We may be at the cusp of a new bull market if future policy actions support revival in investment cycle

BFSI Industry Interview
On: Jun 23, 2014 | From: Advisorkhoj Team
BFSI Industry Interview in Advisorkhoj - We may be at the cusp of a new bull market if future policy actions support revival in investment cycle

Mr. Harsha Upadhyaya is the Chief Investment Officer – Equity, Kotak AMC. Mr. Harsha Upadhyaya, heads the equity management team at Kotak AMC, and personally manages Kotak Opportunities Fund and Kotak Select Focus Fund. He has 18 years of rich experience spread over Equity Research and Fund Management. His prior stints have been with companies such as DSP BlackRock, UTI Asset Management, Reliance Group and SG Asia Securities. Harsha is a Bachelor of Engineering (Mechanical) from National Institute of Technology, Suratkal, a Post Graduate in Management (Finance) from Indian Institute of Management, Lucknow and Chartered Financial Analyst from the CFA Institute. On the personal front, he has a passion for sports and is a university level hockey player. He likes travelling and enjoys exploring new destinations.

Some experts have proclaimed that this the start of a new secular bull market while some are more guarded as they feel this is a hype rally only and soon settle to realistic levels. What is your take on the current market and what do you see as the key drivers for markets in the next five years?

The macro-environment is witnessing visible improvement especially on external front. The strong government at centre will be key for formulating policies to curtail inflation and revive growth in the economy on a sustainable basis. At the same time, valuations are in favour of investors given sideways market movement of last 5-6 years. Therefore, we believe, we may be at the cusp of a new bull market if future policy actions support revival in investment cycle and growth trajectory.

We find that your Equity portfolio is overweight with exposure on three sectors – Auto, Banking and Software. All these sectors have appreciated handsomely during the current run up in the market. Do you still think more is expected from these sectors?

Both Auto and Banking sectors have outperformed the market in the recent past. We continue to be overweight on these two sectors, as we believe these are generally early cycle winners in any economic upturn. While IT sector aided fund performance handsomely in 2013, the sector has remained an underperformer during the recent rally. Given attractive valuations and expected better business momentum with global financial system coming out of crisis, we continue our exposure in the sector.

Midcaps have seen a significant jump of late. What is your take – has the Midcap rally just started? If yes, then what in your opinion is the suitable fund from your stable?

In our opinion, Indian equity market is poised for a structural up move over the next few years. If one can withstand higher volatility of midcaps, this segment can be potentially very rewarding. Kotak Midcap fund is worth exploring. We also have another fund – Kotak Emerging Equity, which focusses on smaller capitalisation companies.

What are the sectors that you are overweight in your Midcap holding? And also the sectors that you think one should remain underweight?

We generally approach midcap stocks from a bottom-up perspective and not from sectoral view. However, if one were to segregate based on themes, domestic consumption, infrastructure and financials account for around 3/4th of the portfolio in Kotak Midcap, and about 80% in case of Kotak Emerging Equity. We continue to avoid companies that have high leverage and/or have stress on balance sheet.

What is the valuation gap between Midcaps vs Large Caps in the current market scenario?

Outperformance of midcaps over largecaps since September 2013 has bridged the valuation differential between the two segments to a large extent. However, there still exists a valuation discount of about 10-15% for midcaps.

An analysis of the performances of your key flagship schemes - Kotak Opportunities, Kotak Select Focus and Kotak 50 shows a very good performance so far.Are you proposing any changes in these schemes in keeping tune with the recent market trends? What broadly will be your style and strategy?

We broadly follow ‘growth at reasonable price’ style of investing. The above mentioned funds have different investment mandates. While Kotak 50 is a large-cap fund, Kotak Opportunities is a diversified fund exploring investments across market capitalisation ranges. Kotak Select Focus is a fund which approaches investments from top-down perspective, by taking exposure in likely outperforming sectors/ segments of economy. In the past few months, all our funds have moved in favour of domestic linked sectors given valuation differential and expected domestic growth revival.

Keeping the current market scenario in mind, what would be your advice to a potential equity mutual fund investor?

As always, we advise investors to make disciplined and regular investments into equity from long term wealth creation perspective, and not to get alarmed or swayed by short term volatility. With improving fundamentals, reasonable valuations and strong government at the centre, Indian equities seem to be set for a sustainable rally going forward. Hence, we believe this is not a time to be underinvested in equities.