- What does Gurmeet Chaddha's investment thesis look like?
- What are his top bets in the utilities sector?
Sajeet Manghat speaks to Complete Circle PMS' Gurmeet Chaddha on 'The Portfolio Manager'. #NDTVProfitLive
Guest List:
Gurmeet Chaddha, Managing Partner & CIO, Complete Circle PMS
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- What are his top bets in the utilities sector?
Sajeet Manghat speaks to Complete Circle PMS' Gurmeet Chaddha on 'The Portfolio Manager'. #NDTVProfitLive
Guest List:
Gurmeet Chaddha, Managing Partner & CIO, Complete Circle PMS
_______________________________________________________
For more videos subscribe to our channel: https://www.youtube.com/@NDTVProfitIndia
Visit NDTV Profit for more news: https://www.ndtvprofit.com/
Don't enter the stock market unaware. Read all Research Reports here: https://www.ndtvprofit.com/research-reports
Follow NDTV Profit here
Twitter: https://twitter.com/NDTVProfitIndia , https://twitter.com/NDTVProfit
LinkedIn: https://www.linkedin.com/company/ndtvprofit
Instagram: https://www.instagram.com/ndtvprofit/
#ndtvprofit #stockmarket #news #ndtv #business #finance #mutualfunds #sharemarket
Share Market News | NDTV Profit LIVE | NDTV Profit LIVE News | Business News LIVE | Finance News | Mutual Funds | Stocks To Buy | Stock Market LIVE News | Stock Market Latest Updates | Sensex Nifty LIVE | Nifty Sensex LIVE
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09:20 Hello, and welcome to "NDTV Profit."
09:25 You're watching "The Portfolio Manager."
09:27 And my guest today is Venugopal Mangat,
09:29 who is a CIO equity at HSBC Mutual Fund.
09:32 Venu, thank you very much for joining us on "NDTV Profit."
09:35 To begin with, Venu, you know you managed nearly 42,000
09:38 crores in asset under management.
09:41 A bulk of that is into multi-cap and small-cap and mid-cap.
09:46 Tell me how you are allocating your funds today
09:51 between mid-cap, small-cap, and the large-cap.
09:55 I think it basically depends on the opportunities that
09:58 are there and the objective of the scheme as well.
10:01 So you have opportunities on all three sides of the market.
10:07 I think on the large-cap front, there
10:09 is a lot of sector rotation that is playing out.
10:11 So you can get ideas from different sectors
10:17 and plug-in gaps which are there.
10:19 So that's one.
10:20 Mid and small-caps are more bottom-up stock picks.
10:23 And we always look for ideas to identify
10:28 new stocks for the portfolio.
10:31 So that's a constant process.
10:33 And there's been a large number of stocks
10:38 that we've unearthed over the last so many years.
10:41 And that's given us the alpha.
10:43 I believe it's investing outside the benchmark,
10:47 looking at the broader markets that
10:49 give you the edge over the benchmark
10:52 and competition in general.
10:54 So that has been our forte, and that's helped so far.
10:58 How do you manage the entry and exits,
11:01 especially in the small-cap and the mid-cap side?
11:05 There is a liquidity issue which comes into play because
11:08 of the price volatility that may come into these stocks.
11:12 So between small-cap and mid-cap,
11:16 you have small-cap concentration of nearly 35%
11:19 for your multi-cap, and mid-cap around 26%,
11:22 and large-cap is at 35% for you.
11:24 So anything beyond the first 250 stocks,
11:30 as per classification, comes under small-cap.
11:32 So how do you look at liquidity?
11:34 What are the parameters that you look to start investing
11:37 in small-caps?
11:39 So liquidity is one of the more important aspects,
11:42 given that, anyway, markets have moved up now,
11:45 and you can get stuck if you are not in the right stock.
11:50 So when we do our due diligence on companies,
11:53 one of the first filters that we use is the management--
11:58 of course, the management quality, the business prospects,
12:00 et cetera, are important, but also the liquidity that is there
12:03 in the stock, the floating stock that is available,
12:05 what you can do, what are the prospects
12:08 over a longer period of time.
12:10 So we believe that if the prospects are good for a business
12:14 and for the company, and if it's run by good promoters,
12:17 liquidity comes over time automatically.
12:20 I mean, I think more and more investors get enticed
12:23 into that company, into that stock, over time,
12:26 because of the prospects, better prospects, better execution,
12:29 and the returns that the stock is giving.
