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- #BAT seeks to monetise some of its #ITC stake - What does January's AMFI data say?   Niraj Shah speaks to experts on 'The Mutual Fund Show'. #NDTVProfitLive ______________________________________________________   For more videos subscribe to our channel: https://www.youtube.com/@NDTVProfitIndia Visit NDTV Profit for more news: https://www.ndtvprofit.com/ Don't enter the stock market unaware. Read all Research Reports here: https://www.ndtvprofit.com/research-reports Follow NDTV Profit here Twitter: https://twitter.com/NDTVProfitIndia , https://twitter.com/NDTVProfit LinkedIn: https://www.linkedin.com/company/ndtvprofit Instagram: https://www.instagram.com/ndtvprofit/ #ndtvprofit #stockmarket #news #ndtv #business #finance #mutualfunds #sharemarket Share Market News | NDTV Profit LIVE | NDTV Profit LIVE News | Business News LIVE | Finance News | Mutual Funds | Stocks To Buy | Stock Market LIVE News | Stock Market Latest Updates | Sensex Nifty LIVE | Nifty Sensex LIVE

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00:00 in ITC. Let's go across to Sajid Mangat for more on this.

00:03 Sajid.

00:04 That's right, Neeraj. The BAT or British American Tobacco is looking to monetize some of the

00:09 stake that it holds in Indian FMCG and cigarette maker ITC. Basically, as part of the earnings

00:18 statement, BAT has released that it plans to monetize some of the stake which in ITC

00:23 over a period of next few years and is trying, is working with the regulators to ensure that

00:29 it gets the due permission for that. To put in context, it's planning to offload roughly

00:36 around 4 odd percent in the ITC. It holds nearly 29 percent stake there. It's one of

00:42 the early investors of ITC from early 1900s and over a period of time it has gone up to

00:48 29 percent. And now it wants to bring in little capital efficiency because the value of the

00:55 stake is now valued at roughly around 18 billion dollars or 1.5 lakh crores and it plans to

01:02 use that as part of its cash management or capital management where it has told its shareholders

01:08 that it plans to generate over 43 billion dollars before dividends over the next five

01:13 years.

01:14 Neeraj.

01:15 Okay. Sajid, this comes at an interesting time when ITC for the longest time hadn't

01:21 done anything and now has had a significant up move. So the timing is clearly interesting

01:26 that they are taking advantage of the fact that ITC is no longer the laggard that it

01:29 used to be.

01:30 That's true. Also the fact that there is a demerger in process for the ITC hotels which

01:35 comes in and BAT would be getting a stake there as part of the shareholding in ITC hotels

01:42 as well. So, and ITC hotels are not, it's not going to be a core business for BAT. So,

01:49 as and when that demerger happens, it seems that ITC, BAT would look to, you know, monetize

01:55 that stake as well.

01:57 Okay. Sajid, thanks so much for putting that into perspective. On today's edition of

02:04 the Mutual Fund Show, we are joined by Kalpen Parikh, MD and CEO of DSP Mutual Fund and

02:09 Vineet Samre, Head of Equities at DSP Mutual Fund to talk about a very interesting note.

02:14 It's an annual note 2024, which they have titled a winning team and amongst things that

02:20 we will talk with them on the show is what they are talking about as insights from the

02:27 Tour de France for a thoughtful portfolio approach. You know, I saw the report and I

02:32 was like we have to do this conversation. Lend itself to a little bit of mutual fund

02:36 investing as well because we are talking on the Mutual Fund Show. Kalpen and Vineet, thank

02:40 you so much for joining us today. Kalpen, let me start with you. What was the genesis

02:44 of writing a note like this with such a comparison of insights from a major sporting event?

