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00:00 have pivoted much faster than expected earlier. Now in both those scenarios, I think they are
00:06 reading a little bit too much than what was required frankly. So if you look at even before
00:12 the 2023 state election results, there were a very strong possibility built in of BJP actually
00:22 winning for the third term. In 2019 itself, there were 224 seats where BJP's vote share was more
00:30 than 50 percent. And with strong personalities like the PM Modi, I think you are either voting
00:36 to remove them and if no such wave is visible very early, then the best case assumption has to be
00:43 that that government is getting re-elected. In fact, if somebody had asked me before then
00:49 that what happens really when or if BJP doesn't make it to the third term, I would have said
00:54 there was a reasonably decent downside to the markets. So part of that was baked in and even
01:00 with the Fed, you know changing gears here, but even with the Fed, you look at what really has
01:06 transpired over the last three months or so, the Fed's balance sheet has expanded by almost a
01:12 trillion dollars or so. Now in that scenario, what really is transpiring is that the rates are
01:19 making a beeline for staying higher for longer. I think we don't just appreciate this often.
01:26 Market seems to believe that the rates have sort of risen in a hurry, the fastest in the
01:32 post-Walker era and now that you know you are actually starting to cut down energy fee as well,
01:37 but I don't think that's what transpires. If the US was worried about its debt to GDP at 131%,
01:45 then I think they will be planning a much longer route instead of you know just getting inflation
01:53 back up in a hurry and that would mandate that although in this election year the Fed would be
01:59 more or less accommodative if I have to sort of read it sideways, but then the rates will stay
02:04 higher for longer. So in both those sort of outcomes, we don't really think there was a
02:11 need for the market to react the way it has and now what's really driving this is that a lot of
02:18 money is flowing into sectors which is very difficult to make sense of, right. Utilities,
02:24 for example, among the best performers. I have been a utilities analyst in my previous avatar
02:29 and if you look at the state of the industry per se where coal mining, generation and distribution
02:35 is making a lot of money, but distribution, sorry coal mining, transmission and generation is making
02:42 a lot of money, but distribution which is largely state controlled is losing almost 1 lakh crore a
02:48 year. So that's 1 trillion INR is the loss at the state level and you come to think of this until
02:55 the state can sort of, you know, attune their finances to make sure that these generations,
03:01 etc. gets paid in time. It's very difficult to make sense of buying a first or a second derivative
03:06 businesses there. Similarly, take the case of say, you know, IT that was up like 10, 11 percent last
03:14 month. Very difficult to make a case. US cutting rates if at all that becomes true is not really
03:22 the reason why one should go ahead and buy IT or it's also leading to valuations sort of that are
03:28 extra nominal in certain sector. Capital goods comes to mind very easily. So I think the unintended
03:35 consequences of super rally that we've seen over the past two months or so is that I think we are
03:42 borrowing the returns from the future and I think we'll end up in 2024 or longer paying for that
03:49 while the fundamentals look great, you know, results should be okay. We might start entering
03:55 periods where you are not generating returns for an extended period of time. And that doesn't come
04:01 as a surprise. I mean, valuations are something that the state has been concerned about,
04:05 especially after the recent rally that we've seen. Now, let's talk about Boeing Capital.
04:10 Jagan, I want to talk to you about and understand from you, how are you different from any other
04:16 PMS strategy? And I know you've got one sort of quality that your fund does,
04:20 where there are three fund managers. Elaborate on that, help us understand what that is all about.
04:24 Right, Sabina. So see, I think fundamentally we are different from the other asset managers
04:32 people may be interacting with in three broad respects. First is the sort of portfolio construct
04:38 itself. The second is the team structure, which you alluded to. And the third is the
04:43 actual execution of the fund. Now, if I look at the portfolio framework itself,
04:48 I would say if I have to define ourselves in one line, I'd say we are diagonally opposed to this
04:54 idea of buy and hold as it is practiced in India. We have had sort of businesses that we have owned
05:01 for all seven and a half years of our existence as Boeing Capital. But we think Indian fund managers
05:07 take it to another extreme when they think that their job is just to identify a great company
05:13 and having identified that company, they keep on investing in it across time frames, across price
05:18 points, essentially implying that a great company is always equivalent to a great investment.
