Private banks and insurance companies are among the pockets of opportunity in the financials space, while information technology will soon shed the worries around slowdown and become attractive again, according to Q India (U.K.) Ltd.'s Arvind Chari.
The chief investment officer at the Quantum Advisor Pvt.-affiliate told NDTV Profit that a pick-up in credit growth due to private capex plans can improve the performance of private banks.
Giving an overview of his portfolio, he said that 35% is allocated to financials, followed by consumer discretionary (20%), information technology (15%), utilities (7%) and healthcare (5%), as of November 2023.
On IT, which has largely seen a disappointing 2023, Chari said the fund is not as bearish on the sector as the market is. "In 2014, there was a worry digital will disrupt IT, but they became beneficiary. They may be a big beneficiary of AI also. Worry over AI and global slowdown should normalise."
The current consumption slowdown has dampened sentiment, but a gradual recovery will aid consumer discretionary margin and sales, he said.
Value Investing
The difference between a value stock and a cheap stock is the catalyst, Chari said. "There are companies and sectors which are available at a discount to long-term intrinsic value. You have to identify the catalyst that plays out as a value analyst."
About 90% of Quantum's AUM comes from global institutional investors, he said.
Risk Filters Of Investing
Chari highlighted three risks of investing that his fund uses to filter its portfolio picks—risks of liquidity, governance and valuations.
The risk of liquidity can loom across asset classes—public equity, private equity, real estate, and infrastructure.
"The risk is not only of buying and selling, but also of capacity. Our threshold is, we only trade in stocks that have a minimum of $1 million a day average traded volume in the last one year."
Governance risk depends on the corporate governance standards, reputation and headline risk that the fund offers the client. "If you are not comfortable as a minority shareholder, just avoid investing."
The Indian economy, market and valuations tend to be mean reverting, he said. "We want a margin of safety, which we define as a 25-50% discount to 2-2.5 year forward intrinsic value. We set long-term median band for different companies and sectors."
According to him, the 'Q India Value Equity Strategy' started in 2000, has a 15.6% growth in rupee terms, compounded over the last 23 years.
Watch the full conversation here:
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