02:57 Thanks Neeraj for firstly inviting and more importantly for deep diving on a very detailed

03:02 document that Vineet and team have come up with. So since the last three years, we've

03:06 been coming up with an annual document, which mainly is about our reflections from the year

03:12 which went by and our observations on broadly data points, trends which are playing out

03:17 in the world of investing. So this annual note is actually meant for us to improve our

03:23 learning, our reflections and transparently share with our investors and marketplace what

03:29 we are thinking about. And this is also a point in time where many turning points are

03:34 there, many beliefs are getting questioned and challenged in terms of a certain part

03:38 of the market becoming frothy, some part of the market remaining reasonably safe in terms

03:43 of margin of safety. So this note allows us to put across our points of view. Also at

03:48 DSP, as a 27-year-old asset management company, it is over time leveraging a lot of data technology

03:56 along with fundamental experience of our teams. So the whole concept of a winning team was

04:01 to see that how can we try to marry both together and take certain investment decisions or get

04:07 inputs on a daily basis which can help sharpen our decision making and improve and we've

04:12 given a lot of examples in the note. So I think that was the backdrop and glad that

04:16 you invited us to talk about it.

04:17 Pleasure is ours. Vineeth, you want to add to this?

04:20 Vineeth, you want to add to this?

04:24 Yeah, so again, thanks for inviting us today on the show. Yeah. So see, I think, you know,

04:31 why we actually picked up this theme more importantly also beyond what Kalpen mentioned

04:36 is the fact that, you know, we wanted to highlight two important messages out here. One, just

04:43 like in case of these sporting events, there is a team effort which actually leads to success.

04:50 Here we want to drive the fact that the whole DSP, you know, team as such, including our

04:57 core investment team, I think the divergence of knowledge, what these team actually gets

05:04 in the, you know, divergence of skill set, what these team gets in, allows us to, you

05:10 know, think maybe in a more variable manner, think more differently. And that is what is

05:15 maybe defines how the long term success has to happen. So that is one aspect why we have

05:20 aligned. The other aspect also is the fact that, you know, just like in case of this

05:25 sporting event, there is a team effort here also what we are seeing at this juncture when

05:29 the valuations have reached where they are some part of the markets are a little expensive.

05:34 It is also good to look at, you know, diversified asset class to maybe bring your portfolio,

05:42 you know, more into aligned, you know, manner given the current valuation. Also to see that

05:47 long term success will be a factor of how your asset allocation strategy today is defined

05:51 rather than, you know, just taking a call on a specific segment which may be doing well

05:55 today. So that is the overall, you know, thought process.

05:59 Now Kalpen kindly mentioned that I have already done a deep dive. I have obviously not done

06:06 as deep a dive as you would have liked, but I will still try and pick up the three or

06:10 four key aspects that at least we thought were relevant to talk about today. And we

06:15 are trying to correlate them to how can a mutual fund investor per se, you know, kind

06:21 of take insights from in her or his investment journey. So let me try and understand from

06:28 you guys. You have spoken about how 2023 was a year of mid caps and small caps and either

06:34 of you can take this answer, but could it happen again looking at insights from a sporting

06:40 event and looking at what is happening in 2023 that an encore could happen or should

06:44 a person be careful about that space now that that space has done so well.

06:51 Either of you. So let me start before Vinit adds and I want

06:58 to give a disclaimer that if you had asked this question to me six months back or one

07:01 year back, I would have said that the space looks a bit expensive. So, you know, broad

07:05 base or diversify and be more in large caps or be more in flexi cap funds. So in a way

07:11 I have been wrong and yet you are asking me this question. So I am, you know, grateful

07:15 that you are. But we genuinely believe that, you know, the starting point is never market

07:20 cap. The starting point always is that, you know, what type of businesses are available,

07:24 where are they in their earnings and business cycle and what is the price that we are trying

07:28 to pay for it. And then if the outcome of that ends up giving us large cap stocks, so

07:33 be it. If the outcome ends up giving us smaller mid cap stocks, so be it. At large, you know,

07:39 two things have happened. The small and mid cap segment has also seen a lot of significant

07:44 improvement in operating matrix. So ROEs look good. Profitability has improved. All of that

07:49 has turned very sharply positive in the last two, three years. That has coincided with

07:53 lot of money also coming in, in that bucket. So end of the day, there are 250, 300 stocks

08:00 which are available for Indian investors via mutual funds or directly to participate in.

08:05 And more flows in the last couple of quarters going into that bucket is also creating some

08:11 bit of premium in terms of their valuations. And around the same time, if companies report

08:16 marginally positive operating matrix, it's only adding to the tailwinds. So I really

08:22 don't know. I've been wrong last year in terms of predicting that small caps may not do as

08:26 well or mid caps may not do as well. So I don't want to hazard a guess again. But I

08:30 personally, this is what I do in my own portfolio. My preference always is in diversified funds.