05:24 We do not conquer to that line of statement in the current sort of juncture. There was a time in
05:32 India when this actually held true. So if we sort of go back in time and say, look at the year 2000,
05:38 you are given externalities which are very different vis-a-vis today. You have an economy
05:43 that was fairly nascent. A, your companies were rather small and sort of circumspect of their
05:50 future themselves. And C, foreign investments in India at 15 billion dollars, if memory serves,
05:56 were next to nothing. Now, our jobs as fund managers back then was to identify what we now
06:03 have come to know as durable growth. As the economy grew, companies grew at an unprecedented
06:09 pace. IT is a well-known success story, but there are a lot of sectors that have grown at an
06:14 unprecedented pace. And we are leaders like the largest zinc miners in India, cement businesses
06:21 are mammoth and so on. Not only that, with the growth in the corporate earnings that were
06:27 happening, foreign capital was chasing it like there was no tomorrow. So it was 15 billion
06:32 dollars in the year 2000, grew to something like 600 billion dollars by 2020. Foreign
06:38 institutional investors ended up owning 44 percent of the free float in India. They were back then
06:44 two and a half times the size of mutual fund and they did it with limited presence on the street.
06:50 So when you plough in like half a trillion dollars with limited feet on street, you wanted to buy the
06:55 best of the best businesses and valuations always came in secondary. Now, if we try and create this
07:01 in the form of a formula, you can say that not only the E part of the earnings, E part of the
07:06 formula was growing, which is earnings. The P was continually expanding as well because so much
07:12 money was chasing limited good quality assets. And therefore P, which is the price of the equity,
07:18 looked like it's always going up and a good company stayed a reasonably decent investment.
07:23 Over the past three or four years, however, we think all the ingredients that led to buy and
07:29 hold working so well have actually inverted. A, you know, the companies in India for a vast
07:34 majority of sectors have attained the size from which juncture 20 X in two decades kind of growth
07:40 is no longer possible. B, foreign capital is flowing in on a relative, on an absolute basis,
07:47 but relatively they're losing a lot of market share. They are no longer drivers of the market.
07:52 What was 44 percent of free flow is now close to 34 percent of free flow. And last but not the least,
07:59 see earlier, the only option for a company to come and raise equity was to come and get listed.
08:07 Right. So as public market investors, when say a Bajaj Finance grew a thousand times in 20 years,
08:13 or Titan grew, or Nestle grew, all of those gains accrued to public market investors.
08:19 Today, by the time, you know, this newest listing company like Paytm, Pb Zomato Delivery comes up
08:25 for listing, PBCs have already extracted a large part of the valuation and those businesses are
08:31 offered to us at a price that is not making a lot of sense. So if you boil it down the framework
08:38 differential, I would say that is most of our contemporaries would see the 23 years in one
08:43 broad continuum, right, as if nothing has changed. We see them as two very distinct eras. The first
08:49 20 years in India when buy and hold worked beautifully well, last three or four years when
08:54 it's having its challenges and what's coming to the forefront, therefore, are all those fundamental
08:59 economic cycles. Now, if you have more time, I can run you through how those cycles manifest at the
09:06 stock sector market cap level. But these cycles are now up front and center. And that's where we
09:13 sort of come through. We invest through different cycles, in which case, you know, the team structure
09:19 takes prominence. Three of us will cover the different sectors. I think in India, see, I think
09:26 the starting point is that very often we confuse sort of information with knowledge, right? If you
09:34 sort of take time and understand the sector in detail, it takes a good 15-20 years. And there
09:41 you are sort of, you know, one fund manager is not really able to understand more than three or four
09:48 sectors. And therefore, you put that person in charge of running the fund, you will start seeing
09:53 cycles in performance as well. So it's very apparent that the familiarity bias sinks in. A
09:59 fund that does great in a consumption cycle will do very poorly in a commodity cycle and so on.
10:05 And by having sort of three individual people who have covered different sectors, our hope is that
10:11 we'll be able to operate through those different sector and market cap cycles a lot better.
