Why Raunak Onkar of PPFAS Mutual Fund prefers US stocks

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.

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.