Sonam Udasi, Fund Manager, Tata Mutual Fund, is of the view that the current volatility in the market is a good time to pick compounding stories anchored in value. He spoke to BusinessLine on how the asset management company’s close-ended NFO, Tata Value Fund (open for subscription till July 6), is well-placed to tap into the emerging stories in the mid-cap space. Excerpts:

You already have Tata Equity PE Fund which is open-ended and focusses on value picks. So, why another value fund now in the close-ended format?

This is a good time to come out with a closed-ended fund. Growth at both the micro and the macro levels is decent. Large-cap companies are delivering, whether it is consumer, auto or even private sector banks; and the problems in public sector banks have been known for a long time. The only reason markets are jittery now is because oil prices are on the higher side and because of the upcoming elections next year.

While the Sensex and the Nifty looked flattish in the last six months, the real carnage has happened in the mid- and small-cap space, where indices are down 10-20 per cent. As we go forward, we will get decent opportunities in emerging names. So we thought it was a good time to bring out a close-ended fund in a value scenario. Currently, if you look at our existing value offering — the PE fund — about 75 per cent of its portfolio is in large-cap stocks.

Six months back, if you looked at the portfolio, our allocation was 55-60 per cent large-cap, and 35-40 per cent mid- and small-cap. The call that has been taken here is that the valuation on large-caps is much superior to mid- and small-cap stocks. So, the new fund allows me to think differently on a clean slate.

Will you be holding a concentrated portfolio in this new fund?

I prefer not to have a long tail, though it is a good strategy. All my funds, whether it is the consumption fund, the equity PE or the retirement fund, have concentrated portfolios. The size of the portfolio also depends on the size of the fund. For example, in the consumer fund, we own 30-35 stocks; it has gone to 40 at times. My sweet spot is always between 40 and 60 stocks. So, the portfolio of this new fund will depend on what size we are able to garner in the NFO (New Fund Offer). If it is reasonable, maybe it will go to 40 stocks. If the size is smaller, I will keep it at 30. India’s per-capita income is on the rise, and hence, we will focus on the segments that will directly benefit from this.

Because this is the first time I am getting to manage a close-ended opportunity, my thought process would be on the lines of whether I can buy and hold for three years and compound the returns. Also, markets have not done well in the last few months. This volatility will help create a solid portfolio, so that it will gain as clarity emerges on issues such as oil prices and general elections.

Which are the sectors/segments in which you currently see value?

Some stocks deserve to be low PE; some trade at low valuations because of certain current negatives that will clean over a period of time. I have a three-year window, and so I would look for stocks which not just have low valuation, but also would grow in this period.

Ultimately, India is a growth economy. What are the four or five themes that I think would do better than the broader market? My view is that public capex will continue, especially in the run-up to the elections; so, companies which are focussed on that could benefit.

Because of GST, the share of the unorganised segment will come down gradually. So, I will focus on segments where the share of the unorganised segment is 40 per cent or more. Because there is this trend of financialisation of savings, I will see if I can be part of stocks in spaces such as mutual funds and insurance companies.

I will also look at categories which are more consumer-attuned. I value companies that can compound. I like companies where promoters have a certain capital and wish to grow on that. When existing shareholders remain constant, my amount tends to compound and will not get diluted. I like promoters who have the ability to squeeze more out of the current business. To me, the definition of value is companies that have the potential to become valuable.

Markets are currently turbulent and there may be headwinds ahead, too…

Only during uncertainty can one create alpha. The worries are: there are elections ahead, oil has gone up and fiscal deficit may go up. But I think it is getting factored in the market. When we get closer to the event (for example, elections), and if the markets stay where they are, it is actually a good time for investors as you can average out the losses from these negatives.

Did the rate hike by the RBI take you by surprise?

Frankly, economists have the luxury of hindsight. When we talked to our debt guys (before the hike), they said that the 10-year G-sec rate seemed to indicate that the rate hike had already happened.

And people were therefore, going very negative on NBFCs. Our view is that, historically, NBFCs and banks do very well in a rising interest rate scenario because the pricing power comes back.

comment COMMENT NOW