10:17 The last part I will mention on the differentiation is the actual execution of the funding that
10:23 becomes important. Because see, most alternative asset managers, especially on the BMS side,
10:30 tend to operate on a model portfolio. For us, it doesn't make a lot of sense. Imagine this,
10:36 right? You have a 25 stock portfolio, not all 25 stocks are buys every day, the money is hitting
10:43 your bank accounts, right? With the new accounts that's getting opened up. The portfolio construct
10:48 that you have seen in March should relatively be very different than what the construct that you
10:55 have in say, October, November, December, because of the performance that has turned around.
11:01 However, you know, you cannot be running 5000 accounts, which is the managed account status of
11:07 BMS runs on an Excel sheet. And because of this logistical nightmare, people tend to run, you know,
11:15 the entire portfolio on a model portfolio. So, you know, timing decision is what they take. And I
11:21 think that is where it creates a lot of conundrum in the eyes of the investors. Oh, is the market
11:27 too high? Is it? How much should I invest and so on? So we run a non-model portfolio. Historically,
11:34 when aggressive, we have invested something like, you know, week or so. When defensive,
11:40 we have taken four or five months to invest. And therefore, we eliminate the question of
11:45 when to invest away from the sort of minds of the investors. We are very happy to take that decision.
11:53 More money eventually is lost waiting for a correction than in the correction itself.
11:57 And last but not the least, you know, we also eliminate the question of where to invest,
12:03 because effectively we are running only one strategy. Most of our contemporary asset management
12:09 companies would run three or four strategies. And frankly, it's a great marketing tactic.
12:14 You have a large cap fund, a small cap fund, a couple of sector funds. And that way you will
12:19 have something or the other to offer every time you see an investor. But we realize that most
12:24 investors are busy sort of running a business. They're taking care of a job. And we see markets
12:30 in terms of cycles and they don't really have the time to deal with it. So we run only sort of one
12:36 truly market cap agnostic sector agnostic fund. And that's the sort of only vehicle we offer.
12:45 I think those three broad buckets, we can go into whichever one you like. But these are the
12:51 broad three buckets of where we think Boin is different.
12:55 Jigar, I'm just going to take a cue from that where you said investors are busy running their
13:00 core business and that's how really it should be. It should be the experts like yourself for managing
13:04 investments and timing, trying to time the markets in that sense.
13:08 That brings me to my next question. You have taken a cash call from what I understand.
13:13 What I want to understand is the cash call that you're sitting on in terms of cash is only for
13:19 new portfolios that you're building or also for existing portfolios you've cashed out at higher
13:25 levels and are waiting on cash or dry powder to make fresh bets.
13:28 Right. So I think the headline number at 25 percent sort of cash number looks relatively
13:36 large. But for all the accounts that we have opened in the last three months, that cash
13:43 proportion is higher. All the accounts that have had two years with us, the cash proportion is much
13:49 lower, closer to 10 or 11 percent. Now, I just mentioned that we are not running a model
13:57 portfolio and that allows investors to sort of not try and time the market because eventually
14:05 we think it's a futile exercise. But every time somebody is sort of wanting us to create a
14:10 portfolio, they have in the past three months always been reasonably wary on how should we go
14:17 about doing this. So all the money that we have raised in three, six months, we have told most of
14:22 our investors that will take time to fully deploy this capital. And therefore, it has been a slow
14:28 and steady build out. And that is sort of skewing the number at the overall portfolio level. But
14:34 when you start looking into the vintage of where that sort of cash is residing in the older accounts,
14:41 the cash proportion is lower, the newer accounts, the cash proportion is relatively higher.
14:47 Right. We will take a quick break. Jigar, we will come back and continue our conversation. So stay
14:53 tuned.
14:55 Thank you.
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16:34 - Welcome back.
16:39 You're watching the Portfolio Management Manager Show.
16:41 We've got with us Jigar Misty,
16:43 co-founder of Boeing Capital, in conversation with us.
16:46 Jigar, we talked about your portfolio stand.
16:48 Now, what I want to understand from you
16:50 is in the last couple of months,
16:52 or maybe more recently, actually,
16:54 your bias has shifted to the large cap space.
