You do not have high exposure to the so-called fashionable names, defence, power, railways – the so-called mega trends. Why?
In fact, it is very interesting that you asked this question. I just wrote a note on this to our unit holders for the forthcoming unit holders meeting and we will just release it in a couple of days. So, the one line from the note goes like this, Benjamin Graham more than five decades back said obvious prospects for physical growth do not translate into obvious profits for investors. Now, it is a very powerful line and in the Indian context if we go back in the past, in the early to mid-90s to sunrise sectors, growth sectors would look like private sector airlines and new mobile telephony companies that were launched at that point in time. There was obviously hype around these sectors and fast forward a few years and those sectors did not really do too well for equity shareholders.
So, apart from volume growth and opening up of a sector or good tailwinds what also matters is capital efficiency, management and promoter quality, how much leverage they are taking, is it a very competitive sector or is there a scope for some pricing power? All these things also have to be looked at in conjunction. So, you are right, we are not participating in some of these fancied themes just blindly and we are taking our time looking at the companies.You have recently also reduced your weight on the likes of Coal India, Power Grid, etc. Is it a tilt against the public sector entities or do you think these are now overvalued and the power rallies pretty much factored in?
I would not read too much into some small selling that you would have seen. So, many times it is driven by the portfolio weights that we are looking at and things like that. So, I would not read too much into it. We continue owning these companies and it is what it is. So, again, this is public information, we do have this covered call strategy in some of these companies and sometimes the sale may be purely a reflection of that.
What about IT? I understand that with power, there might be a bit of portfolio management there but what is your structural call on IT?
The near-term challenges are there but broadly the space is one where the management quality is pristine. Again, they do not have too much borrowing. In fact, most of them are net cash companies. We are looking at it beyond the current cyclical downturn. I think they will be back on the growth trajectory in a few years and we are staying put for that and we are staying invested in the IT space.
Earlier you flagged off your preference towards autos as well. Again, diversified as the sector may be, what is the preference within autos?
I think the four-wheeler space looks interesting in autos. So, while entry-level cars have not been doing too well, the selling price per car has been going up and again margins are improving and those kinds of things. Right now, the mid-to-premium segment is doing better than the entry-level vehicles. But soon enough you will probably see demand coming back to the entry-level as well. So, four-wheeler space is where we are invested in.
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