12:33 So it's important to get into the right businesses,
12:35 run by the right people.
12:38 You have to keep in mind the liquidity,
12:40 the floating stock that is there,
12:41 but that is the additional factor.
12:45 As the fund size has grown, especially on the small-cap side,
12:48 I've been conscious of keeping the cutoff
12:51 in terms of what minimum market cap we will go for.
12:56 Earlier, we used to invest in much smaller companies,
12:59 sub-thousand-crore companies in terms of market caps.
13:03 This was a few years ago.
13:05 Now, since the size of the fund has grown,
13:08 that has gone up quite substantially over the years.
13:12 So now we really don't look for very small companies.
13:16 We look for scale.
13:18 And you asked about the entry and how do we manage that.
13:21 So I typically buy stocks in small quantities,
13:25 build the portfolio over time.
13:27 So I don't like to really jump into a large position in one go,
13:33 unless it's, of course, a placement or you are part of a deal
13:38 or an IPO or something, which is fair.
13:42 But otherwise, if I'm buying from the secondary market,
13:45 I like to build the portfolio over time,
13:48 assess how the market is looking at the stock,
13:52 assess whether my thesis is playing out,
13:54 and then get that conviction and then build the size of the bet
13:59 that I would want eventually over time.
14:02 So if you look at the small-cap and the mid-cap space,
14:07 the number of teams that are playing around
14:09 has much more to play out, right, for the fund manager,
14:12 as compared to a large--
14:14 Within the teams, how do you allocate funds then?
14:18 You're saying the--
14:20 If you look at the defense, it could be one team.
14:23 It could be consumer discretionary could be one,
14:26 or cable and wires could be one, or a real estate-allied sector,
14:30 or auto-allied sector, or auto-ancillary.
14:34 Sure, so when it comes to small and mid-caps,
14:36 it's largely bottom-up in approach to investing.
14:39 It cannot be that you want a certain allocation to a sector
14:43 and therefore then you look for small companies within that.
14:46 It's largely how good the company is, how good the business is,
14:50 how good the people are who are running the business,
14:52 and then take those bets.
14:54 And the final result is what you see on the fact sheet,
14:58 which is the sector allocation that you get.
15:01 Of course, larger sectors like IT and banking, et cetera,
15:04 you would have that in mind as to how much is the benchmark,
15:07 what is it that you would want,
15:09 what are the trends that you see in the sector,
15:12 and what are the prospects going forward.
15:14 So that plays in your mind, but generally it is you get opportunities
15:18 and then you build your portfolio,
15:20 and as a result of that you find the sector allocations changing.
15:25 So it's not that I need to allocate within the small-caps
15:29 into different parts of the market.
15:32 The opportunities come in different parts of the market.
15:35 And the beauty of this, as you rightly mentioned,
15:38 the small and mid-caps have a much, much broader universe, I would say.
15:44 Right from the 250, 51st company up to, let's say, the 800th company,
15:49 if you go by market cap, you have a 550-stock universe,
15:52 which is very, very diverse in nature.
15:55 I would say that that has the best breadth in terms of sectors as well.
16:00 A lot of new sectors as the economy is evolving and the markets are evolving,
16:06 you are getting addition of a large number of new sectors
16:11 and new kind of companies into the markets.
16:14 So we have never seen some of these sectors getting listed,
16:17 and now because they have got scale and the economy is evolving,
16:21 they are getting those listed, and they are all coming in the mid and small-caps.
16:25 So it's a great place at the moment.
16:29 I think there is a lot of variety there,
16:32 much more than what you have in the large and the mid-caps.
16:35 I also see that you have a good amount of weightage to the IT sector.
16:40 If I look at your multi-cap fund, it's around 12% and small-cap as well, 8%, 9% odd.
16:48 What makes you so bullish on IT?
16:50 Because IT has been underperforming,
16:53 and many of the portfolio managers have reduced weight for IT.
16:57 At that time, your weightage for IT is much higher.
17:01 Yes, so like I already mentioned, it is largely bottom-up stock picking.
17:05 So we have some of the small-cap IT stocks,
17:08 and some of them have migrated to a mid-cap range.
17:11 Some have moved further into the upper end of the mid-cap range.
17:15 But these have been early picks.
17:18 Many of them have their own story, or all of them have their own story.
17:22 They have come into the portfolios on their own merit.
17:25 They are in niche segments, or they are having tailwinds of various kinds.