16:57 You want to elaborate on that?
16:58 Is it because you think the broader markets
17:00 are a little more frothy, the value,
17:02 the risk reward is far more favorable
17:04 in the large cap space?
17:05 - Right, so see, let's sort of take a step back
17:09 and look at how we are sort of building out
17:12 to these situations and how similar situations
17:14 in the past have led to less than desirable outcome,
17:19 if I'm generous.
17:20 Right, so between 28 March, 2023,
17:24 and the first or second week of December,
17:27 that's when we ran this analysis,
17:30 there were some 250 companies in between that time,
17:34 which have more than doubled in prices,
17:37 the share prices, I mean,
17:39 and there were three companies
17:40 that have gone up more than 5X.
17:42 Right, now, the sort of performance that we have seen
17:45 has put us, if I look at the market cap cycles,
17:49 and we take 25% drawdown as a drawdown for a new cycle,
17:53 then we have seen, we are now post-COVID
17:56 in the second best cycle for small caps
18:01 after 2004 to seven cycle.
18:03 Right, so we have seen many of those small
18:06 and mid-cap cycles, but after the correction,
18:09 which started in Jan 2018, to almost March 2020,
18:14 the recovery has been in excess of 345%
18:19 for the small cap index,
18:20 and a lot of sectors have gone up as well.
18:23 Now, in that process, oftentimes,
18:25 what tends to happen, Samina, is that,
18:27 you know, initially, people start believing
18:31 that because we are in this cycle,
18:33 that cycle will keep on going on.
18:36 It could be market caps, it could be sectors,
18:39 and I think that is where sort of opportunity
18:42 for people like us emerge.
18:43 So by March 2023, most people were busy buying,
18:48 you know, life insurance policies,
18:49 and because of budget changes,
18:51 the net product had been given some amount of levy as well,
18:55 and our small and mid-cap exposure at that juncture
18:59 was upwards of 62% in the overall portfolio.
19:03 With the rally that has happened since March,
19:06 a lot of these businesses have gone beyond
19:09 what we think is fair value,
19:11 and some of them are actually quoting
19:13 at rather frothy valuations.
19:15 We have taken sort of that opportunity
19:17 to reduce our exposure in that segment.
19:21 As we speak, by end of December,
19:23 the small and mid-cap is closer to 35%,
19:27 up from almost 65% at peak in between those timeframes,
19:32 and the incremental money is going a lot more
19:34 into larger caps, and as I said,
19:36 we are taking time to deploy fresh capital
19:39 that is coming our way.
19:40 So I think that is one part.
19:42 The other part is that let's look at,
19:44 you know, when the most imminent question
19:47 is what really sort of leads to a correction in the market.
19:51 Right now, it might become evident a lot later,
19:56 you know, with time.
19:58 Let's look at 2018.
19:59 2017, '16 and '17 post-Demon,
20:03 we had a great run-up in the small and mid-caps.
20:06 You know, stocks were flying through the roof.
20:08 Then in the start of 2018, around Feb,
20:11 we had the long-term capital gains budget,
20:14 and then there was a realignment of the mutual funds
20:18 holding true to level sort of scenario.
20:21 Both those events, independently and in and of themselves,
20:25 would not have resulted in something like a 38% crack
20:30 in the small and mid-cap index together,
20:32 and there were 247 companies which held more than 60%
20:37 between Jan 2018 and August 2019,
20:42 and there were some 47 companies which fell more than 80%.
20:47 So I think this sort of pendulum effect
20:49 is taking a lot of center stage.
20:52 People are again getting confused
20:54 between information and knowledge.
20:58 There is a lot of information flying around in social media,
21:01 you know, a lot of WhatsApp chat groups,
21:04 and therefore, they think that sort of this is what continues,
21:08 but the farther you pull the pendulum,
21:11 you know, the farther down it will swing on the other side,
21:15 and those reactions are fairly swift.
21:18 Seemingly unrelated events is leading to corrections,
21:22 which is not very apparent ahead of time,
21:26 and therefore, you might have this scenario play out again
21:29 this time around.
