DAILY VOICE | Nifty at record high, Harshad Patil of Tata AIA Life Insurance shares his stock-picking mantra

Harshad Patil, CIO, Tata AIA Life Insurance, says that broad market indices may continue to consolidate but it is advisable to look at individual stocks backed by strong business models for alpha generation.

Patil has experience of more than 20 years in areas such as fund management, research and dealing functions. He brings to the table a unique blend of experience in managing equity and debt funds for both the insurance and mutual fund industry.

In an interview to Moneycontrol's Kshitij Anand, Patil says the company has a bottom-up stock picking focus and aims to invest in quality stocks with a strong earnings profile at reasonable valuations. Edited excerpts:

Our stock selection criteria have always been bottom-up. We always focus on the fundamentals of the company, irrespective of market conditions and situations.

We believe that the market performance is backed by ample liquidity that is likely to continue for some more time.

Hence, broad market indices may continue to consolidate but it is advisable to look at individual stock ideas backed by strong business models for alpha generation.

India has been one of the beneficiaries of ample global liquidity and ultra-low interest rates. Therefore, any tapering of the asset purchases by the US Fed could have an impact.

However, if you see the last couple of months, the domestic funds flows have improved even as the Indian market has not received meaningful FII flows. Domestic liquidity and retail participation, coupled with NFOs, should sustain the momentum in the market.

These crackdowns primarily directed at the education technology space in China have led to a significant erosion of the market capitalisation of these companies.

This, along with curbs on IPO by the Chinese players, has disappointed foreign investors, particularly in the ed-tech space. However, we believe that impact of any such event is only transitory and may not have a structural impact on fund flows.

Due to its growth potential, India is already getting a reasonable share of global flows to emerging markets, especially in the unlisted space. It is likely to continue, if not accelerate.

The market rally has led to many companies trying to list their stocks, which is common in every market rally. This time, the unique feature is listings of new-age technology stocks that are seeing huge valuations on the back of their market growth potential.

While only time will tell how well these companies would achieve the desired cash flow and earnings that their listing valuations expect, the current frenzy is likely to remain as more investors are attracted to them.

The sector is new and hence largely under-owned. We believe every stock investment, whether a new listing or an existing stock, must be evaluated for its growth potential, earnings, and cash generation capability, as well as the valuations it currently commands or when it plans to list.

The quarterly results will not give an accurate picture of corporate India’s financial performance. There was widespread localised lockdown during the quarter and nationwide lockdown in the same period last year.

The results thus far have been mixed. While the IT sector continued to perform well, the pharma sector showed tepid growth in its overseas business, primarily led by price erosion in the key US market.

We saw sectors like infra and cement benefiting from government spending, while the banking space showed slower growth coupled with lingering asset quality concerns.

The first and the second wave has demonstrated that the economy has remarkable resilience and has the ability to bounce back.

Hence, notwithstanding risks in the form of rising input prices and its impact on demand, we believe that the earnings for the full year FY22 will be strong in line with the consensus earnings growth of around 35 percent and continue its growth, albeit by a more modest 12-15 percent for the subsequent financial year.

Independence Day is a great occasion for any long-term investor to embark on a journey towards financial freedom. As a 25-year-old, you can benefit from investing early and having a long investing horizon in Indian equities.

Moreover, the long investing horizon helps in averaging out the volatility in the Indian equity markets and unleashing the power of compounding over many years to achieve your life goals through a long-term savings plan. This will help to a large extent in achieving your financial independence.

My mantra is to focus on businesses run by quality management. Develop a thorough understanding of their business models to filter out the day-to-day noise based on factors that contribute to short-term market volatility but do not matter in the long term.

As I explained earlier, we have a bottom-up stock picking focus and endeavour to invest in quality stocks with a strong earnings profile at reasonable valuations.

This strategy provides superior and consistent performance in line with our investor’s long-term return expectations.

Disclaimer: The views and investment tips expressed by 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.