Glorious decade for this wealth creation champion

WF: Heartiest congratulations on your flagship India Opportunities Fund (now renamed as India Equity Fund) completing 10 very distinguished years of wealth creation. What have been some of the important milestones that this hugely successful fund has crossed in its first decade?

Neelesh: Over the last ten years, there has been unprecedented focus on macro economic parameters – both, domestic and global related. At various occasions, there were plenty of reasons to be sceptical about the prospects of Indian equities. These included events like the global financial crisis, oil shock, and periodic uncertainties related to growth, interest rate, inflation etc. Yet, being optimists (we are in that camp), we remained resolutely positive on India’s growth prospects. More importantly, we always believed that a good investment on a bottom-up basis is ultimately about businesses delivering superior earnings growth despite macroeconomic volatility, as returns over time converge with the earnings growth.

In context of the above, the important milestones of the fund over the last 10 yrs has been :

• Regular Plan - Growth option NAV has grown from 10 to 45.1 (from 4th April 2008 to 4th April 2018),
• Cumulative dividends of Rs 12.05 has been paid in Regular Plan - Dividend option;
• Overall AUM increase from RS 110cr to 6,752 crores (as on 31st March, 2018), and
• Total folios increased from an original 26,000 to about 2,60,000 (10x growth in 10 years), of which about 5,400+ investors have been associated all throughout these 10 yrs.

WF: Maintaining consistently high alpha over benchmark and peer group average across a decade is a truly commendable achievement. What differentiates you from the rest?

Neelesh: We would like to outline the two key aspects of investment decisions:

• Investment philosophy: Our investment philosophy is centred around participating in quality businesses, but upto a reasonable valuation. Analysis of all three buckets – Business, Management, and Valuation is important from a risk-reward matrix. For e.g., many a times great businesses come with an expensive price tag – thus, great businesses may not be always be great stocks.
• Discipline, and adequate diversification: We seek to construct diversified portfolio, which could handle mistakes and deliver decent risk-adjusted returns.

WF: Market sentiment has turned cautious and worries now abound on global trade wars, on domestic macros, on election uncertainties and so on. What is your outlook on markets over the next 12-18 months and what do you see as the key drivers going forward?

Neelesh: Key driver will be earnings recovery - Overall, we expect FY19 to kick-start earnings recovery, although the market is likely to be distracted by several macro factors along the way, such as the ongoing global trade conflict, the US Fed rate increase cycle, domestic equity flows and, last but not the least, the domestic political developments in an election-heavy year. Also, after the recent correction in the markets and the softening of bond yields, we believe valuations offer enough bottom-up stock-picking opportunities.

WF: Is our cyclical economic recovery on hold right now? Is this the time to get defensive in portfolio strategy?

Neelesh: Given the multitude of factors at play – both global and domestic – we expect increased volatility in the market. In such an environment, our portfolio reflects our bias for underlying earnings visibility (growth recovery), and our long-held preference to consumption recovery in CY18 (especially rural).

WF: What sectors and themes are you overweight on now and why?

Neelesh: We remain positive on value pockets of the market given attractive valuations. We are positive on Financials, Consumption oriented businesses, and on select business which would have tailwinds of global recovery.

WF: A key industry concern now is the nervousness among lakhs of new equity fund investors who are perhaps witnessing their first significant market correction, and the first occasion when their 1 year SIP returns are turning negative. What message would you want distributors to give to these investors at this juncture?

Neelesh: The message remains same, i.e., to continue decent allocation to equities with 3-5 yr perspective. As has been seen in the past, right businesses will continue to create wealth, despite volatile macros- and the same will be reflected in decent absolute returns in the long term. Corrections should be used as an opportunity to step up allocations, particularly for those who are underweight equities.

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