Tata Mutual Fund's Rahul Singh discusses asset fund strategy and managing equity volatility with Alex Mathew on 'The Mutual Fund Show'. #NDTVProfitLive
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00:58 - Hi, thanks so much for joining in.
01:10 You're watching the Mutual Fund Show on NDTV Profit
01:14 and my name is Alex Matthew.
01:16 We're talking about everything related
01:19 to mutual funds on this program.
01:20 This is where we get you actionable insight
01:23 so that you can make your investment decisions
01:25 with confidence.
01:26 Now on this program, we also get you insight
01:30 from the people that manage your money.
01:33 And to that end, we're today joined by Rahul Singh,
01:36 the CIO of equities at Tata Mutual Fund.
01:39 Rahul, thanks so much for taking the time.
01:42 We intend to talk about
01:44 the Tata Multi-Asset Opportunities Fund
01:47 because there's so much that is happening across the board
01:51 on monetary policy as well as fiscal policy.
01:54 There's geopolitical tensions
01:56 that we have to take into account.
01:58 So I thought when you talk about the strategy
02:01 that you're employing in that particular fund,
02:03 my viewers will get a sense
02:04 of how to approach their investments as well.
02:07 So let's start with that.
02:09 What according to you are the key triggers in the near term
02:14 that would affect your portfolio strategy
02:17 in that particular scheme?
02:18 - Thank you for having me and good afternoon.
02:23 So I think multi-asset as the name suggests,
02:26 basically plays with equity allocation,
02:30 debt allocation and commodity allocation,
02:33 depending on the nature of the market
02:36 and the state of the economic cycle.
02:39 Today, the state of the economic cycle is one of expansion,
02:43 more so in India than in the US.
02:46 So we are obviously today 65% into equities.
02:52 Out of that 65%, there is some arbitrage portion,
02:54 but about 55 is a long equity portion.
02:58 We also have about 10% in debt,
03:01 mostly in duration, slightly longer duration
03:04 because we expect the rate cycle
03:06 to be on its way down over the next one to two years.
03:11 And the 25% which is left
03:13 is basically devoted to commodities.
03:17 And that has two parts in Tata Multi-Asset Opportunities Fund.
03:22 The first part is what we call as commodity arbitrage,
03:25 very similar to equity arbitrage,
03:27 gives us 8, 8.5% kind of yield.
03:30 And of late in the last six to 12 months,
03:33 we have started building in long positions
03:35 in gold also, gold and silver.
03:37 So today, as we stand,
03:39 gold and silver would be about 6 to 7% allocation,
03:44 and the rest would be commodity arbitrage
03:46 earning a fixed annual return of 8, 8.5%.
03:50 Now, the reason why I think multi-asset makes sense
03:54 at this point of time is not only we can vary
03:56 the equity allocation in terms of the long portion
04:00 downwards if the valuations keep going up,
04:03 but also we have the option to de-risk the AUM
04:07 by increasing the allocation into gold and silver.
04:14 As you all know, there are global risks today in the market.
04:18 They have not completely gone away in terms of geopolitics.
04:22 I don't, I think interest rate risk is still a little lesser
04:26 but in terms of geopolitics and what it could do
04:29 to the environment, there is a little bit of risk there.
04:32 So gold and silver does provide multi-asset opportunity
04:35 and edge in terms of hedging the risk
04:40 from an investor point of view.
04:43 So it's an ideal, as you can see,
04:45 it's an ideal mix of equities, commodities and debt.
04:50 And in all the three segments, we can vary the aggression
04:55 with which we want to be present
04:57 in each of these three segments.
05:00 And that can work out very well over the long term
05:04 from an investor point of view.
05:07 Especially from a risk averse investor point of view.
05:09 - Okay, I do want to break each of these segments
05:13 to kind of understand the factors at play.
05:16 On the equity side, and I'm looking at your equity portfolio
05:19 and most of the companies that you're holding
05:21 the earnings are out of the way.
05:23 So from that perspective, what are you gaining
05:26 or what are you learning from the print
05:29 that you've seen for the third quarter?
05:31 And do you anticipate that that 50%
05:34 of your assets under management has a decent up move
05:41 in heading into the new financial year as well?
05:43 - Yeah, good question.
05:46 Actually, this earning season has been by and large okay.
05:51 There have been marginal surprises,
05:53 positive surprises in sectors like IT and pharma so far.
05:58 Banks have been mixed, capital goods,
06:01 industrial manufacturing have been quite solid.
06:04 So as is the case with most of the results season,
06:07 it's been a mixed bag, but by and large,
06:09 what we are seeing is an aggregate level,
06:12 nifty 50 earning estimates for next financial year
06:16 of about say 1100 piece is not coming down.
06:19 It's staying steady, it is holding on.
06:23 So that is the real barometer
06:25 of how the earnings season has been.
06:26 I think it's been by and large fairly balanced, fairly okay.
06:31 So as far as the equity portfolio is concerned,
06:36 therefore in this context,
06:37 therefore one has to take a valuation call.
06:40 And what we are doing at this point of time
06:43 is that with every rise, we are reducing the equity portion.
06:47 So we used to be 57, 58, almost 60% net long equity.
06:51 Now we are down to 55 and below.
06:54 So gradually, we are also reducing
06:57 the net long equity portion.
06:59 And as I mentioned earlier, even within the equity portion,
07:03 what we are doing is that we are reallocating
07:07 some of the capital to large caps, to the mega caps,
07:12 where the stocks and valuations are still reasonable
07:17 and reducing some of the risk in mid and small cap.
07:20 It is not that we are negative on mid and small caps.
07:22 I think the opportunity in our economic cycle
07:25 like what we are in today does favor mid and small caps
07:30 over a longer period of time,
07:32 but purely in the short term,
07:34 I think the valuations are a little rich
07:38 compared to large caps.
