We had earlier talked when you said you were also sitting on a lot of cash – 10-15%. Are you still sitting on that cash or is liquidity also tempting you to jump back in?
Dipan Mehta: No, we are sitting on cash. And the amazing thing is despite having cash, when you see the aggregate return of your portfolio, it is still beating the benchmark. That may be due to good stock selection or this sector rotation, and that provides comfort. If you are holding on to cash and your overall returns including cash are lagging whatever index you are tracking, then there is a concern and panic that you should get fully invested, you should look for new ideas, you end up making mistakes buying overvalued stocks.
But when the overall portfolio is also growing, because your existing holdings are outperforming or doing really well, then you can continue to remain in cash for an even extended period of time. I always maintain that this cash is strategic. If and when a correction comes in the past bull markets, I have never had any cash to invest. This time, I want to play it slightly differently. Having 10-15% cash is not such a big negative when I am managing money over here. I feel comfortable remaining invested in good blue chip stocks and then having some amount of cash for strategic investments whenever they come up.
What are your top three-four holdings, if we can urge you to share them?
Dipan Mehta: The usual disclosure. We have discussed Bajaj Finance is a big one and it has been underperforming and yet the portfolios have done well because other stocks have done well. Tata Elxsi, another big underperformer, yet the portfolios are doing pretty much fine. We have had some good hits, like Inox Wind has done very well for us.
Also stocks like Zomato have done exceptionally well. There is Action Construction, PolyMed. So, a blend of good quality midcap stocks have really outperformed. Dixon Technologies has given unbelievable returns. When I bought it, it was expensive, but it just got more expensive and Amber Industries as well. So, there are a few good multibaggers, which we have caught over the last three-four years and that is what is driving the returns.
Given that reports are now emerging that corporate travel is going to pick up over the next few years. Spiritual travel or religious tourism is fuelling a lot of domestic travel and internationally as well. What is your view on the entire theme of railway stocks, airline stocks, and hospitality stocks?
Dipan Mehta: We are very positive on the entire travel and tourism space. A disclosure, IndiGo remains our top pick. I still feel it has got some more way to go higher. And with oil prices coming off, it will certainly ease the pressure on margins. Strategically it is going in the right direction in terms of overseas expansions and moving up the value chain, which will also improve the yields and it is a very well-managed company with a sharp focus on costs. So, if you want to play the aviation business, IndiGo is the best bet. We like the hotel companies also. Indian Hotels is another interesting company. They are trying to go in for more asset light models which will improve the return ratios and massive expansion underway. So, looking for good quality stories within the travel and tourism space. This trend of higher tourists, and higher travel will sustain for a few more years. Gen Z is looking at more and more experiences rather than assets and that certainly benefits travel and tourism companies. There is an interesting IPO also coming up of hotel Leela, looking at that also quite closely.How would you approach the EMS space? You own Dixon, but then there is Kaynes, Syrma SGS. Growth is great, but margins are not fantastic.
Dipan Mehta: That is right and there is a client concentration issue over here and if one or two contracts do not take off or there is some issue over there, then certainly it could impact short-term earnings. It is a great space, but I think it is highly overvalued at this point of time. I was not particularly impressed with the quarterly numbers for many of the EMS players. I mean, Dixon came out to be fine. Kaynes also did pretty well. But a lot of them tended to disclose numbers or report numbers which were quite disappointing. So, I am not investing any fresh money in this particular sector.
When there is a sharper correction in them and earnings also move up and they reach that sweet spot when they are available at PE multiples which are like 40-50 times or so, maybe 30 to 50 times, then depending upon the business, the product, the client concentration, the diversification, one could look at these stocks in positive light.
