‘Valuations comfortable, except for consumption stocks’
In January, PPFAS Mutual Fund bought $1 million (~7 crore) worth of Amazon shares at $1,466 per share. The mutual fund already has Google, Alphabet and IBM in its portfolio. RAJEEV THAKKAR, chief investment officer and director at PPFAS, shares his views with Puneet Wadhwa and Swati Verma on the market outlook and whether the fund plans more such purchases abroad. Edited excerpts:
What has been your investing strategy in the last one year?
In the last 12–18 months, equity returns haven't been that great and flows into equity markets have also slowed down. But, given that our base is low and our flows are not typically representative of the industry, and also we have been cautious on the smalland mid-cap space, non-bank financial companies (NBFCs) and some of the overvalued consumption names, we haven’t been impacted significantly. Also, some recognition to the international diversification strategies is coming to fore in people's mind, which in turn, is helping us.
How convinced were investors about the purchase of Amazon's shares? Are you looking for more such buys?
Investors have been comfortable with this purchase. We already had foreign companies such as Google, Alphabet and IBM in our portfolio. Amazon has mature profitable lines of business. At the same time, it has some loss-making businesses too. So, to an extent, they offset each other. Overall, we found there is value opportunity in the business. However, we will wait for the thesis to play out before ramping up the allocation.
Do you see more investment options in India like we have Netflix, Alphabet and Amazon overseas? Do you see investors lapping them up?
What has happened, not just in India but in other countries as well, is that a sizeable pool of money was created in the private equity (PE)/venture capital segment. SoftBank and cab aggregators such as Uber, Ola and Lyft are not yet listed. Similarly, in India, Flipkart grew to be a unicorn and then was sold to Walmart. But, people here are not able to invest in such companies. Online travel players like MakeMyTrip and Yatra, too, are listed only overseas. So, this problem will remain till this ecosystem is missing in India. Even if a listing happens, it may be after the growth story is already played out. Hence, the valuations will be steep.
How comfortable are you with the current valuations of Indian stocks?
Overall, valuations are somewhere in-between — that is neither excessive nor down and out where everything can be bought acrossthe-board. We have been cautious on segments such as small- and mid-caps, NBFCs and consumption-related names. Small- and mid-caps have witnessed significant correction in 12–18 months. NBFCs, too, corrected, but consumption-related stocks are still expensive. There could be time or price corrections where earnings have to catch up with the stock prices or valuations. With the exception of these segments, the market valuation is in a comfortable zone.
Your views on corporate earnings?
We expect as much as 10 per cent fall and 20 per cent growth at the higher end in the companies where we actively invest. On average, 15 per cent growth in earnings is what we expect. That said, instead of waiting for a specific multiple on the Nifty50 index, one should scout for individual investment -worthy stocks.