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High Conviction, High Returns

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IIFL India Growth Fund has consistently outperformed benchmarks. In an interview with Value Research, Prashasta Seth, the Fund Manager, spills out the secret to its high performance.

Publicado en: Liderazgo y gestión
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High Conviction, High Returns

  1. 1. 20 Mutual Fund Insight February 2017 PORTFOLIO MOVES Failed New entrants The fund has delivered decent returns over one year amidst a highly volatile market Growth unhindered All values are estimates derived from monthly portfolio disclosures. The fund has net assets of `243 crore as on November 30, 2016. Successful stocks with gains (` crore) during Nov ’15–’16 7.14 4.34 3.79 3.63 3.62 Bajaj Finance Bajaj Finserv Muthoot Finance Federal Bank Kansai Nerolac Paints Top holdings with the asset allocations (%) as on Nov 31, ’16 Losing stocks and the amount of losses (` crore) during Nov ’15–’16 Stocks added during Apr–Nov ’16, with asset allocations (%) 8.93 8.37 7.57 6.61 6.49 HDFC Bank Power Grid HCL Technologies Castrol India Tata Motors DVR Aditya Birla Nuvo Idea Cellular Cholamandalam Inv & Fin Co. Interglobe Aviation Zensar Technologies -2.34 -1.69 -1.39 -1.29 -0.88 State Bank of India Oriental Bank of Commerce Cholamandalam Inv & Fin Co. Interglobe Aviation ICICI Bank 3.49 3.42 2.88 1.59 1.24 Worked Top bets About fund manager The fund is managed by Mr Prashasta Seth. He has done B.Tech from IIT Kanpur and PGDM from IIMA. He has over 14 years of experience in investment management and has worked with companies like JP Morgan. Investment strategy The fund has a concentrated portfolio of fast-growing, high-quality companies. It focuses on strong earnings growth, cash-generating and capital-light business mod- els, high ROE and ROCE, and attractive valuations. Portfolio companies by market cap Large caps Mid caps Small caps Fund 64.82% 35.18 – Nifty 50 99.06 0.94 – Average stocks in the portfolio 20 One-year returns (as on Dec 26, 2016) Fund 7.34% Nifty 50 0.6 Category 2.24 Beating the benchmark November 30, 2015 December 26, 2016 1300 1200 1100 1000 900 800 Rebased to 1,000 IIFL India Growth Fund Nifty 50 Sector weights as compared to Nifty 50 Overweight Energy, financial, chemicals and communication Underweight Technology, auto and FMCG IIFL India Growth Fund
  2. 2. Mutual Fund Insight February 2017 21 QUICK CHAT High conviction, high returns A concentrated portfolio with high-conviction bets is the secret of the fund’s success What has resulted in the outperformance of your fund over the last one year? Our investment philosophy of taking concentrated bets in high-conviction sectors and companies has resulted in our fund outperforming last year. During the year, we were overweight on financials with specific focus on NBFCs and smaller regional banks. Our view was that these segments would see better earnings growth as compared to bigger banks. This strategy paid off well. Bajaj Finance, Bajaj Finserv, Muthoot Finance and Federal Bank were the major alpha creators in our portfolio during the year. How do you select stocks for your fund? We mix bottom-up approach, along with a top- down philosophy. We identify themes that are likely to play out during the medium term and look for companies within them, which would benefit over the medium to long term. Within sectors, we look for companies, which outperform industry peers by a wide margin on various earnings parameters and return ratios. A detailed filter analysis, both qualitative and quantitative, is done for all the companies before they are considered for investment. Earnings visibility and sound management quality are among the key parameters we consider. When do you decide to exit a stock? There is no hard and fast rule for exiting a company, which we have bought in our fund for the long term. We have been holding some companies in various portfolios for over five years because they have been meeting our strict investment criteria consistently over the years. We review our portfolio companies every quarter. In case any of the companies fails to meet our investment parameters repeatedly due to various intrinsic or extrinsic factors, it would be excluded from our portfolio. Valuation is another aspect. If the valuation moves above three standard deviations from its historical average, we become wary and evaluate booking gains in the counter. How do you determine allocation across large, mid and small caps? We typically focus on high-quality large caps and mid caps and avoid small caps. Our belief is that on a relative-valuation basis and liquidity, large caps and mid caps are better placed than small caps. We believe there is an immense opportunity available among large and mid caps in India. We might look at good quality small caps if some interesting opportunity comes up. Isn’t your portfolio too concentrated? We firmly believe in having higher weightage allocation towards companies where we have high conviction. We see no reason in making a portfolio of 40–50 companies, which may be a sign of lack of conviction in what we are buying. We see no reason why high-conviction ideas should not see higher weightage allocation in a portfolio. Also, the smaller size of our fund gives us the comfort and flexibility to implement this view. What can investors expect from your fund going ahead? We, as a fund house, would continue to implement our investment philosophy of portfolio concentration in companies and sectors. We believe 2017 could be a testing time for all equity investors, considering that we have entered the year with lot of uncertainties on the domestic macroeconomic front post demonetisation. Nevertheless, it would be a stock picker’s market and we could get sound companies at attractive valuations during the year. Consumption- oriented companies could see some opportunities, considering many of them have been beaten down in the last couple of months. Banking is another sector, which could provide opportunities in select stocks. s that ium e We firml weig wh s t im What can Prashasta Seth, Fund Manager, IIFL India Growth Fund

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