managing the AUM.
Closing Remarks
As the old adage goes- "It is not timing the market but time IN the market that is important". He re-emphasizes that the markets are never always buoyant, and one needs to have >5 years investment horizon.
Bonus
In his latest letter to the unitholders, Rajeev Thakkar explains the rationale behind some key decisions such as the HDFC Switch, Coal India, ITC and ESG. The communication is so crisp that we didn't find a need to do it ourselves. Please Read -
https://amc.ppfas.com/knowledge-center/notes-by-rajeev-thakkar/2022/why-we-did-what-we-did_note-by-rajeev-thakkar.pdf
Conclusion - The Finale
So this concludes our coverage of PPFAS and their philosophy. We hope this series could add some value in educating you about the operation of a fund-house that we highly respect.
Our objective is to spread awareness about the functioning of more such fund houses that have investors' interests at the forefront and are a beacon of excellence in the mutual fund industry. So please help us in our endeavour to educate a larger audience by liking and RTing this thread.
Moreover, in an industry plagued with exclusivity and financial jargon, we @ZenNivesh try to simplify the investment decisions for you. Subscribe to our newsletter to know more about us.
If anyone wants a recap of the entire PPFAS Series or one hasn't gone through those yet, here's the replug of Series-1 -