Abhay Agarwal: The rally in the midcaps and smallcaps has been very sharp and pretty much all of us have benefitted from that. So, we have been booking profits in the smallcaps and midcaps and slowly rotate into some largecap names that have not participated and are looking very attractive on a historical valuation basis. So, as the mid and smallcap indices continue to go up and make new highs, the stocks continue to do well. It has been a very news-driven activity and it is a good idea for investors to not get carried away if you have made good money in smallcaps and midcaps. Maybe one should book part of that profit, get partly in cash and partly increase allocation to largecaps because at some point of time, the mid and smallcap rally will tire out solely because of expensive valuations and that is when we will see the largecaps pick up. The investors should be ready for that and not be too late in that trade and that is exactly what we are doing with our PMS and the fund.
ET Now: Yes, I do see that you have increased your cash allocation. You have reduced the midcap, smallcap allocation quite meaningfully from 75% to 45% and that does back the view that you have. But I was just going through your recent exits as well. It seems like you are moving away from textile exporters. What makes you cautious on textile exports specifically?
Abhay Agarwal: We actually added some textile export names purely on valuation basis and we saw them trade at bottom of cycle valuations earlier this year. Gokaldas, SP Apparels, Himatsingka Seide and these stocks since then have done very well for us. Gokaldas is almost 3x of what it was when we started buying it and the other stocks have also SP Apparels is a multi-bagger already. What we decided to do was to take some money off the table because as a fund manager, it is prudent and coming from my 30 years of investing experience, when you see such sharp returns, it is not a bad idea to book those profits and redeploy in other interesting opportunities.
We are finding those interesting opportunities in a market which can arguably be called expensive but there are always sectors that as long-term investors one finds interesting. What we have done there is book profits and I have nothing against the textile apparel export story. It is a long-term trend but the stocks have run up too fast, too quickly. So, it was just a tactical call. We still have them on our radar and if the valuations come down or some such event happens, we may look to add them back to the portfolio.
ET Now: But then what are you adding? Within largecaps as well, which are the latest additions?
Abhay Agarwal: Happy to name with a disclaimer that these are not buy recommendations and we have them in our portfolio. So, we have added Reliance. We have added Kotak Bank. We have added Dr Reddy’s and Divi’s. We are turning quite positive on largecap pharma segment because after years of struggle with pricing and volumes in the US markets and the struggles with US FDA, this is a sector which is now seeing good traction and is very competitive right now. They have adopted good manufacturing practices. They are far better FDA compliant, if I can say that, compared to a few years ago.
I really think that some of the Indian largecap pharma companies, especially Dr Reddy’s and Divi’s from the basis of the recent work that they have done is quite remarkable and the market will reward them once the performance kicks in. So, pharma largecap is one interesting space.
We have also been adding Jio Finance. It is a long term, very structurally positive story and we are also positive on the whole agrochem space. That is a space that is ripe for re-rating sooner than later, so UPL has been our addition. But we are ready to be patient because these are bottom of the cycle purchases and they do not suddenly start outperforming. We know that we will need to be patient and we are happy to be patient.
ET Now: One theme that seems to be working well for you is the financialisation of savings and the equity marketplace that you have – CDSL, CMS, CAMS and Angel One in your portfolio. I want to get your view on NSDL as well as BSC, NSC. So, apart from these names, would you also look at NSDL post its listing, BSC, NSC as well?
Abhay Agarwal: Yes, that is a good question. So, let me answer the first part. Many years ago, CDSL was listed. After that, CAMS listed more recently and then Angel One listed. Our view has been that, with the growth of capital markets as India’s GDP growth becomes from $3 to $6, $6 to $9 trillion, the capital markets will also grow and what that means is that the companies that provide infrastructure support to capital markets will benefit in a very large way and these companies are highly technology-oriented and that is the reason we had added CDSL many years ago when it had listed at a price of about Rs 200 and it has been a multi-bagger for us.
CAMS and, post IPO, Angel have been great multibaggers for us and we continue to hold them and they have come up in the top five holdings purely because of the recent run-up in the price but we are not trimming our position. If the markets may correct, they may correct, but we see them as a decadal long-term story.
Any company that provides infrastructure support to capital markets is bound to do well and the business models are such that growth does not require capital infusion because they are very technology-oriented companies and they continue to give cash back to the investors, to the shareholders which is a great place to be. The current valuations are not stretched at all.
On the second part of your questions, yes, absolutely BSE listed company, we have looked at it but never added. Maybe we should have looking at the price performance. NSDL, once it lists, we will definitely look at it though we do not like to have competing companies in the portfolio, we like to make one bet and we already have CDSL. But every opportunity that comes up, we look at that with a lot of interest and if the valuation is right and it is a good long-term story, we would definitely like to add them.
ET Now: Are you looking at the Tata Tech IPO? Honasa, Flair Pens, Fedbank, has any IPO interested you?
Abhay Agarwal: No. I am very happy with the kind of names we are seeing list, I think for investors like us who are constantly looking to deploy capital and larger and larger capital, some of the new listings have been very good and the pipeline also is excellent and I think this is what will provide more support and widen and deepen the Indian capital markets, give more opportunities to newer investors who are coming in to participate and reduce our dependence on FPI flows.
Having said that, we are quite interested in looking at Tata Technologies. It is a company that is, again, a great long-term play. We have had Dixon in our portfolio for again since the time it listed. So, some of these old IPO plays have turned out well for us. Dixon has also been a multibagger and I think there is room for many more Dixons in the country. The whole EMS play, the whole auto design and manufacturing play on an outsourced basis, are remarkable plays. These companies will continue to grow and with Tata patronage, the market will be even bigger for them. We want to look beyond the current market cap and the valuation which may look expensive in the short term but once you build in the long-term story, a stock like Tata Technologies should continue to do well.