Sumit Agrawal, Fund Manager, Bandhan AMC, says “of late, we have reduced a bit of the exposure on the larger private sector banks. Similarly, in the IT sector, where we were overweight and that positioning actually did well in the last six months, we have relatively moderated some exposure. We continue to be overweight in the auto sector and especially within auto, if you see, especially two wheelers and two wheelers related OEMs. Similarly, on the pharma side, we are a bit overweight, in fact we have gone a bit overweight, we think that sector can really do well, especially domestic pharma.”

Can we say 2024 looks like a year of largecaps and the story is back again for them?
Sumit Agrawal: We wanted to believe that, but so far the January and February performance of largecaps is not that great. In fact, mid and smallcaps continue to zoom. On a one-year basis, if you see today the largecap index probably has given about 20% return but the mid and smallcap continues to raise forward with about 60% return. So, while flows into the mutual fund segment have started to see some traction in the largecap segment, but still not yet reflected in the returns per se. But if you see a slightly longer term, probably what you are seeing kind of is believable and we see FY24 probably or let us say CY24 where largecaps can actually make a comeback and maybe towards the second half of the calendar year and let us hope this sustains.So, that is the most important part. We can just hope that it sustains but also a lot of experts that come on the channel as well, a lot of fund managers as well, they think that now the rally in midcap and smallcap will slowly die out. But yes, the broader markets are still doing well and the story that we wanted to see for largecap is yet to pick up. Let us just talk about your fund now. What are the entries and exits from your funds’ portfolio recently?
Sumit Agrawal: So, essentially, we have been overweight on financial services as a sector for a really long time, for over two years now and that is a segment which probably has not done so well, especially the larger private banks. Of late, we have reduced a bit of the exposure on the larger private sector banks. Similarly, in the IT sector, where we were overweight and that positioning actually did well in the last six months, we have relatively moderated some exposure.

We continue to be overweight on auto sector and especially within auto, if you see, especially two wheelers and two wheelers related OEMs that is a segment which has not done well for the past five-six years, so incrementally over the last two to three months I would say we have increased some exposure in the auto sector again.

Similarly, on the pharma side, we are a bit overweight, in fact we have gone a bit overweight, we think that sector can really do well, especially domestic pharma. And one segment which continues to reel under pressure is consumption, especially on the low-income household related sectors and that is where we are actually continuing to be underweight and that stance perhaps continues as of now.

What is the story behind the auto sector that you think is quite promising going ahead for a few quarters now?
Sumit Agrawal: Auto specifically on the two-wheeler side, that segment was reeling under pressure for a long time, there was a GST related issues, there were BS-VI related issues, there was a general slowdown in the market, especially on the two-wheeler side and there were some insurance related costs. In a way, after a long time, the volumes have not grown. In fact, volumes were kind of static, set aside a few specific players, but on the whole I am saying, we think that is kind of turning back and that is actually supporting a lot of early signs of, let us say, rural recovery because generally there is supposed to be early signs of two-wheeler recovery, especially ahead of elections.

Rural demand has still not picked up the way it was expected to, I mean, it is still under a lot of pressure.
Sumit Agrawal: See, if you analyse on a step function, generally the low-end rural consumption, which is, let us say, low-ticket FMCG, probably has not picked up, low-ticket consumer discretionary has not picked up. But auto in a way, especially two-wheelers are actually picking up. Who knows, probably this might be the start of pickup in rural consumption and given that we are entering into an election year, which is quite close by, probably two or three quarters hence, we might see a gradual pickup in the broader rural consumption as well.

Focus on construction and healthcare Are you slightly more as compared to the benchmark out here?
Sumit Agrawal: So, in Nifty 100 or let us say BSE 100, generally, pharma is about 4-4.5% I think that has been the range of the sector for a long time. We are about 100 bps overweight here and within pharma also our overweight continues in the domestic pharma because a part of the domestic pharma story is quite promising. Some of the stock specific positions in the portfolio, those companies are gaining market share and the market itself is growing.