17:31 Some have a change of leadership, which has played out for some time now.
17:36 So each stock has a different story to tell.
17:40 It's not that we've taken a sector call and allocated 9% within the portfolio.
17:45 It's been bottom-up stock picking that has finally resulted in that allocation.
17:49 We have not been very positive for some time on the large-cap IT,
17:54 or bellwether stocks that are there.
17:57 We believe that it is a bottoming-out phase that we see currently.
18:03 But I think valuations are still not very attractive.
18:07 I mean, probably more attractive versus some of the mid-caps.
18:12 But it's still some time for the demand to really get better.
18:16 So within the IT, you also look at specific stories, basically.
18:21 The recent being the engineering R&D story, which is there.
18:26 You have exposure to KPIBT and BidelaSoft, if I see your portfolio.
18:31 You're looking at differentiated offerings and new-age offerings.
18:38 Is that the way to look at it?
18:40 Yeah, absolutely. I wouldn't say new-age, but differentiated, yes.
18:44 I mean, not really keen on the run-of-the-mill companies,
18:48 which are doing the same business.
18:50 And then it's a call on what valuation you're entering
18:53 and what valuation you exit at what price.
18:56 That's not the game that we are interested in.
18:58 We are looking at companies that can differentiate themselves,
19:01 and that differentiation gives them an edge for a relatively longer period of time.
19:07 And we like to hold companies for long and remain patiently invested.
19:12 And that's what we've been doing.
19:14 So these are, you rightly said, it's a differentiated portfolio
19:18 when it comes to the software side, IT side.
19:22 How do you decide when to churn your stock,
19:25 especially when they have run up so much?
19:28 Because that's a decision fund managers are always grappling with, right?
19:32 Means in the last 12 to 18 months, you have seen small-cap and mid-cap run up so much.
19:37 When to book profit and when to churn and when to keep or hold these stocks?
19:42 So I've been generally having a low churn in my portfolio.
19:49 So for the small-cap fund, we have less than, I think, 0.3.
19:54 So 0.2, 0.3 is the portfolio turnover.
19:57 And that's been the case for the last several years now.
20:00 Similarly, with all my other funds.
20:02 So it's not that I book profits on a regular basis
20:06 and keep churning the portfolio or buying something new.
20:08 Booking profits is a regular feature, but it doesn't necessarily mean
20:13 that you completely sell out of stocks and get into new stocks.
20:16 And that is the churn that I'm not very keen on.
20:20 So when I'm constructing a portfolio,
20:22 I would like to buy into companies where I can stay invested for as long as I can.
20:26 That's the thought process.
20:27 Now, there will be some cyclical bets within the portfolio,
20:30 which you will need to take a call at some point.
20:33 Or cases where valuations run up too much,
20:36 where you need to be a little careful and vary,
20:38 and maybe you'll need to bring down the exposure or exit the stock
20:42 if you have something else to replace that.
20:45 So for long, we've held on to a large number of companies.
20:51 The profit booking comes when you have valuations having moved to unjustifiable levels.
20:58 You book some profits, you reduce the exposure.
21:02 At the same time, if you have something else where the returns can be better,
21:06 if you think that returns can be higher in other portfolio stocks,
21:10 then you tweak that and therefore increase the exposure there.
21:13 So that's broadly what we've been doing,
21:16 not really change the portfolio significantly,
21:20 other than get some new stocks.
21:22 As in when you identify some great companies,
21:25 then you add them to the portfolio.
21:29 And is there a trigger for the churns?
21:32 In the sense you spoke about what normally is your philosophy on churn,
21:36 but is there a threshold of return after which you start looking at,
21:42 should I pay some of the profit, book profits or keep cash
21:47 so that I can use it for other opportunities?
21:50 No, we don't use a threshold return to really decide when to churn.
21:54 It's more case-to-case basis.
21:57 If the business prospects are going from good to bad to worse,
22:02 then obviously you need to take a call
22:04 and you will not keep a very high exposure,
22:06 so you'll need to cut down on that.
22:08 Or if there is any other issue that you have with the company, the business,
22:13 then obviously you cut down your exposure.
22:16 The third case is when valuations run up too much,
22:19 which is the point I mentioned earlier,
22:21 that then you pare down the exposure
22:23 and if you have something else that can take the place, then you do that.
22:26 Those are two or three cases where we book profits and reduce our exposure.
