ETMarkets Fund Manager Talk: This portfolio manager’s smallcase has given index-beating return of 12% despite volatility

Over the last 6 months, benchmark Nifty 50 has corrected close to 5% due to continued selling by foreign investors amid the global economic headwinds.

However, investment advisory services firm Craving Alpha’s flagship product “Sector Advantage” has managed to beat the index and give double-digit returns.

“Our flagship smallcase the “Sector Advantage” outperformed the benchmark “Equity Midcap” by a staggering 17.6% by generating a positive 11.83% for our investors,” said Mayank Mehraa, smallcase manager and principal partner at the advisory firm, in an interview with ETMarkets. Edited excerpts:


Over the last 6 months, how has your smallcase performed?
Our flagship smallcase the “Sector Advantage” outperformed the benchmark “Equity Midcap” by a staggering 17.6% by generating a positive 11.83% for our investors, while the benchmark made a loss of 4.88%. Our portfolio uses proprietary AI and ML models to identify the strongest quality companies in the sectors that stand to gain through recent shifts in the economic condition of India.

Are retail investors losing their patience over the volatility in the market? Are you facing redemption pressures?
The behavior of retail investors can vary greatly depending on their individual risk tolerance, investment goals, and market conditions. While some retail investors may be more prone to panic selling during periods of high volatility, others may be more patient and take a long-term view of their investments.

We haven’t faced any redemption pressure which might be a result of our bi-weekly newsletter which is aimed at empowering our investors with the market trends and how our companies might or not be affected by the recent volatility.

Have you increased cash holdings given the uncertain market environment or are you being extremely selective in picking stocks?
Our investment approach revolves around identifying top-quality companies in select industries that align with current economic conditions. While we remain highly selective when choosing stocks, we don't believe in holding cash, even during times of market uncertainty.

We have confidence in our diligent stock selection process, which enables us to remain invested without relying on market timing strategies.

Do you see chances of SIP inflows cooling off in the coming months?
Historically, SIPs have tended to perform better during bull markets than bear markets and, hence, more people stay committed to it during bull markets than otherwise, though that would make more sense.

I will not be surprised if SIP inflows slow down in the next months and we move into a bull market as that happens - there has been high correlation between SIP cooling down and the end of a bear market.

Equity inflows have so far been positive despite the market volatility, but do you expect this trend to continue unabated and why?

I believe this trend will only magnify in the near future. Over the past year, India has stood strong while most global economies have been shaken up. The FIIs will soon be aggressively buying into India, for now they have been consolidating globally and in damage assessment mode but as soon they will turn net buyers.

How do you expect equities as an asset class to perform over the next 6 months? What are the major downside risks?
It’s a professional hazard for us to stay optimistic. We recently tweeted about this and strongly believe the next 6 months would be an inflection point for the market. The recent events around the global banking industry will not let the US Fed raise rates and has pulled back enough liquidity to reduce inflation. But India has remained fairly resilient to the recent issues.

I think the major risks would be continued increase in US Inflation and a more aggressive rate hike or a potential global banking contagion.

The SEBI and exchanges have been cautioning investors on fraud and dubious practices on investment advisory by some entities. How should retail investors filter the information reaching them?

Every bull market gives birth to a thousand such entities, it’s always important to understand what their purpose is. Buffett once mentioned that your investment advisor should be someone who is financially independent himself and still enjoys investing - and we are one such entity.

The Nifty 50 is currently trading at 20x its trailing valuations for FY23. Which sectors or pockets look attractive and offer buying opportunities?
For the last quarter, we were very bullish on consumer durables like Supreme Industries, Finolex Cables and Blue Star. Going ahead, with the current levels of US bond yield, pharma, auto and power companies look attractive.

As we enter a new financial year, how do you expect it to pan out for markets and what kind of portfolio allocation will you recommend to retail investors?
I strongly recommend higher allocation to equity. Historically, it is best to buy equity when interest rates are high like they currently are. The average Indian retail investor is already very diversified in other assets like real estate and bullion unlike the western world.

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