ITI Mutual Fund is
the newest Fund House around but with experienced Fund Managers to their
credit.
With 3 schemes
already launched, their Arbitrage Fund NFO opens on the 20th of
August 2019 and closes on the 3rd of September 2019.
Sreenivas Reddy from
The Mutual Fund Guide sat down with the CEO & CIO, ITI
Mutual Fund, Mr. George Joseph for a brief interview.
Q) What would be
your advice to investors looking at the current market scenario?
A) The current market scenario appears to be not very encouraging
with sharp fall in equity markets, weak economic data, not so encouraging corporate
results and management commentary. However, we see many silver linings among
the dark clouds.
Despite the recent weak growth, India’s long term growth
outlook remains strong. Market valuations are near longer term average, in fact
many sectors and stocks are trading below their long term valuation multiples,
interest rates are declining, liquidity is improving, oil prices are stable. So
conditions for economic recovery are there.
The pace and timing of improvement
is not certain but improvement is bound to happen. We feel investors who use this volatility to
increase their equity exposure in a gradual manner, with a three year plus time
horizon, will reap a handsome reward.
Q) What is your
outlook on the Indian economy and equity markets at the moment?
A) The Indian economy is structurally very strong. We are a
balanced economy with three legs of growth domestic consumption, domestic
investments and exports, without being overly dependent on any one of
them. Our demography (proportion of
working population to total population ) is among the best in all major
economies.
Macro economic indicators
such as inflation, current account and fiscal deficit are in control. The
recent slowdown is more cyclical in nature. Government has introduced difficult
reform measures such as GST.,RERA and IBC which have long term positive
implications for the economy. We feel
Indian GDP, from current level of ~ USD 2.7 trillion can cross USD 10 trillion
in the decade or so.
Also, currently
Indian corporate profits as a % of GDP are 2.5%, a level seen in 2003. As
corporate profits normalize in this cycle and also as the size of GDP grows,
investors in Indian equities will earn handsome returns.
Q) ITI has
launched the Multi Cap Fund in May 19 and the Tax Saving Fund in July 19, do
you feel launching these schemes when the markets are witnessing a major
correction would give you an added advantage?
A) The market is
not in a euphoric zone as was the case in December 2017. Investors expectations
are more moderate. Valuations have corrected, more particularly in the broader
market.
As stated earlier, many sectors and stocks are trading at or below long
term valuation multiples, thus giving more opportunities for bottom up stock
picking. Thus, times are certainly interesting to invest as long as one keeps a
long term horizon and keeps a focus on quality and cash flows.
Q) What sectors do
you see picking up pace in the near future?
A) We are very bullish on the insurance and AMC businesses within
the BFSI space. Also, we feel corporate banks will see good earnings recovery
as the large corporate NPA cycle is coming to an end.
We also feel that
investment cycle in India will revive in the next three years, after a lull of
over seven years and we are selectively adding stocks exposed to the investment
recovery. Pharma is another sector that we are bullish on as the US generic
prices are stabilizing and Indian domestic pharma business remains strong.
We
are also adding stocks in the auto sector as valuations already reflect a large
part of the sector downturn.
Q) ITI Multi Cap
has been able to manage the slowdown better compared to other seasoned Multi
Caps since its launch, what has worked for you in that aspect?
A) We stuck to our SQL investment philosophy during our portfolio
construction. Our focus on quality of stocks in the portfolio and our call of
not taking a large weight in mid and small cap stocks despite the general
bullishness around them post the election results paid us well during this
downturn.
Among sectors, our call on being overweight in insurance and asset
management companies within financials and avoiding banks with weaker credit
quality helped us.
Our overweights in pharma , capital goods and consumer
sectors and buying auto stocks in the correction also helped us outperform. In
line with our SQL philosophy, we stuck to quality, did not overpay for it and
also maintained a low leveraged stocks portfolio.
Q) Tell us a bit
more about your strategy for your ELSS Fund
A) ITI Long Term Equity
Fund will be investing across market capitalisations. As a discipline, we will
have at least 90% exposure to equities at any point of time and generally
prefers not to take cash calls. Typical portfolio will include 40-70 stocks.
The portfolio will be having a bunch of companies that meet the 'SQL'
investment philosophy. More than 80% of the fund will always be in core set of
companies and upto 20% of the fund is expected to be in tactical stocks.
Core
set of companies are strong and sustainable businesses with competitive
advantages in their respective fields, while the tactical allocation will be
towards good companies with significant upside potential but going through
temporary problems and at the same time trading at beaten down prices.
The fund will
also try to take advantage of the three year lock-in-period, by having a longer
tail of mid/small cap companies which can potentially give higher returns over
longer term.
Q) Tell us a bit
more about your ‘SQL’ philosophy
A) ITI Mutual Fund follows the fund house core investment philosophy
‘SQL’ (S: Margin of Safety, Q: Quality of the business and L: Low Leverage).
Margin of
safety is the fair value of business minus the current share price. We feel,
buying stocks with good upside and less of downside is critical for a good
investment experience.
Quality companies with strong competitive advantages
have been long-term wealth creators and therefore focusing on good quality
companies is a must to protect the downside and also to create a good
compounding experience.
We analyse
the industry structure, promoters’ credibility, business fundamentals,
management track record, growth ambitions and balance sheet strength to evaluate
the company’s health. Lastly, the fund house analyses the company’s leverage
situation and prefers low leverage companies for investments.
High financial
leverage significantly reduces a business’s ability to withstand cyclical
downturn. Low leverage companies are generally cash rich and are able to
channelise their cashflows to grow the business successfully.
Q) What would be
your advice to investors looking at your Multi Cap Fund?
A) Multi Cap fund is well
positioned with a bunch of very good quality stocks which fits into our SQL
investment philosophy, where our conviction levels are very high and can
potentially deliver good compounding experience for investors.
Currently we
have positioned the fund with more of Large Cap stock exposures and as and when
we see there is an opportunity in the market to increase mid and small cap
exposure we may do that, at that point of time.
So our advice to investors is
to look at ITI Multi Cap fund as a one stop solution to create long term wealth
within the diversified equity category, which has an in-built feature to manage
the risk in the fund efficiently.
Market valuations are coming
nearer to long term averages and many sectors / stocks are now available at or
below long term averages, increasing the opportunities for bottom up stock
picking. Interest rates are low, monsoon has improved, oil prices are stable
and valuations look interesting.
Thus,
these are very good times to increase exposure to equity in a systematic manner
and take advantage of the volatility in the markets. We are more constructive
on the equity markets now than when we launched our multi cap fund.
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