22:32 Of course, liquidity, the size of the company,
22:35 finally, let's say in cases,
22:39 we've had cases where some small caps have gone to 5-6% by appreciation,
22:45 then obviously you can't take those kind of,
22:48 at least I don't want the investors to face the risk of having that kind of portfolio
22:55 where small companies are at 5-6-7% of the portfolio.
22:58 And so that's a risk that I don't want to take.
23:01 So to mitigate that, we reduce the exposure.
23:04 So that's the other time when I want to really reduce the exposure or book profits.
23:11 Venu, stay with us.
23:13 We'll come after a short break and we'll discuss more about some of his funds
23:17 and his asset allocation across some of the sectors.
23:20 Stay tuned to NDTV Profit.
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24:50 Welcome back.
24:51 You're watching NDTV Profit and this is the Portfolio Manager.
24:54 And with me is Venu Gopal Mangat, who is the CIO of Equity at HSBC Mutual Fund.
24:59 Venu, thank you for joining us.
25:02 Let me take a view from you on some of the key sector allocations that you have made.
25:09 You spoke about IT software and where you are looking at some of them.
25:15 But what about industrials, construction?
25:18 How do you look at these sectors?
25:20 Because there also you have a sizable amount of exposure in terms of holdings.
25:25 Absolutely.
25:26 I think we have been positive on the industrial space for quite some time.
25:31 I think one of the key drivers of the economy we believe is the investments team that is playing out.
25:37 The government spending on infrastructure and investments and the thrust to manufacturing in the country
25:44 is really driving growth or giving opportunities for growth to a large number of companies.
25:50 Many of these reside in the small and mid-cap space.
25:53 And that's the beauty of the manufacturing segment.
25:57 Manufacturing covers a whole lot of sectors, ancillaries under that.
26:02 So, that largely resides in the mid and small-cap range.
26:06 And that's why we have more companies there in the small-cap and the mid-cap funds that we run.
26:13 But otherwise also we are quite positive on that space,
26:17 given that the investments team is one of the key drivers of the economy
26:21 and will continue to be for quite some time.
26:24 I think there is a whole lot of work that is going on the railways front, on the power.
26:30 Both now thermal power is also coming back quite strongly.
26:34 There is a move towards renewables.
26:36 And then the urban infrastructure team is also playing out quite strongly.
26:42 And this is the first part of it.
26:46 Of course, the private capex is yet to unfold in a big way.
26:50 There is some start, early signs of private capex beginning.
26:55 So, my belief is that for the next three to five years,
26:58 there is a clear growth path for the entire space.
27:03 Of course, the other opportunity of manufacturing for the world,
27:07 for the larger companies across the world,
27:11 being a sourcing base is always there for the Indian companies,
27:15 given the environment that is being provided with lower taxation,
27:21 the incentives that are being given to these industries, etc.
27:24 So, that's the added advantage.
27:26 So, I think there is enough growth there for companies to take,
27:33 which is why we are positive on this space.
27:36 How do you look at the small cap and the mid cap space with respect to capex?
27:40 Because are you seeing many of these companies putting in more capex?
27:44 Or the growth momentum for them would be much more in the near term or medium term for them?
27:53 So, a lot of these are in the manufacturing space.
27:56 They have capacities.
27:58 The last cycle, there was enough capacity that was created,
28:02 which is why you saw a kind of decline or a contraction phase for a long period of time.
28:07 From 2020 or '21, we've seen an improving trend in terms of that utilization.
28:13 As a country, we are now at, I think, 75-76% utilization levels.
28:18 Further capex will take place as and when opportunities come
28:22 and as and when companies or businesses reach high levels of utilization.
28:28 So, it's more case-to-case basis, I think.
28:31 But generally, small caps and mid caps have been doing well,
28:35 given this environment of better growth.
28:38 Interest rates have risen but have not really reached levels which are biting.
28:44 Leverage in the portfolios are fairly low.
28:47 Leverage in the company balance sheets are fairly low.
28:51 And therefore, everything is flowing.
28:54 And taxation is also lower.
28:55 So, everything is flowing to the bottom line.
28:57 And therefore, the ROEs are getting better.
29:00 So, which is why there is outperformance from a large number of these companies.
29:07 Banks and financials, you've been bullish on them.
29:11 Which segment of the banking and financials side is more,
29:16 is it the mid cap and small cap or the large caps that have been doing well?
29:21 So, banking and financials, we've had a slightly lower rate.
29:25 I would say, I mean, within banks, again, I think we've played some of the public sector banks,
29:30 the top ones a little more.
