In an interview with ETMarkets, Agrawal said: “If you had invested 1 crore, that would be about 12.5 crores today, whereas the BSE 500 would have given you about 8 crores” Edited excerpts:
You have a very interesting theme for the fund, which is the next trillion-dollar opportunity strategy. If you can just tell us a little bit more about it.
So, our thematic funds are usually based on the wealth creation studies done by a group every year. This theme was adopted in 2007, with a focus on the next trillion-dollar opportunity.
What it means is that every next trillion dollars India adds to its GDP leads to non-linear opportunities in discretionary consumption, savings, investment, etc.
For example, since 2007, India’s GDP is up about 4x, but the fund is up about 12x. Various sectors and names have done very well in the fund since then. And in fact, as you rightly pointed out, the fund started back in 2007 and actually completes 17 years. It was launched on the 3rd of August. So, how much would investors have made if they had invested in the NFO back in 2007?
If you had invested 1 crore, that would be about 12.5 crores today, whereas the BSE 500 would have given you about 8 crores.
So, money has actually multiplied 12 times in that period of time, in 17 years?
Yes.
I am sure it is music to the ears of investors who have invested in the fund and are still holding on to it. If I look a little bit deeper, it is a diversified fund that includes a mix of large, mid, and small-cap stocks. You have seen many market cycles since the launch and have held on to eight stocks for more than 12 years, which have turned into multi-baggers and created wealth for investors. How do you spot the winners?
We identify high-growth themes. Within those themes, we look at the names likely to be the sector leaders and growth leaders.
We have a QGLP philosophy, where we look at the growth leaders where the longevity of growth is very high, and we buy new stocks at reasonable prices.
Over time, that strategy has resulted in us identifying many stocks that have done well. For example, we had Page Industries, which was 100x. We had Bajaj Finance, which was almost 28 times. Eicher Motors as well. And a few other names like that.
The idea is to buy high-growth names at reasonable prices and hold them for long periods of time.
In fact, we also had the budget for 2024, and there were some tweaks that happened with the capital gains as well as STT. Do you see any impact of the rise in capital gains tax on the PMS and AIF industry?
Even when LTCG was at 10%, the industry grew multiple fold. Returns to investors have been pretty good. We think the industry will continue to grow, and we do not see any meaningful impact on the industry from this rise.
So, no meaningful impact that you are seeing. I am sure it usually starts with you getting a call from your clients in case that has started happening. What should they do at this point in time? Have you experienced this lately post the budget?
Everyone is sort of realigning their strategies and re-evaluating some of the taxation internally. We do not think the quantum is so high that we are seeing any meaningful redemptions or anything to that extent.
Can you also give us an overview of the recent entries and exits you have made in the past three months?
Some of the sectors we have looked at more closely in the last three months include discretionary names on the jewellery side, defence, and even select names on the manufacturing side. In terms of exits, we have reduced our allocation in hospitals over a period of time. We had a couple of names on the new-age fintech side that we have reduced. So, yes, that is a little bit on that front.
You were talking about the entry and exit. How often do you rebalance the portfolio? Can you give us an overview of that?
We keep tracking the earnings and valuation cycles of these companies. We track the overall business environment and the macros as well. It needs to be more dynamic than having a fixed kind of rebalance strategy.
So, in some months, it is less, and in some months, it is more. We also have a robust risk management framework. Adhering to that also leads to some rebalancing.
Could you talk about the risk management framework to help us understand how you contain the risk in the fund? It is a pretty large fund that has been going on for 17 years. How have you managed to contain or manage the risk?
We have weightages for individual stocks and pricing for the respective sectors relative to the index. We also have stop-loss frameworks where if something becomes a nuisance in the fund, we may choose to trim it or exit it over a period of time.
We have profit-taking frameworks as well. We ensure that no stock becomes a disproportionate part of the portfolio over time.
We also have stringent liquidity frameworks to ensure the portfolio is meaningfully liquid, so that liquidity is never a barrier for the fund. These are some of the things we do on the risk management side.
We talked about the new-age space or the fintech industry. Can you let us know why you are so bullish on the new-age space at this point in time? We have seen Zomato doing pretty well lately post the results as well.
We were early investors in the space, and we have seen some of these companies grow meaningfully. Also, post the interest rate regime change, the focus shifted from burning cash to generating profitability. Companies like Zomato have been front runners in that space.
Food delivery and quick commerce have become very large and are growing rapidly. These are some of the reasons we have invested in this space.
Let me also take a quick check or a quick word from you on the markets. Markets are trading at record highs. We have touched 25,000 on Nifty 50 and 82,000 on the Sensex. How should investors deploy their funds at this point? Should they wait it out, or is scattered buying a good option?
It depends on your conviction level. If you have a lot of dry powder that you are looking to invest, then maybe you should invest in a lump sum. But if you want to take a more calibrated approach, then a scattered SIP approach can work.
Going forward, the markets will focus on earnings growth, sectors, and stocks with earnings growth. Some of the low-hanging fruit is over, as seen in the last year and a half. Going forward, sector selection and stock selection will become important.
Which sectors as a fund are you overweight on?
We currently have capital goods and manufacturing on the overweight side. We also have some exposure to discretionary consumption. These are the three sectors that are the focus of the fund.
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