‘Slowdown in capital spending has impacted engineering, infra sectors'

Without aggressively churning the portfolio, most schemes managed by Mr Chirag Satalvad, Senior Fund Manager, HDFC Mutual Fund, have outperformed not only the benchmarks but also their peers in a highly volatile market. In an interview to Business Line , Mr Satalvad spoke about the strategy for consistent performance of the schemes he manages.

In majority of the schemes you manage, banks and pharma are part of the top three holdings. Are you bullish on these sectors?

Our portfolios are constructed on a bottom up basis and sector allocation is an outcome of stock selection and not the other way round. Also some sectors are less homogenous and making a sector call may not be relevant. For example, in Pharma, companies have very different profiles. We are broadly positive on banks, particularly PSU banks, as they are well-managed and available at a reasonable price. There are some headwinds in the form of asset quality, economic slowdown and pressure on margins but we have incorporated this into our assessment.

Despite allocating close to 30 per cent of the assets in debt, how come balanced fund managed to return better than pure equity schemes?

This has been for several reasons. Firstly, as we strive to maintain a steady asset allocation, we are pushed into buying equities when the market falls as the percentage invested in equities falls along with the market. Secondly, we have benefited from certain stock-specific calls in these funds.

We have seen consistent performance quarter-on-quarter in several of HDFC schemes in the recent years compared to 2006-08.

Do you apply quant models in your portfolio.

No, we don't. We follow a research driven investment process that aims to manage risk while investing in high quality companies that are available at a reasonable price. We do some quantitative screening in order to generate new ideas.

What is your call on engineering and infrastructure sectors?

These sectors are facing some headwinds as a result of a slowdown in capital spending, delay in government decision making and rising interest rates. However, we are selectively positive on some companies as we fell that they are well managed, available at a reasonable price and will be well placed when the environment improves.

Do you see inflation dragging the performance of the interest rate sensitive sectors such as auto? What is your view on this over a two year period?

Clearly, interest rates will, and to an extent have already impacted demand for interest rate sensitive sectors. However, in several instances this is already reflected in valuations.

We have observed your portfolio turnovers are low. What strategy do you follow in your portfolios

We have a buy and hold strategy. We are long-term investors so you can expect our turnovers to remain low. We normally maintain a 2-3 year perspective.

HDFC Mid cap Opportunities is one of the top performing funds in its category over the one-and three-year period. What investment strategy you follow in the scheme?

The portfolio is constructed on a bottom up basis. We aim to buy high quality mid-caps that are growing well and intend to hold them for an extended period of time. We aim to stay within our circle of competence and invest in businesses that we can understand. We want to avoid poor quality companies or those with corporate governance issues. The idea is to give superior risk adjusted returns over time.

Why your capital builder underperformed its peers, despite banks and pharma accounts for major chunk of the portfolio.

Our objective is to outperform the relevant benchmark, which we have done for the last over the last 6 months, one year and three years. Comparison to peers can give a skewed picture as peers could have bouts of out performance/under performance versus the benchmark in different time periods. Doing better than our benchmark should lead to good performance versus peers.

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