08:35 And typically at market extremes, you get into smaller mid caps when there are sharp

08:40 corrections or use SIP as a consistent method of investing. Most of our investors have been

08:47 significant beneficiaries by doing SIPs in our small cap and mid cap funds. And typically

08:53 when there are phases of poor returns in the last three, four years, if you come in at

08:58 that point in time, your odds of getting better return outcomes are in your favor. That's

09:02 my view, personal view. But Vinit, if you want to add anything.

09:05 Yeah, just one data point. So we've covered one analysis, a short analysis in this note,

09:11 wherein we've captured the seven year rolling return for the mid cap index and the small

09:18 cap index. And if one looks at that data point, one sees that in the last 10-15 years for

09:26 which we have done that analysis, on a seven year rolling basis, we'll see that the index

09:33 has provided upwards of 12% returns 75% of the times and 0% returns, the probability

09:42 is zero. I mean, the history has been zero. So the point which we wanted to make here

09:46 is while at various points, we'll have extremes created in different categories, the way to

09:52 deal, one of the ways to deal, because it is going to be very difficult predicting how

09:56 things are going to turn out. One of the ways to deal is that not to get out of the asset

10:00 category, but to expand the time horizon. So once you have, let's say, four categories

10:04 which are getting expensive, but these are good categories to own, good ROEs, the companies

10:09 are inflecting, growth metrics are there. Only point is that at extreme valuations,

10:14 higher valuations, one needs to have a longer time period for as far as the investment decision

10:18 is concerned and not maybe lose track of your asset allocation is broadly what we wanted

10:22 to highlight. You know, viewers, it's a very interesting

10:27 statistic that Vineet Samre is pointing towards. And I just wanted to lay out that point that

10:35 they've made in that note that for a much maligned, broader end of the spectrum, and

10:40 everybody likes to say that, oh, mid caps, small caps, having run so much, etc., etc.,

10:44 because you are investing into mutual funds from a long term perspective, that statistic

10:48 that Vineet Samre spoke about that they've highlighted. On a seven year rolling basis

10:52 since September 12th, the mid cap index has returned over 12% returns 76% of the times

10:57 on a rolling basis, has delivered negative returns 0% of the times on a rolling basis,

11:02 even for the small cap space, by the way, on a seven year rolling basis delivered negative

11:06 returns only 1.2% of the times. It's a telling statistic. If you're investing for the long

11:12 term, maybe just maybe, these statistics will help you make some thoughts.

11:17 Vineet, just can I ask you a quick perspective, because you guys made this famous decision

11:22 of not taking investments into your small cap fund at a point of time when you thought

11:26 to be when you thought it to be overheated, the brave move then as well. Would you say

11:31 that if you're investing from a slightly longer term perspective on the back of this statistic

11:35 and on the back of the nature of the market currently, because so many sectors are formed

11:39 only in the mid cap and the small cap end of the market, it might not be a bad idea

11:44 to keep your SIPs going?

11:48 Yeah, definitely. So, you know, that's the thought process that and then more so when

11:56 you know, we do this analysis for SIP, this works out to be even better that investing

12:00 at a higher point also yields to decent returns over a long period of time. And hence, from

12:05 that perspective, I would say that if one really has a good six, seven years perspective,

12:09 despite the high valuations, it's okay to be part of this category. The other matrix

12:14 is that, you know, when we look at our own portfolios, there are still maybe roughly

12:17 about 40-45% of our investments are still into companies where the valuations are not

12:24 expensive, the valuations are below 15 multiple even today, maybe some of them are facing

12:30 a low business cycle, some of them are not in the positive momentum or narrative today.

12:36 But the point is that, you know, one needs to create a portfolio which is designed to

12:41 yield success over the long period of time and have a mix of companies which can potentially

12:46 deliver good returns when the cycle returns. So, I think from that perspective, it's not

12:50 that everything is sort of over at the moment with these high valuations, there still are

12:54 opportunities and definitely one stretches the time horizon to maybe five, seven years,

12:59 we don't see, you know, material negativism as far as that decision is concerned.