21:31 Same, you know, sector cycles, 2000 to 2008,
21:35 capital goods was the best-performing sector,
21:38 but once the market peaked with the global financial crisis,
21:42 the capital goods index saw the same levels again in 2021.
21:47 Correct?
21:48 So it took 12 and a half years for the index
21:50 to come back to the same level.
21:52 Same thing with FMCG and consumer sort of cycle, right?
21:56 2014 to 2019, everybody would think that consumption
22:00 is the best-performing and best-placed sector to invest in.
22:05 You know, the narrative went that crude prices
22:07 could inflate, commodities could inflate,
22:10 but the mood around this business is so strong
22:13 that it's okay to pay 40, 50, 100 P
22:16 to buy these businesses,
22:17 and once with March 2020, that index peaked,
22:21 for the past three and a half years or so,
22:23 most investors are struggling to make sense
22:25 of what's really wrong with the FMCG sector,
22:28 but I think the essence and existence of this cycle
22:31 is driving the entire situation here.
22:34 - Jigar, we're short of time, but one quick question
22:36 that I want to quickly squeeze in.
22:39 Financials is compromised for banks, NBFC, and insurance
22:42 compromise the single largest exposure
22:44 that you currently have.
22:45 I know you've been bullish on stocks like MaxLife
22:49 all through last year, but very quickly,
22:51 for the sake of our viewers, two to three stocks,
22:54 one each from banks, NBFC, and insurance
22:57 that you like right now,
22:58 and that you could possibly stick your neck out
23:00 and hope that they play out as expected.
23:02 - So banking financial is a very interesting sector.
23:06 I think large banks is a place to be in.
23:09 We don't really have a license to recommend stocks,
23:13 but I can tell what's in our portfolio.
23:15 - Yeah, that would be great, yeah.
23:17 - Yeah, for the first time in sort of seven years,
23:19 HDFC Bank is in the top holding that as we have seen today.
23:24 So HDFC Bank or ICICI Bank are the top two businesses
23:30 that we own.
23:31 NBFC is again an interesting space,
23:34 but with the RBI regulations coming in,
23:38 it's not something that we are increasing exposure
23:41 dramatically, and within insurance,
23:43 whereas Max is something that we continue to own,
23:46 ICICI GI is a business that we have bought
23:50 over the past three months or so.
23:51 - Right, thank you very much, Igar.
23:55 Good luck, it was great talking to you,
23:56 and once again, wish you a very prosperous year ahead.
23:59 We'll hopefully see you soon, thank you.
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29:52 - Hello and welcome.
29:53 You're watching Market IQ on NDTV Profit.
29:57 Quick look at markets first.
29:58 You're seeing markets showing some amount of strength,
30:02 resilience, two thirds of a percent higher
30:04 on the Nifty 50 as we speak.
30:07 Also, with regard to the mid-cap
30:10 as well as the small cap indices,
30:11 they continue to outperform the benchmark index.
30:14 In terms of the gainers on the Nifty today,
30:17 we're seeing the likes of an NTPC up 4%,
30:20 an all-time high for that stock.
30:23 You have the likes of Bajaj Finance
30:24 surging on the back of numbers.
30:26 You also have Tata Consumer hitting its all-time high,
30:29 3.5% higher on Tata Consumers.
30:32 Among the losers, you have the likes of an LTI Maintree
30:35 as well as HCL Tech.
30:36 IT continues to be the lagard there.
30:39 And BPCL also trading with a cut of around 1.4% odd.
30:43 Let's quickly look at the sectors as well.
30:45 You're looking at the Nifty Bank,
30:46 which is up 1% as well,
30:49 largely in line with the broader markets.
30:51 You're seeing some amount of red on the Nifty IT,
30:54 just a hint of red, in fact, as we speak.
30:58 But other than that,
30:59 you're looking at the likes of Nifty Realty,
31:01 which is surging 6% in trade.
31:03 Nifty Private Bank also gaining a percent or thereabouts.
31:06 Let's also pull up the constituents of the Nifty Realty
31:09 because all of them have really hit it out of the park today.
31:13 You're seeing pretty much a solid piece of green
31:16 across the board, 4%