Three of Bandhan AMC’s funds have been strong performers in 2024, with the Small-cap Fund giving 57 percent returns on a one-year basis, the Large-cap fund giving 29 percent and the Core Equity Fund giving nearly 40 percent returns, placing them in the top five of their respective category.
In a conversation with Moneycontrol, Bandhan AMC's Fund Manager and Head of Equity, Manish Gunwani, spoke about their bets for the next year, how they are approaching currency valuation concerns and global conflict and their biggest learnings in 2024.
Edited excerpts:
What do you think has really worked for your large-cap fund this year?
Mainly, our disciplined investment approach. We stuck with high-conviction calls, even during short-term underperformance. Holding large-cap stocks, despite mid- and small-cap stocks outperforming last year, paid off as these stocks gained traction mid-year. Additionally, our thematic investments—consumer discretionary stocks —did exceptionally well, contributing significantly to returns.
Briefly, can you explain your investment strategy?
Our strategy is focused on finding alpha within sectors rather than making large sectoral bets. We prefer small deviations from the benchmark—2-3% in sector exposure—without taking outsized risks. Our active share typically ranges between 40-75%, ensuring we’re not too closely aligned with the index. We emphasise bottom-up stock selection and diversify across sectors to minimise the impact of individual mistakes.
Did anything surprise you about the markets this year?
The first surprise was the election result, which many thought would trigger a market collapse—but it didn’t. The second was the resilience of small-cap stocks during the market correction, given their strong performance in prior years. Domestic inflows played a key role in this unexpected resilience.
What made you stay invested in large private banks despite an unfavorable environment?
We remained confident in their high-quality franchises. Large private banks tend to manage credit costs better during economic slowdowns. Although concerns about retail lending kept these stocks under pressure, we have believed their strong liability franchises provided a competitive advantage.
Why did you bet on IT when growth visibility was low?
It was a relative call. In 2023, auto and industrial stocks had already rallied significantly. With signs of a domestic slowdown, we felt large IT companies—pegged to the US economy—offered better relative value. The dollar’s strength during the year also favoured the sector. While we’re not expecting massive growth, their solid cash flows ensure consistent returns.
Zomato was called out for the Blinkit acquisition when it happened, but ultimately it is the quick-commerce business that has become the reason for its outperformance. What was your reason to bet big on Zomato?
We don’t talk stock specifics. But to tell you briefly, we increased our position only after we saw traction in quick-commerce. While quick-commerce has struggled in developed markets, it seems to work better in India due to lower labour costs.
What’s your take on digital stocks overall?
We’re open to investing in unprofitable companies if their unit economics make sense. Many tech platform and consumer companies may burn cash in the short term, but if they demonstrate strong unit economics and a clear path to profitability, we’re willing to invest.
You seem to be loading up on FMCG stocks despite slowing consumption. Why?
Large FMCG companies might not deliver high returns, but they present lower risk. Near-term, we’re cautious due to demand concerns, but the risk-reward ratio looks favorable for consumer staples. Besides, there’s been no meaningful recovery in mass consumption post-Covid, so if the economy does well, we expect growth to trickle into consumption eventually.
What’s your strategy for stocks that have performed exceptionally well for you this year?
When stocks experience significant gains, we reassess based on their underlying fundamentals. A sharp rise in price doesn’t necessarily mean we sell; if the business model still shows strong growth potential, we hold on.
What are your top picks for the coming year?
We’re focusing on high-quality, reasonably priced sectors like IT and pharma. These offer solid cash flows, attractive valuations, and stability amidst geopolitical uncertainty.
What’s your outlook for next year?
We expect moderate returns.
What’s the biggest risk for the coming year?
Currency risk. India’s higher inflation compared to major economies puts downward pressure on the rupee, potentially impacting foreign flows. Global factors like US-China tensions could also weigh on the currency, which we expect to depreciate by 5-10%.
How do you avoid the winner’s curse next year?
We’re steering clear of expensive sectors like autos and capital goods and are cautious on NBFCs and PSU banks. For now, we’re focused on high-quality names and sectors that benefit from a stronger dollar, such as IT and pharma.
Do you fear any adverse outcomes in these sectors when Trump returns?
Not really. With Trump, much of it may be posturing. We don’t foresee a credit event or a hard landing in the US economy. Domestic cyclicals aren’t cheap, so it’s better to focus on segments that could benefit from tensions between the US and China.
What’s the most important investment lesson you’ve learned this year?
Macro forecasting is extremely challenging. Predicting economic trends, even for major economies, is fraught with uncertainty. It’s better to focus on stock selection based on strong fundamentals.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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