Motilal Oswal MF has launched its new Manufacturing Fund amidst heightened concerns around valuations and frothiness in some parts of the theme.
Ajay acknowledges these concerns but asserts that the theme is broad and deep enough for stock pickers like MO to continue discovering attractive opportunities that are still available in the 15x-25x PE range.
PEG of upto 1.5x can be within reasonable valuation zone, provided there is high conviction on robust growth over next 3-5 years. Many investors miss out on growth stocks as they underestimate earnings growth trajectory. MO’s team has its ears close to the ground and relies on multiple channel checks to get an early pulse on growth trajectory, which enables them to spot and stay with winners.
Ajay prefers auto ancillaries over passenger cars in the auto sector – which is the largest component of the manufacturing index.
Two of the big five sectors in the index – metals/mining and oil/gas – are not areas of comfort for him. Rather than betting on international price trends in such global cyclicals, he would rather focus on actual business growth stories – whether catering to domestic or global markets.
He doesn’t believe in investing NFO proceeds gradually over a 4-6 month period. If the fund house has conviction to launch a themed fund, it should have the conviction to deploy funds into the theme right away. He has his model portfolio of 40-45 names, from which he expects to invest in 30-35 stocks to create the initial portfolio.