07:39 So from a risk reward perspective,
07:41 I think large caps are finding
07:43 slightly higher allocation today
07:46 as compared to say six months back.
07:48 - Okay.
07:50 A quick question on the large cap allocation as well,
07:53 because, and I think fund managers across the board
07:56 have had to contend with this,
07:58 a heavy selling in a few names in the financial space.
08:02 And I think most funds are overweight on these names.
08:05 So does the conviction remain
08:08 or has that gotten shaken at all?
08:09 - Well, there is a period of transition
08:15 in some of the larger banks,
08:17 because they are, apart from their bank specific issues,
08:21 which you might be referring to,
08:23 there is also a NIM pressure,
08:26 which is there in a systemic level.
08:30 There is a pressure of deposit mobilization.
08:32 I think it's a phase which we are going through.
08:35 I don't worry about it beyond a certain point
08:39 because the valuations are still very, very reasonable
08:43 compared to the rest of the market,
08:44 as well as compared to their own histories.
08:47 Some of the large banks are trading
08:49 at pretty reasonable multiples
08:51 compared to what's happening elsewhere in the market.
08:54 So that's a source of comfort.
08:55 Obviously that does not mean
08:57 that we don't look at short-term pain
08:58 and we don't think about it,
09:00 but over a period of time,
09:02 I think it kind of evens out,
09:05 especially as far as banking sector is concerned,
09:07 because banks at the end of the day are compounding stocks.
09:12 So you might get 25% CAGR in two years,
09:15 in the third year might be just 5% or 10%.
09:18 But if you look at it on the three or five year blocks,
09:20 you will get 12 to 15% kind of compounding returns from here.
09:25 And that makes us very interested on any declines
09:30 from here on to add and hold on from a longer term horizon
09:35 and overlooking some of the short-term pain
09:41 which might be there.
09:42 And this is not just for multi-asset,
09:44 but this is generally for other categories of funds also.
09:49 - Understood.
09:50 This particular fund or this particular scheme
09:53 allows you from a tactical perspective
09:56 and you're pointing out that you are
09:58 reducing a little bit of risk on the equity side
10:01 because you have the fixed income component
10:05 in your scheme as well.
10:07 And because we're likely heading
10:09 into an interest rate falling scenario,
10:12 from a tactical standpoint,
10:13 this might just be a great idea to get into duration as well.
10:17 And you mentioned that you are in duration.
10:19 So from that perspective, do you hold cash?
10:23 Do you increase cash at least in the short term
10:25 or do you allocate more towards duration?
10:27 What's your strategy on the fixed income side?
10:30 - So the cash here is basically goes to debt.
10:35 So first of all, this fund is very tightly allocated.
10:40 So 65% into equity at all points of time,
10:43 including half a charge,
10:45 20 to 25% in commodities and 10 to 15% in debt.
10:50 So there is very little room for cash
10:52 and you can say that the surplus cash,
10:54 if at all, keeps getting added to the debt portion,
10:59 which we allocate on a short term basis.
11:01 Even the short term yields are not bad.
11:03 So the cash, which is temporary and transient
11:06 because we may not be having equal opportunities
11:11 in the commodity side is a transient cash,
11:13 which we do deploy in more equivalent based paper.
11:18 But the core allocation in debt, you're right,
11:20 is what we are doing is what I mentioned
11:22 in terms of holding some good duration paper there.
11:27 - Okay, last question as a base case,
11:30 because we're speaking just ahead of the Fed policy.
11:34 And while it's widely expected
11:36 to keep policy rates unchanged,
11:38 we're wondering how many cuts, if at all,
11:40 does that affect the expectation
11:42 for monetary policy in India?
11:43 I know the governor states very firmly
11:45 and categorically that it doesn't,
11:47 but then global bond yields do tend to move
11:50 in tandem with the US treasury.
11:52 What is the expectation, base case?
11:53 - Well, I think somewhere during the year,
11:58 the rate cuts will cycle, will resume.
12:03 It's really touch and go and it's very difficult
12:05 to predict what the Fed might do in the short term
12:08 because the economy there also is giving
12:11 strong enough signals for the Fed
12:15 to not start cutting rates too aggressively, too soon.
12:18 So it's a mixed picture.
12:20 I don't think we are very clear or neither,
12:25 is anyone very clear on what will happen exactly
12:28 in the very short term.
12:30 But overall, my sense is that there will be some linkage
12:35 at the same time with the global
12:38 and domestic interest rates cycle.
12:40 At the same time, there is also liquidity,
12:45 tight liquidity in the domestic scenario.
12:48 So there is some requirement for the credit
12:53 and the growth to be supported, the liquidity to be eased.
12:58 So there are a lot of pulls and pressures
13:00 and I'm frankly, I'm not qualified enough
13:02 to give you an answer one way or the other.
13:05 My sense is there will be some linkage
13:07 to the global rate cycle, but not entirely.
13:11 - Fair point.
13:12 Hopefully my viewers through this conversation
13:14 have gotten a bit of a perspective on how you
13:17 and your fund managers are managing this particular scheme
13:20 and your approach, of course, across assets.
13:22 That really was the objective.
13:23 So thank you so much, Naal, for taking the time
13:25 and speaking to us on NGDP Profit.
13:27 - Thank you very much.
13:28 Pleasure.
13:29 - Right, viewers, so there you have it.
13:31 That was the view on the Tata Multi-Asset Opportunities Fund.
13:36 We've got more lined up on this particular program
13:40 in just a bit, so do stay tuned.
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17:28 - Welcome, you're watching our special programming
17:41 in the run up to the budget.
17:44 And while there's been a lot of discussions
17:46 around the government's fiscal position
17:49 and the potential for growth going forward,