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Why Raunak Onkar of PPFAS Mutual Fund prefers US stocks

The Co-fund manager and research head says the approach helps find attractive valuations globally within a preferred theme or sector

July 20, 2021 / 09:34 AM IST

Parag Parikh Flexi Cap Fund, the flagship scheme from PPFAS Asset Management Company has been among the top performers over the past three-odd years. One reason behind its performance has been its investments in overseas securities to the tune of nearly 30 percent of its overall corpus. Recently, the Securities & Exchanges Board of India (SEBI) increased the limits that fund houses here can invest in foreign securities. But Raunak Onkar, Co-fund Manager and Research Head of the fund house says that there is no real need to launch a dedicated international fund. Here is his conversation with Vatsala Kamat.

 Parag Parikh Flexi Cap Fund (PPFCF) has done well (23 percent return over the past three-year period). Did your decision to invest in overseas securities help? How do you research foreign securities?

The basic filters to pick and choose companies listed overseas are the same, regardless of geographies – a firm’s history, sales and profit performances, debt and return ratios.

We don’t have a separate team for overseas research. Our sector analysts track companies across the globe. We add investment ideas that are not available in our markets.

Besides, the approach helps find attractive valuations globally within a preferred theme or sector. For instance, in the FMCG sector, we found that a particular parent company listed overseas is relatively cheaper than its own Indian subsidiary. There was merit in investing in the parent company due to its sales and earnings growth, capital allocation at the parent level, buyback of shares and so on. The overseas part of the portfolio also helps to diversify geographical risk.

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Why have you not invested in countries other than the US?

We stick to developed markets where the capital market ecosystem is more evolved with globally accepted accounting standards. Such regions have legal systems that protect minority shareholder rights. We steered away from some of the emerging markets for the same reason.

Clearly, the technology sector has had the biggest run up in valuations. But it continues to be backed by rising sales and profits. Valuations in consumer goods have been rock steady. We don’t prefer companies that are esoteric and focused on a single market for business. We have also ventured beyond US into Europe.

Given your longstanding expertise in overseas investing, do you intend to launch one too?

There is a restriction imposed by SEBI that each AMC can have access to only $1 billion in terms of overseas investments. It has been steadily revised upwards from $300 million some years back. At present, our overseas portfolio is around US$450 million. So, we have a choice: either launch a separate international fund or continue with PPFCF. We prefer the latter option.

Also, at PPFAS, we like to keep investing simple. So, when investors visit our website, they should be able to understand that we have one product which goes everywhere in terms of equity, and one each in categories such as liquid fund and now the conservative hybrid fund, which gives the debt exposure.

Do you think that it is time to reduce exposure to international companies from the present level of around 30 percent of the total portfolio?

We will trim exposure only when we don’t find good ideas in the international market. Or if there are any macroeconomic developments or stagnation in businesses and cash flows that could make valuations expensive. At the moment, we plan to stay invested in overseas securities.

I believe that if we understand a business well and it is still attractive, we keep adding to it. As the business grows, we benefit as well.

As the economy normalizes from the pandemic’s impact, which sectors do you think would do well? 

Those companies that have digital aspirations and the ability to adapt to the digital mode of working will bounce back to normal soon.

We are focused on firms that have non-lending services (as well) where the risks from lending are lower (reduced). But those businesses that depend on face-to-face interaction and footfalls are challenged.

Indeed those sectors exposed to digital multimedia, advertising and cloud computing are firing on all cylinders (at the moment). But it is better to stay diversified, given that there is no clear answer as to how the recovery will pan out.
Vatsala Kamat is a freelancer.
first published: Jul 20, 2021 09:34 am

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