13:07 Okay, well, gentlemen, stay on, we need to slip into a short break. On the other side

13:12 of this conversation, we try and talk about one more aspect that there's, I think two

13:16 more aspects, one is the PSU outperformance which is probably more than just a narrative

13:20 or is it? Let's ask Vineet and Kalpen about this on the other side of this quick break.

13:25 Stay tuned.

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16:48 >> All right, back with the Mutual Fund Show in conversation with Mr. Kalpen Parikh

16:53 and Mr. Vineet Samre and we are talking about that annual note learnings from the Tour de France

16:59 and we are trying to understand those or juxtapose those learnings with a thoughtful portfolio approach.

17:06 Some of the things we have discussed, one important thing that we did want to talk about is this whole excitement around PSUs.

17:16 Now Kalpen, I don't want to spill the beans.

17:19 You guys have mentioned that is the header is that is this whole PSU "excitement" more than just a narrative.

17:27 Can you talk about this?

17:32 >> Sure. So like the title, Neeraj, what we are trying to highlight here is that investing has to be a rational attempt

17:40 and if data changes and if numbers change, we have to evolve and adapt our opinions and views.

17:47 So over the last few years, even at DSP in our portfolios,

17:52 PSUs which had fairly low rates over the last two to three years when they started screening in on two counts,

17:58 one on account of significant operating efficiencies in their businesses,

18:02 second on account of certain regulatory changes or certain other environmental changes,

18:07 which gave confidence or conviction on the durability of their business cycle or revenues.

18:13 We started increasing our rates significantly so much so that in some of our funds,

18:17 the rates are in excess of 20 percent in the PSU bucket.

18:21 Now, an important dimension was that they were also cheap.

18:25 So typically, how do you make money in stocks is you get significant earnings growth and momentum.

18:31 And secondly, there is valuation expansion. Now, PSUs were cheap for long periods of time over the last eight, nine years.

18:39 So if you had entered in the second year or the third year or the fourth year, they were always cheap.

18:44 But some of the triggers which came out in the last two, three years in many pockets,

18:48 whether it was in the defense segment, whether it is the cleanup on the PSU banking side or in the energy space or even on the power side,

18:59 there were a lot of regulatory changes which also came in.

19:02 And that coincided with significant improvement and enhancement in business performance.

19:07 So as money managers, we constantly look for data.

19:10 And if that data is questioning or making us evolve our beliefs, you know,

19:15 it's not easy many times when you are anchored in a certain space that we invest only in a certain pattern.

19:20 The reason to highlight this dimension. So this was also a dilemma that, you know, the team kept keeps on having.

19:26 And, you know, is this for real? Is this narrative? And there are always two schools of thoughts, two sides of a coin.

19:31 But looking at how data points were evolving, operating metrics were changing,

19:36 the behavior of these companies in terms of, you know, a very high quality business performance, all of that was falling in place.

19:43 And supported by great tailwinds of very cheap valuations.

19:48 And compare this to a large part of the other side of the market, which was, you know, becoming more expensive than what it deserved to be.

19:55 We decided to gradually increase weights in a lot of these pockets.

19:59 We've given data points in the note on how ROEs of these segments were in the last three to four years versus the prior four or five years.

20:07 And how ROEs improved and they were at starting valuation, which are very cheap.

20:12 So with that context, and like I mentioned in the beginning also, ultimately as money managers, our objective is to buy, you know, high quality profits at reasonable valuations.

20:21 Or if at some points in time you get it very cheap also, you get lucky.

20:25 So I think that is the convergence which is playing out in the PSU market.

20:29 No doubt some pockets are seeing extreme froth, but that's our role as money managers to ensure that the discipline is there.

20:36 Not to buy into them just because there is a PSU rally going on, but each company is evaluated on its merit.

20:42 And, you know, we question that how long is the durability of this growth.

20:46 And accordingly, we decide how to size. Vinit, if you want to add.

20:50 No, no. So I think broadly, Kalpain has covered a lot of the points.

20:54 And more importantly, I think, again, going from the fundamental viewpoint, a PSU again is a labelling.

21:00 And, you know, when we look at where businesses have created most value, we know that when the growth recovers and the RO is inflected over the cost of capital,

21:09 I think these two combinations are very powerful for any kind of businesses to start delivering strong outperformance and returns.

21:18 So I think from that matrix, when we look at these, I think those are added up well.