Some of those companies also operate in quasi consumption, OTC pharma related segments continue to do well and enjoy healthy margins. So, in a way, pharma is overweight and I think it is likely to be overweight for the rest of the year as well.Are you looking at increasing your weight in realty going ahead? Currently, you are around 2.2%.
Sumit Agrawal: Realty, in a way, is not a large presence in the BSE 100 index. But if you ask me, this is a sector which probably has one of the most promising aspects going forward because real estate and if you interact with a lot of real estate companies, the view is that we are just in the year three or year four of a longer 10-15-year real estate upcycle because post COVID where we saw a year of very high real estate sales, that in fact, has actually continuing to do much better. So, on real estate, our view is quite positive.

Incrementally, probably you will see slightly higher weight or higher allocation to real estate going forward because despite the high interest rates, the pre-sales traction and the volumes actually continues to do quite well. In fact, higher real estate costs or higher interest costs have actually not dampened the demand at all and that kind of solidifies the fact that probably we are at the beginning of an upcycle in the real estate sector.

How much cash are you sitting on right now? What is the cash component?
Sumit Agrawal: As a policy, we do not own a lot of cash. So, generally about 0% to 5%. I would say currently we are about 4-4.5% cash levels in the fund. Generally, we do not take a lot of cash calls.

How would you like to talk about your one year’s return? Although it is not really right to talk about or discuss the one-year returns, considering it is a mutual fund and you should be at least having a time horizon of five plus years, but then in just one year’s time horizon if I would ask to analyse your return, how do you look at as compared to the peers who have given more than what you have in last one year’s time?
Sumit Agrawal: I would say I am very pleased to inform you that on a one-year basis, we have actually given alpha over the benchmark and in the last seven calendar years, the alpha over the benchmark has been there for the past five years. Generally active fund managers are not able to beat the benchmark, but that is not the case with us. We have been able to deliver alpha over the benchmark and that has done quite well.

I would say one year, as you rightly said, is not the right way to look at it, we should analyse equities over a longer time frame of at least three to five to seven years and if earnings continues to compound at about 14-15% and with some little bit of stock picking I think we will be able to probably do somewhere around the same range or in fact better though currently, the one-year performance looks quite good, I would say.

A lot of people have exposure in largecaps via a pure largecap fund or they might be having a flexi cap, multi cap kind of exposure also those kinds of funds also. What should be the strategy looking at a lull in January and February, the kind of performance you were expecting that we did not see in largecap, should we stick to having higher proportions allocations to midcap and smallcap? Will any rebalancing be advisable?
Sumit Agrawal: When you are already sitting on a very healthy level of returns of about the index itself, mid and smallcap index have given about 60% return, some of the funds have done better, has probably given about 70% odd returns, it would make a lot of sense to rebalance the portfolios and book some profits and reallocate them to segments which have not done so well and largecap probably figures out on top of it because as I said earlier, the one-year return differential is actually 3x, the Nifty return one year is about 20%, whereas mid and small gives about 60%.

Normally, at such wide deviations, we have seen turning points which do happen and I would advise or I believe that probably it would make a lot of sense to reallocate some money back to the largecaps and slightly larger oriented companies or maybe that can be part of flexi cap as well because generally flexi cap funds have a larger largecap exposure but that all depends on individuals allocation and the portfolio allocation thoughts.

Election is around the corner. We also have the full-fledged budget coming up soon after that. What is the range in which you see the market moving?
Sumit Agrawal: Probably while we do make a lot of guesses around market moves around elections, but the larger macro for India is quite comfortable and I do not expect any wild moves around elections. Obviously, if we get a very deep negative surprise, it can swing the sentiment very widely, but as of now the probability of that looks quite low. I would expect steady returns to continue despite a very strong election year and mind you it is not only an election in India, but the entire world is going through an election year.

Most of the major countries are going through elections this year. I do not think we should make some big guesses around it. Probably, markets will follow earnings, which I said earlier, at Nifty level are compounding at about 14-15% which is quite comfortable.

(You can now subscribe to our ETMarkets WhatsApp channel)