We can argue both ways; we can talk about the breadth of the market which has collapsed or we can feel happy about Nifty which is still above 17,000!
We have been fairly cautious on the market. We can always use the fig leaf that we always buy stocks with 5-10-year outlook and stuff like that but we know that the short term is not that exciting as it was supposed to be and thanks to our global offshore hedge fund which is a India dedicated hedge fund, we know it is better to conserve on the downside, than be aggressive on the upside.
If you can conserve on the downside, you can be a king on the upside and that shows to us that for us, a long term has to be a series of short terms put together and the short term did not look too good. In fact, in January, I told ET Now that we are being cautious and our caution stems from the US Fed. They were about to undertake an interest rate hike cycle, they were looking at a tapering going forward. But things have only deteriorated as the year has panned out.
Frankly, the year till now has only seen outliers ruling the roost. The normal bell curve has come up with fat tails and that is very scary not only for policymakers but also for investors who are bound to go wrong in this market. So we remain cautious for the next quarter at least and look at what is happening in India too.
Rural markets are not doing too well, demand has only been falling – which we called out in September itself – and it has only gone down and this quarter itself again will not be looking that good vis-à-vis the March quarter which was a vengeance buying quarter. The commodity prices are going to hit the margins of most stocks coming out with reports. So, we are on the cautious side to put it simply.
If you are cautious, how are you translating that into a portfolio positioning sitting on cash, going short?
Unfortunately in India, you cannot do shorting and domestic offerings as such because the tax rate takes away a lot of the gains. So, here we have tried to cut down the exposure itself. In fact we cut it down to around 11% odd of cash which is lying with us today. We sold off our positions a bit, trimmed down various sectors and came down to around 11% of cash. Basically, we keep the cash and we also know that if the market corrects, this 11% cash is not going to protect to an extent.
In the AIF, we are at 15% and so it is not going to protect us much. But that will at least give us the levy to sit back and analyze and see whether we are on the right track in the market, look at opportunities as they come by, look at ideas that come by and which gives us that levy to do that rather than anything else. But in the offshore fund, obviously we shorted quite aggressively. We are down to around 45% odd on the net side.
I am curious to know what did you short? What did you sell off and don’t have in your portfolio anymore?
What we did in the domestic portfolio was still quite a bit on our IT exposure which probably in January or December onwards, we have been trimming back. That generated a little bit of cash for us and then we trimmed a few ideas and in fact sold off a few ideas which we felt were overpriced anyway. So, high PE stocks are what we sold off. In the short part of the portfolio, which is our offshore fund, that is where we really enjoy doing this because that is where you can actually short stock.
Quite a few sectors are impacted by input price pressures and obviously the demand is not picking up. We are short term in those sectors: autos is the obvious one, then consumer durables is another one, paints is another one so these are the few that we have shorted across the board there.
But you still have your long going on ITC or is that just a very miniscule bottom up idea that you are working with?
We thought we are buying a very stodgy stock but the fact was that the stock did phenomenally well and in fact if anything, the management is also talking the language of some kind of value unlocking going forward. If that happens, then we are looking at a very exciting time ahead. It is one of the cheapest FMCG stocks still, despite this 15-20% up move in the past few months. It is an integral part of the portfolio and so I leave it there.
If you think there are a lot of short term tailwinds which will have an impact on the market in the short term. then why sit on only 15% cash not 50% cash?
We can always say that we buy stocks with a five year view and stuff but not that way; we see our hedge book and we say that we are cautious in the market. So in a way, in the PMS, there is not much one can do because we are selling across portfolios. It is not one single portfolio that one us running.
In fact, in the AIF, you have that levy but there again, we waited since we were on the final closure. We waited for the new money to come in and increase our cash exposure there and that is why the cash there is much higher. Yes, you are right in the sense that previously also that 10% is not going to insulate us much, but the fact is that it gives us comfort to analyze our position and see whether we need to be more aggressively selling or just sit back. Frankly, the market has not gone anywhere from the time we have sold. We still have that feeling that okay let us wait it out, let us see how it goes if things are moving up. If we believe that things are getting overpriced, obviously we will be selling along the way and it is going to be a stock specific call from here on.
So what is a part of your one-year horizon basket and what is a part of your three = year horizon basket?
We have two separate categories within our portfolio – high confidence and reasonable return. Now that is the stodgy portfolio where we have stocks like ITC residing. So that is obviously a portion which is fairly long term in nature there we are around 67-68% invested and for the rest, we are trying to find out the future winners which will be in the high return portfolio. That today is around 13% -14%. That is why, one would be rather looking at that portion of the portfolio quite keenly.
Does pharma continue to remain a safe haven because of the portfolio strategies that high valuations are acceptable up to a point when it comes to high quality companies? Which of within the pharma basket would meet this criteria?
Pharma remains a fairly insulated part in the markets today. But one has to be careful there. The pharma companies exposed to the US are going to suffer because the pricing pressure in the US is not coming off. In fact, every quarter, the reports that come out show around 8-9% de-growth in pricing. One has to be clear about their pipeline. That is one thing that one has to keep in mind when identifying stocks which are US exposed.
The domestic exposure plays are the ones where you one really needs to keep an eye out. That is where probably the valuations are a bit stretched but some kind of upside is left there. Then comes the API plays. This is the area where the PLI schemes will be kicking off in a way. If that happens, these stocks are looking good and so those are the stocks that one needs to keep in mind.
But once again be very careful in those names because though some are identified as API plays, they are concentrated into one particular segment quite heavily and while that has helped them to improve their performances, if that comes off, that should have an impact in the future earnings, In fact, some of the big names will see a de-growth in earnings going forward.
Speaking of names that have suffered due to the pandemic or have been impacted due to the same, does the space have some long-term potential?
Yes definitely. In fact, you can call it opening trades if you will, but there are quite a few openings which have happened in the past and still there is a lot of upside left. So some stocks in the hotel sector which are not the top tier but the second rung hotels, where the competition was the local hotels which have died down in this pandemic. Quite a few three stars, four star hotels have shut because of this. So those are the names you want to look at in the hotel sector.
Then there are certain plays which are very different from what you may see in the market which are related to the wedding sector. I mean there is one name which is into wedding wear and that looks very exciting. In fact, we bought it on the IPO but we increased our exposure also as the stock corrected going forward and fortunately for us, the market got on to the story and it has done fairly well. So these are the kind of different plays that one should play up in the opening trade as such and not the regular ones that you are seeing.
Is it a very small holding or a big one?
No it is not a big one but it a fairly decent holding in our portfolio as such. I am sure you would have guessed the name…
Is it Manyavar?
Yes, it is
Along with men’s wear, they also have women wear. From Anushka Sharma to Alia Bhatt, all are their brand ambassadors but they end up wearing Sabyasachi for their own weddings!
Yes, that is a story there. Actually it is not a super luxury brand. It is an affordable luxury brand and that is where the thing works. There is no percentage which is wedding driven but the fact is whenever you wear a fancy kurta, you normally go to a wedding. Which is why I classified it more as a play on opening trade. It is like a McDonald’s model, if you will. They had the flagship stores of Manyavar and they have gone about adding brands to those stores which are appealing to women, festival wear and stuff like that.