For Tata Largecap fund, an overweight exposure to financial services and capital goods contributed to the outperformance, says Chandraprakash Padiyar, senior fund manager – equity at the fund house.
Similarly, an overweight exposure to fast moving consumer goods and financial services, and stock selection contributed to the outperformance of Tata Large & Midcap Fund, Padiyar said in an interview to ETMarkets. Edited excerpts:
Equities have seen a good recovery from the bottom. What does your conviction say about the trajectory for the next few months?At Tata Mutual Fund, we focus on the long term. Our belief is that growth in earnings is the key driver of returns for investors over long term, and short term can get impacted by flows or some unexpected event.
For example, currently in the market, we are in a phase where everything seems to be going right for India on a relative basis compared to other world markets, driving positive FII flows.
Alongside, domestic funds continue to see new flows leading to higher stock prices. Short term valuations in the market have started to reflect earnings delivery adequately and, hence, room for valuation upside can be lower.
Having said this, fundamental prospects in terms of earnings delivery by corporate India remain positive and, hence, we remain optimistic for the long term.
Midcap and smallcap funds have seen a lot of traction in the recent months when compared to largecaps. What’s driving this?
Earnings growth for most part of corporate India has been strong over the past few years and the outlook for the immediate 12-24 months continue to look promising. Equity market performance sometime can be lumpy in nature with preference for a particular market cap, for example, during current times as rightly mentioned by you, midcap and smallcap parts of the market are outperforming the largecap indices.
Positive flows towards funds dedicated towards midcap and smallcap is also a reason for the short-term outperformance.
Can you take us through the performance of Tata AMC midcap, smallcap and large cap funds over a 3-year and 5-year period?
While Tata Largecap Fund, Tata Smallcap and Tata Large & Midcap fund have outperformed the benchmark in the medium to long term, the outperformance is even better in the last 1 year period.
Buying early, bottom-up stock picking, and being benchmark away are the major reasons for Tata smallcap fund’s outperformance.
For Tata Largecap fund, an overweight exposure to financial services and capital goods contributed to the outperformance.
For Tata Large & Midcap Fund, an overweight exposure to fast moving consumer goods and financial services and stock selection contributed to the outperformance.
What’s your strategy for stock selection in midcap and smallcap funds?
At Tata Mutual Fund, we believe in the investment philosophy of growth at reasonable price. We look for businesses run by smart managers who can potentially grow earnings at healthy double-digit levels over the long term with free cash and available at a reasonable price from a valuation standpoint. Our expertise lies in identifying trends or businesses early in their cycle and then holding onto these businesses for the long term with conviction.
Our funds like the Tata Large and Midcap Fund have benefited by adopting this strategy of iinvesting.
Which sectors within the midcap and smallcap segments look attractive and offer investment opportunities?
We are constructive on manufacturing (capital goods) as a theme. From a sectoral perspective, we are positive on financial services, automobile and auto components, healthcare, capital goods/industrials, transport services (Logistics), realty, telecom, and consumer discretionary.
In the coming months, do you expect midcap and smallcap funds to outperform largecaps?
As mentioned earlier, we would like to hesitate giving short term market outlook given that many other factors can impact movement in the market like flows, geopolitical events etc. However, long-term outlook for the midcap and the smallcap categories continue to be positive.
At the current juncture, does it make sense in increasing allocation towards equities?
SIP can be one of the most optimal ways to deploy capital to equities for the long term at the current juncture.
How do you expect SIP flows to pan out in the coming months?
We continued to witness very healthy flows through SIPs in our equity funds and we are hopeful of the current trend continuing.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)