29:33 NBFCs and finance space, in some portfolios, we've had a good exposure.
29:38 We've been having that for the last few years.
29:42 That's done well.
29:43 So, overall, if you see as banking and finance,
29:46 I think we are maybe slightly underweight compared to the benchmark.
29:51 I think in terms of margins, the net interest margins,
29:55 the banking space has seen the best.
29:58 And now it's on a declining trend with the fight for deposits, you know, continuing.
30:04 My belief is that that is likely to continue for some more time
30:09 before it peaks out that pressure on margins, etc.
30:12 Valuations, however, relatively compared to the rest of the market is cheap.
30:17 But that's the consensus view.
30:19 So, I don't know how much is left to play from the market.
30:23 You have around 10, 11% exposure?
30:25 Yes. I mean, so we are underweight, the heavyweight index stocks,
30:29 and we have got some of the public sector banks.
30:34 And, you know, this is a space where, mid and small caps, we are a little wary of
30:40 because lending is something that is very easy to do,
30:43 but getting back the money is tough.
30:45 So, you need to be in high-quality institutions where the underwriting process is strong.
30:51 And therefore, we have not really gone very low in terms of market cap
30:57 to identify companies in this space.
30:59 But we have got some good quality financial, I mean, NBFC is also in the portfolios.
31:06 It depends on which portfolio you are looking at, but, yeah, I mean, we do have.
31:09 And consumer staples and consumer discretionary,
31:13 I mean, that's something which people are a little divided on in that sense.
31:18 Discretionary, they are bullish on, but staples, they are very cautious.
31:21 Yes, I think staples, of course, the valuations are high, but that's been a problem for long.
31:27 I think growth has been subdued because the rural economy is not really performing as well.
31:34 There are views that, you know, it is getting better,
31:38 but there is still evidence yet to be seen on that.
31:43 But I think the discretionary space, especially the high-end discretionary consumption is really doing well.
31:51 Our belief is that consumption as a theme is going to be a very powerful theme for the next decade or so for India.
32:01 Given that the per capita GDP is at about 2200, we have crossed that $2000 mark.
32:07 And the expectation is by end of this decade, we will go to about $5000 plus per capita GDP.
32:15 That is likely to unleash a whole lot of discretionary consumption.
32:21 And along with that, you have the underpenetration in multiple categories within consumption
32:26 and a shift from the unorganized market to the organized market.
32:31 So, in multiple segments within discretionary consumption, the unorganized market is very large.
32:37 And, you know, slowly that is getting converted to the organized space.
32:41 Some of these companies which are getting listed, I mean, if you take the last two years,
32:45 one and a half to two years data in terms of the IPOs, there are a number of companies which have got listed,
32:51 number of new sectors that have got listed. Some of these are in that discretionary consumption space.
32:56 Now, they are getting to a scale and that scale is coming because there is a shift from the unorganized to the organized sector.
33:02 So, market share gains, penetration getting better, per capita consumption going up,
33:09 meaning higher spending by consumers, all should lead to a good performance from the consumption team.
33:16 Staples is separate. Staples, I think, is not a great place to be.
33:20 It's a stable segment, high return segment, return in the sense the ROCs, etc. are very high.
33:28 Cash flows are very strong. You don't need cash to grow the business.
33:32 So, great place, I mean, in that sense, but for generating returns and alpha, I am not sure whether that's the place.
33:39 Discretionary consumption is a more exciting space. I think for the next ten years,
33:43 there will be multi-baggers to be made there.
33:45 Which are the sectors where you can create alpha? As of today, you spoke discretionary is one of them,
33:51 but aside of discretionary, is there anything else?
33:55 Yeah, I think the more exciting space within manufacturing where companies are getting into niche segments,
34:02 taking the opportunities available from a global platform, you know, taking advantage of government incentives,
34:12 that is a space which is interesting. You know, some of that is also, you know, like, for example, electronics manufacturing.
34:19 There are opportunities like that across the market where new sectors, new segments are evolving.
34:26 And, you know, in pharmaceuticals and intermediates, in chemicals and textiles, in multiple segments,
34:36 therefore, there are, you know, companies that are doing good work and therefore, alpha can be created in many of them.
34:45 So, I think the smaller sectors within the overall, you know, team of manufacturing,
34:51 many of them have companies that are doing well, taking advantage of all what I said,
34:58 and that's the space where you can generate alpha.
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