Earnings Edge | Spandana Sphoorty, Newgen, Infibeam | NDTV Profit
Earnings Edge: Spandana Sphoorty, Newgen Software Tech, Infibeam Avenues report Q3 results.
Managements decode the numbers, in conversation with Hersh Sayta. #NDTVProfitLive
Managements decode the numbers, in conversation with Hersh Sayta. #NDTVProfitLive
Transcript
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30:12 Hi, thanks so much for joining in.
30:17 You're watching the Mutual Fund Show on NDTV Profit,
30:19 and my name is Alex Mathew.
30:21 One of the easiest, most uncomplicated ways
30:24 to invest in the equity markets in India is through index funds.
30:28 They allow you to invest in the constituents of an index.
30:32 And the most popular index funds replicate the benchmark Nifty 50.
30:36 That's where most of the money, in fact,
30:39 gravitates to in the passive strategy space.
30:42 It's uncomplicated because when you put money in these funds,
30:46 you're simply investing in the 50 stocks that form the Nifty 50
30:50 in the proportion of their weightage.
30:52 What that means is that if you put 100 rupees, for example,
30:56 into a Nifty 50 index fund, you're effectively putting 13.5 rupees
31:01 in HDFC Bank and about 10 rupees in Reliance Industries,
31:05 as things stand right now, and the rest, of course,
31:08 according to the weightage.
31:10 But consider this.
31:11 There are also passive strategies that use the index as a base,
31:15 passive strategies with a twist.
31:18 These are called smart beta strategies,
31:20 and some of them have quite comfortably beaten the benchmark
31:24 over the past several years.
31:26 We're going to be talking about one of these,
31:28 the equal weight strategy.
31:30 I spoke with the Joint Chief Executive Officer of SBI Mutual Fund
31:34 about this scheme, and in fact, they've got a new fund offer
31:38 that is offering the equal weight index with regard to the Nifty 50,
31:42 and I began by asking how these schemes work.
31:46 This is smart beta strategy, right?
31:49 In any index fund, you generally, what you do,
31:52 you put as per the weightage, you don't have to do anything.
31:55 You just put, if I take 100 rupees, I put 100 rupees
31:59 in the same weightage as the market cap is there in any of the funds.
32:04 So what happens, if today I get 100 rupees,
32:08 then that is 40 rupees will go into the HDFC Bank
32:14 or Reliance Industries, and top three, four stocks
32:17 will get me around 40 to 50%.
32:22 So in an era when only these four stocks are doing very well,
32:26 then the index will do well, but generally,
32:28 the top 50 companies of the country are so well governed,
32:33 so much good business is happening.
32:35 So getting the benefit of that to the fullest extent,
32:39 so this smart beta strategy is there,
32:41 we will be putting all stocks in the top 50 stocks,
32:45 we'll put in the equal weight.
32:47 Every stock will get around 2%.
32:50 It could be one or two percent here or there,
32:52 like rather than two percent, it could be 1.9798 or 2.01, 2.02,
32:57 but more or less, it will be in all the 50 stocks,
33:01 in the same strategy.
33:03 When the overall businesses are doing well,
33:06 overall all the sectors are doing well,
33:08 this gives a very, very good representation
33:12 to participate in the growth story of the country.
33:16 That's what I would say to you.
33:18 Interesting, because I was looking at your presentation as well,
33:21 and as you point out, the top stocks account for a very large chunk
33:25 of the Nifty 50, and as of the end of December,
33:28 or the last weightages that we looked at,
33:31 as you pointed out, yes, HDFC Bank around 13.5% on the Nifty 50,
33:36 and the top 10 stocks are 57% of the Nifty 50.
33:40 But in this case, the top 10 stocks on the equal weight index
33:44 would only be about 20%, so there's a very dramatic shift.
33:48 Could you talk about instances in the past
33:51 where there has been outperformance, underperformance,
33:54 based on this difference in strategy?
33:57 If you look at the last 15 to 20 years,
34:01 in the majority of the years, the equal weight index
34:04 has outperformed the lease market.
34:07 There are some exceptions, like in 2019,
34:10 you know, only four or five stocks were taking the index high,
34:16 and it was HDFC Bank, HDFC itself,
34:22 because at that point, there were two large entities,
34:25 there were less industries.
34:27 These three, four, five stocks were taking the index high.
34:33 That was an exceptional year,
34:35 because Nifty 50 gave a much better return than the equal weight.
34:40 But otherwise, in the normal years,
34:42 in last year or the year before that,
34:45 more or less than every year, every year,
34:49 the equal weight index has given better return
34:53 than the normal Nifty 50 return, the equal weight.
34:56 Sorry, in the normal period.
34:59 So that is something that gives us a lot of confidence,
35:02 because we feel in the mud house
35:05 that with the increase in the market capitalization
35:09 and with the maturity of the market,
35:11 the big companies should get the proper representation,
35:17 which is not there as of now.
35:19 In fact, if you look at US, it is essentially five months.
35:22 And in our country, Nifty 50 or VSE 30 was not so many years.
35:28 There's a structural thing.
