ETMarkets Fund Manager Talk: Here’s why this $4 billion asset manager is betting big on consumption stocks?

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India Inc’s earnings growth outlook remains robust in the medium term driven by the twin engines of consumption and investment firing together, said Sumit Jain, deputy chief investment officer at ASK Investment Managers.

“Consumption is a long-term theme, with significant scope for premiumization and penetration to continue for many years into the future,” Jain, who oversees assets worth $4.5 billion in one of the leading wealth management firms, told ETMarkets in an interview.

Edited excerpts:

India has been one of the best performing markets in 2022 and has also outperformed some by a wide margin. Do you see India repeating this show even in 2023 because some money managers think otherwise?
India’s outperformance has been a function of not only strong performance by India Inc, but also a relative uncertainty in other markets. We expect India Inc’s earnings growth outlook to remain robust in the medium term driven by the twin engines of consumption and investment firing together. However, in the short term, we need to watch out for the macro situation, which so far, India has managed well and the valuations, which currently, we believe are fair.

Which are the funds that you directly oversee and what’s the total AUM. Can you help us with the performance of the funds?
I oversee total assets of $4.5 billion across PMS, AIF and Advisory mandates. Indian Entrepreneur Portfolio is our largest portfolio with total assets of $2.56 billion. This portfolio was launched in January 2020, with a focus on value creation by investing into high quality family-owned businesses. Our study shows that family-owned businesses as a pack has delivered superior returns over a long time frame vs other ownership patterns.

What were your major bets in 2022 and which sectors are you bearish on? Can you also briefly explain the rationale?
We have been underweight on software services businesses as they are exposed to multiple global vagaries. Growth rates remain within a band, and we were at a risk of slowdown as global growth was at risk, and also these businesses saw preponement of growth due to Covid-19.

We find relative safety in domestic oriented businesses vs those businesses that are dependent on global growth rates.

India has started seeing “dedicated” allocations from FIIs within the emerging market basket, rather than being just a part of their EM portfolio. What’s driving this bet and do you see scope for India to outpace China in the coming years?
India’s massive outperformance in the last one year has now drawn global investors’ attention to India and confidence with FIIs to make standalone dedicated allocation is increasing.
India’s weight in the global EM index too, has risen sharply. India is among the few markets that offer stability of policy and long-term steady, diversified, and resilient economic growth unlike significant volatility seen in many other markets.

Uncertain outlook on China and other emerging markets further makes India an attractive market for global investors.

Overall, we believe global allocation to India is still low and we believe India is likely to attract a lot of India-dedicated flows over the next few years.

This year we saw largecap stocks doing better than the broader market which helped us scale record highs. Do you think midcap and smallcap stocks will get their mojo back and could also outperform in 2023?
We are bottom-up cap agnostic investors. We focus on quality of the business, quality of management, their execution prowess and the size of opportunity that allows the business to grow strongly for a longer period of time rather than the size at a point in time. Sticking to this philosophy has delivered us good returns.

How comfortable are you with valuations currently? Do you think the premium that India commands will sustain given that earnings growth is also expected to be better in FY24?
On an optical basis, India’s valuation may look expensive versus long period average. However, index valuation needs to be looked at in the context of the change in composition over the last few years.

Those businesses with superior capital efficiency and long period growth are now a higher part of the indices versus the past. Adjusted for the changed index composition, we believe Indian markets are fairly valued. Markets will be driven by earnings delivery of India Inc.

Which are the major sectors you are betting on in the near-to-medium term and why?
We are bottom-up investors with 20-25 businesses in the portfolio. We look for businesses that meet our filtering criteria.

At the current juncture we have higher exposure towards consumption, financials, telecom, and healthcare businesses.

Consumption is a long-term theme, with significant scope for premiumization and penetration to continue for many years into the future.

In telecom, we now believe despite the upcoming investments in 5G, the sector is witnessing a strong shift in its free cash flow generation capability that could translate into healthy deleveraging. Industry dynamics are turning favourable with multiple levers of growth for the sector including shift toward 4G/5G, tariff hikes, market share gains. and higher 5G usage can throw open a lot of new opportunities.

Also, as the supply chain globally is being reconfigured from efficiency to resilience, India stands a chance to be credible manufacturers in many industries. Our large domestic market is also an added advantage. We believe manufacturing in India and for the world can accelerate.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


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