Co-Chief Investment Officer - Aditya Birla Sun Life AMC Ltd.
As Co-Chief Investment Officer, Mahesh Patil spearheads Equity Investments at Aditya Birla Sun Life AMC Limited. With over twenty-seven years of rich experience in fund and investment management, Mahesh leads a team of twenty, comprising fund managers and analysts, managing over INR 92,000 crores in equity assets.
Mahesh has been with Aditya Birla Sun Life AMC since 2005, where he started as a Fund Manager. In 2008, Mahesh was promoted as Head – Equity and subsequently as Co-Chief Investment Officer (Equity) in 2011. He manages funds such as ABSL Frontline Equity, ABSL Focused Equity, ABSL Equity Hybrid '95, and ABSL Pure Value Fund.
An Engineer from VJTI, Mumbai, Mahesh is an MBA in Finance from Jamnalal Bajaj Institute, Mumbai. He is also a charter holder from ICFAI, Hyderabad.
1. The data on the GDP growth numbers has not been encouraging. How you read the same?
Answer: In India, 3QFY20 GDP growth declined to 4.5% yoy but headline CPI inflation in October rose to 4.6% yoy. Consequently, in a surprise move, the RBI kept the policy rates unchanged even as it has continued to maintain an accommodative stance. This has kept hopes alive for further rate cuts next year which may be necessary to revive GDP growth which is now projected to come in at 5% yoy for FY20E. With various measures announced by the government so far and with additional measures expected to boost demand, GDP growth seems to be bottomed out and we should see a gradual recovery from here.
2. What is your opinion on the current market valuations? Do you feel that the weakness is already factored in?
Answer: Market sentiment got a meaningful boost following the Supreme Court’s positive verdict on Essar Steel and the Government’s announcement of a framework being deployed for the resolution of systemically important NBFCs under the IBC process. The government also announced a major strategic disinvestment push which should help in managing the fiscal deficit.
2Q FY20 was a noisy reporting season as tax provisions for companies were volatile given the cut in corporate tax rates announced in late September and revaluation of deferred taxes. While Nifty50 2QFY20 revenue and EBITDA declined marginally, Adjusted PAT increased 8% yoy largely due to the corporate tax cut. Overall, the breadth of operating earnings was mixed, with ~25% of companies exceeding expectations, ~50% meeting expectations, and ~25% missing expectations. Earnings growth has likely bottomed out and we should see an uptick from here as the economy recovers gradually. Nifty FY20 earnings growth of 12-13% is expected.
In terms of valuations, while the risk-reward for largecaps is fairly balanced, mid-and-smallcap stocks still trade at a discount to largecaps and are attractive in terms of valuation.
3. What is your investment strategy in the present markets? Where are you looking for new opportunities?
Answer: Headline indices are at all-time highs. However, one should keep in mind that they may not paint a complete picture as number of stocks in the large/mid/smallcap segments are available at significant discounts. Hence a bottom-up stock-picking approach focused on such pockets of opportunity is required in the current environment.
Select themes we are interested in are Consumption (i.e. Low-ticket Consumer Discretionary, Staples, Retail), Financials (i.e. Private banks, Corporate Banks, select NBFCs and Insurance), Industrials (Capital Goods, and Cement), and Pharma.
4. What is your view on the banking sector now?
Answer: Gross NPLs for the banking system have reduced with resolutions in certain large ticket size exposures and also moderation in slippages. New stress formation has reduced, and Bank balance sheets are getting repaired. Credit growth has been weak in the past few six months. However, as we start seeing some
resolutions in the NBFC space and as government’s measures to boost liquidity in the system take effect, the credit environment should normalize.
In the current environment, we are positive on the Private banks as they should continue to gain market share from the PSU banks based on comfortable capitalization, better asset quality, and healthy liability franchise. We also like the Corporate Banks as they are seeing NPL resolution, increased recoveries, and capital infusion based on which they are well positioned for growth.
5. Would you like to throw some light on the performance of your flagship funds?
Answer: The past two years have been a tough for the industry due to the polarization in the market with only a handful of stocks doing well and the broader market not performing. This had impacted our performance also. However, we have taken a number of corrective actions over the past year due to which we believe the performance of our flagship funds can improve.
After a thorough diligence, we have added a couple largecap names which we did not have in our portfolio earlier. We have also adjusted the allocation to mid-and-smallcaps in some of our funds. We have increased our exposure to some sectors where we have high conviction such as low-ticket Consumer Discretionary, Private & Corporate Banks and Insurance, Pharma, and Cement & Capital Goods. At the same time, we have reduced our exposure to some sectors like NBFCs, Auto and Auto Ancillaries, and Metals. The changes made are contributing to the improvement in performance.
6. What would be your advice to investors desiring to enter the markets today?
Answer: We would suggest that investors should not be too aggressive currently. Returns over the short-term could be modest. However, valuations have potential to offer reasonable returns to long-term investors.
In this environment, funds in the Multicap and Large-and-Mid category can be looked at as they have the flexibility to have an appropriate allocation across largecaps and mid-and-smallcaps. While the largecap stocks can provide stability to the portfolio, the mid-and-smallcap stocks can provide the upside.
This is also a good entry point to increase exposure in mid-and-smallcap funds in a staggered manner based on the investor’s risk profile and asset allocation and with at least a 3-year view.
The views and opinions expressed are those of the Mr. Mahesh Patil, Fund Manager and do not necessarily reflect the views of Aditya Birla Sun Life AMC Ltd (“ABSLAMC”) /Aditya Birla Sun Life Mutual Fund (“the Fund”). ABSLAMC/ the Fund is not guaranteeing/offering/communicating any indicative yield on investments.