21:22 The other important factor is that definitely the past inferences will always remain strong in our heads.

21:28 And hence the selection criteria for them will also remain rigorous, more rigorous.

21:33 And wherever we find a dominating PSU's low private competition, high margin of safety,

21:40 I think those are going to be the parameters to be part of that basket overall.

21:46 Got it. OK, so we need kind of running out of time on the show, sadly.

21:51 But I just want to ask you from a mutual fund investors perspective, how does this or even the third topic that we kind of looked at,

21:59 which is where do you guys think we are in the investment cycle and what are the implications for the same?

22:04 How does a mutual fund benefit investor benefit from the learning around PSUs or from around where we are in the investment cycle?

22:17 So I think clearly what investors I think the most important factor is going to be the rationality.

22:22 And I think that is that is going to be the long term success mantra for investors at large.

22:29 For us as mutual fund fund managers, I think this is what we try to look at.

22:34 We try to look at data to guide our decision making and data can come from both our team of diverse skill set plus technology,

22:43 which is also helping us a lot, which you also covered some bit in our note.

22:47 So I think we'll keep getting guided by those. And as we understand in terms of the business cycles,

22:52 I think there are business cycles which are maybe towards the higher end of the curve.

23:00 You know, there are businesses which are still in the midpoint.

23:03 Many of them are in the midpoint and there are businesses which are in the low cycle.

23:07 So let's say speciality chemicals, agri, these are the businesses which are in the low cycles.

23:11 Automobiles, healthcare are in the mid cycle and maybe high cycle.

23:14 Some of these engineering names today seems to be in the high cycle.

23:19 So I think we need to decipher these segments, need to then compare it to the valuations

23:24 and then maybe take a more rational call around how and how to position or size up some of the good companies within these buckets.

23:33 But so therefore, would Kalpen, sorry, just before we wrap up, Kalpen,

23:37 would you believe that investing via diversified funds wherein the fund manager takes a call on some of these sectors,

23:43 be it investment cycle, be it power, because you guys have done some tremendous work on in the note,

23:48 on the change in the power space that you guys saw early, etc. Is that the best way to play this?

23:54 I'm just trying to correlate it from the viewer's perspective about her or his takeaway after listening to this conversation.

24:03 We need, sorry, Neeraj, at any point in time, we believe that the common investor or the average investor who doesn't have the wherewithal to,

24:11 you know, keep jumping themes and cycles, the best place is a diversified flexi cap or a multi cap fund,

24:18 because there the fund managers will navigate, you know, seven out of ten times if we go right, that would be a good outcome.

24:25 And we will keep navigating. The tax efficiency is very high. Left to ourselves as individuals.

24:30 Generally, we get excited about a cycle towards the fag end. To give an example, three and a half years back,

24:36 we reintroduced a fund called DSP Tiger Fund into the market, saying that, you know, the capex cycle could actually be,

24:43 the valuations looked expensive even then, but the earnings cycle had not kicked off, particularly in the capex space.

24:49 And that, for example, has been the best performing fund in our, you know, book of around 15 funds.

24:54 Today, there is a lot of interest in that, but the returns went to only very few people who invested in 2020 or 21.

25:01 So, today, if someone says, I want to put money in that type of a theme, we would say come via an SIP route,

25:07 because, you know, a lot of returns have been made. So, our belief is, at any point in time,

25:12 there are different buckets and different phases in the cycle. For an investor, it's best that he comes via diversified flexi cap and multi cap funds.

25:20 And depending on his personal asset allocation, decide whether he should do lump sum or an SIP.

25:26 But clearly avoid, you know, hot themes at this point in time, which have run up between three to ten times in different pockets,

25:34 without doing appropriate homework. Got it. Jai bhai, we are out of time completely,

25:39 but thank you so much for writing such a lovely note and talking to us about it. Really appreciate your time.

25:46 Thank you so much, Neeraj. That's a view from Team DSP. By the way, just mark a couple of stocks there,

25:51 including Garwara, which has had a very strong quarter and the stock is up nearly 15-16%, so a bit of a bounce there.

25:58 Some others too, but this one stood out. That's it on this leg of the Mutual Fund Show. Stay tuned to NDTV Profit.

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PSUs In Focus | The Mutual Fund Show | NDTV Profit

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