For long-term investors, best opportunity to rejig portfolio: Pankaj Murarka

“If someone is sitting on cash this is a really good time to go out and build your portfolio probably from a three to five years perspective and given the volatility one would just want to build it over a period of next few months rather than trying to do everything on one single day, says Pankaj Murarka, CIO, Renaissance Investment Managers Limited.


If I say everybody has taken a haircut, it really applies in your and my case!
Absolutely. We have a day where we are seeing absolute capitulation in the midcap and smallcap space. But I want to highlight that we had an environment late last year, early part of this year when a lot of these IPOs were mispriced and an IPO bubble played out in India. Loss-making companies or companies which were profitable went for IPOs at farfetched pricesand that is where the market has done its job in terms of re-pricing those assets or bring them closer to their fair value.

Considering that the appetite to buy into stocks is limited, would you be switching, would you be sitting or would you be just changing the strategy?
Selloffs like this which happen every few years essentially for a long only investor, it is time to revisit the portfolio and look at each of the investee companies and investment hypothesis underlying that. Obviously, it is an opportunity to switch companies in terms of some of the underperforming companies or companies where probably fundamentals have weakened or are likely to be constrained because of the headwinds in the economy and probably switch to companies with superior fundamentals and which are likely to have tailwinds in the next growth cycle.

So my view is that for long only investors who do not generally hold too much of cash, these kind of selloffs and capitulations are just an opportunity to rebalance your portfolios and improve the quality of your portfolio so that as and when market settles down, you cam get next the move to try to capture a much better performance.

In the 2020 fall you identified names like IndiaMART. Are we reaching that point where you think some hidden gems, some value buzzer is emerging?
I think so. When we look at a lot of these companies from absolute price level, we find price levels have become attractive but the only point is when you have selloffs like this and capitulation is playing out and on the top it is driven by global volatility, it is very difficult to pick absolute bottoms on the stocks.

In an environment like this, value can become deeper value or cheap can become even cheaper but I still believe that for investors with a medium-term perspective, this really is the time to go out and invest, If someone is sitting on cash this is a really good time to go out and build your portfolio probably from a three to five years perspective and given the volatility one would just want to build it over a period of next few months rather than trying to do everything on one single day. But yes, there are certainly pockets of value that have started emerging in the markets.

What will be the turning point for this market? Where would you say the worst is behind us? Could it be crude, could it be valuations, could it be something from the Fed?
Given the selloff that we have seen, valuations have already moderated in Indian context and also in global context. What we have really witnessed is probably at the start of this year when a US recession was certainly not the base case, given the inflation numbers that we have seen in the last two months, the markets are trying to price that in as a base case and its effect on equities and global growth.

The fact is that even in an environment of US recession. I feel reasonably confident that India’s growth will remain reasonably resilient and we will be much less impacted than a lot of other parts of the world. From India’s point of view, two things that would really matter or count to call the bottom of the market; one clearly is crude because that is a big macro trade for India because the fact is that our crude import bill is about 3.5% of the GDP. It has a significant impact and the fact is crude prices have moved up by almost $40 since the beginning of the year.

So if a 20-30% decline in crude prices were to happen either because of a ceasefire or because of fears of slowdown, that will be a very big macro positive and will have a significant impact in terms of improving India’s macroeconomic fundamentals at large.

Beyond that, at some point of time, globally we will be near peak inflation. Once we get a couple of months’ inflation data showing inflation is declining month on month, this whole fear of inflation accelerating or staying sticky at the peak levels will subside and that will give some breathing space to the US Fed as well. These are the two things which I would like to watch out from an event or a data point perspective before taking a call on the markets.

Tell me about your top three holdings?
We continue to remain invested in the large private sector banks, especially ICICI Bank and Kotak Bank. We also have a holding in SBI and they have been there for a fairly long period of time now. Apart from that, we are positive on consumer discretionary as a space because we think consumer spending is strong and will continue to remain strong. So we continue to own stocks like United Spirits and Aditya Birla Fashions on the consumer discretionary side.

Apart from that, we are also positively biased on India’s investment cycle. We own capital goods as a sector and within that we have ownership across names like L&T, Cummins and ABB.