Managing over Rs 2,400 cr, these fund managers are putting money where their mouth is

The Indian market has fallen about 30 percent from highs which has created an opportunity for long-term investors to put money to work at much cheaper valuations.

Not many of us had the courage to invest when Nifty50 hit a low of 7,500 in March. But, some fund managers who Moneycontrol spoke to, cumulatively managing about Rs 2,400 crore (Asset under Management), bought selected stocks amid market mayhem.

Warren Buffett once said that investors should ‘buy the fear’. It is easier said than done, but not impossible especially for those who follow a disciplined way of investing.

“We don’t have the luxury of buying the dips in meaningful money though we are deploying whatever new flows we have been getting on a daily basis. Also, we run a dynamic fund where we have increased the equity allocation level drastically looking at the attractive valuations of the markets,” Aditya Khemani, Fund Manager, Motilal Oswal Asset Management Company, who manages an AUM of over Rs 1,600 cr, told Moneycontrol.

“We believe that when an investor has given us money, he has already taken that call of putting that money into equity and our job is stock selection and portfolio construction rather than asset allocation,” he said.

The outbreak of COVID-19 has shaken every industry not just in India, but across the globe. Not just the industry but most of the portfolios which investors would have made in let’s say 3-4 years might have turned negative.

Rules of value investing suggest that investors create wealth if they buy a stock below intrinsic value and sell at a higher price. But, is this possible always? Well, maybe not.

But, black swan events – like the one which the world is facing now has pushed many bluechip companies below their intrinsic value which makes them a good buy at current levels.

Even though many companies are available cheap when it comes to valuations, but investors should do their own analysis on the extent of damage that they have to bear post the lockdown as the world is most likely to head into a long recession.

“Given the current level of uncertainty in the markets on account of the coronavirus, it definitely requires a cautious approach, but yes, at the same time, many of the quality stocks have corrected by more than 30%, so buying on dips can be a valuable strategy provided one decides to buy in tranches, that is, in blocks rather than going out all at once,” Aamar Deo Singh, Head Advisory, Angel Broking Ltd told Moneycontrol.

“Averaging quality stocks is a good way to generate above-average returns over a long-term period. Also, one needs to be mentally prepared in case of any negative news impacts the market, as the volatility is still at elevated levels, clearly indicated by the India VIX, suggesting that fear is still the dominant of emotions running the market at present,” he said.

What should be the strategy?

The strategy of investors is to buy right and sit tight. Well, that might sound simple but it is difficult to implement amid fear and uncertainty.

No analysis is good enough to predict a bottom and top in any trending market. All investors could do is to deploy a staggered approach when it comes to investing.

“At Ambit AMC we always believe in buying quality businesses. Its these steep corrections which provide long term investors with an opportunity to build a quality portfolio,” Manish Jain, Fund Manager, Coffee Can PMS at Ambit AMC who manages about Rs 300 cr told Moneycontrol.

“So the approach remains largely unchanged except that many businesses which were otherwise proving to be expensive are now much more affordable,” he said.

The process of economic recovery will be slow but the markets would discount everything well in advance. Much of the selling which we saw was largely on the back of foreign investors.

In the first three weeks of March, consistent redemptions were seen in emerging market ETFs and India being part of the emerging market basket witnessed the collateral damage.

The relentless selling pressure in some of the bluechip names pushed them to multi-year lows even though the fundamentals of the company have not changed much. But, the post-COVID-19 world will be different, and many companies will find it hard to recoup from the damage. Identifying those companies would be the key.

“Our strategy right now is to question each and every existing portfolio company of ours and do a sensitivity analysis to ascertain which all companies will see large damage to their return ratios and will have pressure on their cash flows and exiting from those companies,” Shailendra Kumar, CIO, Narnolia Financial Advisors who manages about Rs 500 cr told Moneycontrol.

“At the same time some of the great quality companies of India that we had not bought in the past due to high valuation and if today we are finding that their greatness will sustain in the post-corona world, we are deploying our money there,” he said.

The investment approach should always be bottoms-up and therefore what happens to Sensex, and Nifty should not be given any importance, suggest experts.

Investors should deploy cash when there is surplus, and when stocks are trading at fair values. The near term challenges usually offer opportunities to invest in a high-quality business with a higher-than-usual margin of safety, they say.

“We believe that currently there are a number of ideas that are attractively priced relative to their long term prospects and quality of business. Indeed the near term will be challenging, especially since it is difficult to ascertain the extent of damage that earnings will face,” Tejas Gutka, Head– Portfolio Management Services,  Tata Asset Management told Moneycontrol.

“We have started selective and gradual deployment of the capital of our clients. We are largely deploying the capital of clients that were under-invested due to the higher valuations prevailing until a few months back. One can't ascertain clearly how further can markets fall, and therefore we are deploying capital gradually rather than all at once,” he said.

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