35:30 Beyond this, Nifty 50,
35:32 even we are thinking of once we are done with that,
35:36 maybe sometime later we can come with the LSE 100 also,
35:40 or VSE 100 as well, smart beta,
35:43 because 1% is equal.
35:45 So the point is that this is the fund
35:48 which gives dual representation in a cycle
35:53 where all the businesses are doing well.
35:56 That's an interesting perspective.
35:57 And it also changes, it's not just the stock representation,
36:00 because ultimately we're talking about a benchmark for the market
36:04 which has sectoral representation as well.
36:07 And because of this equal weight,
36:09 you have far greater representation of sectors as well, right?
36:14 Yes, yes, that's right.
36:16 Okay, so the other aspect to talk about
36:19 is the response or the interest in investing in passive strategies.
36:25 In your experience,
36:26 considering that you actually cater to a wide gamut of investors,
36:31 not just those in the top 30 odd cities,
36:34 what is the kind of interest that you have seen in passive strategies
36:39 in the recent past,
36:40 and what is the kind of interest that you are getting
36:43 with this scheme as well?
36:47 Alex, I am very confident that we'll get a very, very good response in this,
36:52 because this is very simple to explain,
36:54 and it's not complicated, very, very simple,
36:58 because simplicity sells.
37:00 When we are talking about the length and breadth of the country
37:05 and the smaller towns, etc.,
37:06 if you get into a very complicated structure,
37:09 it becomes very difficult to explain to a layman what we are talking about.
37:15 This story is so simple that if you want to participate in India's growth story,
37:20 there's no other way, but only to participate in the equity market.
37:25 And through equity market,
37:27 the larger representation of getting into the larger companies first,
37:31 that is a general phenomenon,
37:33 all the growth,
37:34 whenever somebody enters into a particular area first to get into India,
37:38 first to get into the lower degree.
37:42 And we also see in last year,
37:44 I think more than required,
37:46 money has gone into smaller and big tax.
37:49 So this year, in any case,
37:51 we feel that we know that we need to go to large caps,
37:55 and within large caps,
37:56 the simple strategies like this should give a very good response to the investor
38:01 and that is below.
38:03 Okay.
38:04 Fair point.
38:06 And also, from the perspective of when you are talking to people
38:10 and when distributors are also selling this,
38:12 from the fund house perspective,
38:15 are you pitching this as something to look at in tandem with other strategies
38:19 in that should this work as a partnership with, say,
38:24 a traditional index fund strategy
38:26 so that you have the equal weight index plus you have the nifty-fifty?
38:31 I'm asking firstly, Alex,
38:34 we always have been telling the people who have been traditionally putting money
38:38 in nifty-fifty,
38:40 we have always been advising them,
38:43 guiding them that they should get into either nifty-next-fifty or nifty-next-thirty.
38:48 What happens, there's a lot of demands, I think,
38:52 you know, a lot of FII, FII money coming into the market.
38:55 And the first thing, when somebody enters into any market,
38:58 as you said, for Lehman, it's true for even FII,
39:02 the first thing is to get into the index.
39:04 And in that, what is happening, all this structural money which is coming into the market,
39:08 a majority of that is going into the top four or five stocks,
39:12 which is making these stocks very, very costly.
39:15 And we have seen, as we did in the last three or four days only,
39:19 how a particular stock's bidding has brought down the index so, so, so much.
39:25 And that line up, if we get into this kind of simple strategy,
39:30 so, people will, that makes much more sense.
39:33 And yes, we have been telling the regulators also,
39:40 regulators, how I say, I'm not a more savvy,
39:43 I'm talking about the government and other things,
39:45 where they are generally approving only nifty or only BSE-30.
39:50 So we are telling them to get into some more strategies, some smart beta strategies.
39:55 If you don't want to take risk in the pure 100 or pure 50,
39:59 within these 50 stocks or these 30 stocks, we should have a smart beta strategy.
40:05 A smart beta strategy, all of them we have done very, very well.
40:09 My last question.
40:10 Sorry, sorry, sorry to cut you, sir. Finish your point, sir.
40:14 No, no, what I'm saying is this education will take it to the masses.
40:21 And what we think in every mutual fund, unless and until you bring in the simple products,
40:28 which are explainable to the investors, it should not be a push product,
40:32 it should not be a distributor-centric product or mutual fund-centric product.
40:38 This should be something which is good for the investor who want to participate
40:42 in the growth journey of the country, should come in a very, very simple and very responsible.
40:50 And this is the responsible investment which we feel.
40:53 Fair point. My last question. Since you've spoken about smart beta,
40:57 and incidentally I've been looking at some of these strategies,
41:00 if you're talking about value, if you're talking about momentum,
41:03 if you're talking about certain other quality, for example,
41:07 by and large these strategies seem to be consistently beating the traditional benchmark.
41:12 But we don't have a lot of products available, and I don't think enough conversation has happened.
41:18 As a fund house, are you contemplating in the near term,
41:22 widening your portfolio of smart beta offerings?
41:26 Definitely, definitely we are contemplating that.
41:29 We already have some of the strategies, and we will come up,
41:33 and we have one minimum variance fund also.
41:36 But as we talked earlier, if we have to take it to the length and breadth of the country,
41:41 we have to start with simple products. This is one of the simplest.