How These Mutual Fund Managers Churned Their Portfolio Amid Volatility

Markets are scaling record highs but milestones mask the uncertainty: stocks have been volatile in the past year as inflation worries and surging crude roiled global equities.Kotak Mahindra Asset Management Co.'s Harsha Upadhyaya, DSP Mutual Fund's Vinit Sambre, and Edelweiss Asset Management Co.'s Trideep Bhattacharya spoke to BQ Prime's Niraj Shah on handled the macroeconomic uncertainties.Here's how the three fund managers navigated the volatility:.Compared to 9–12 months ago, Sambre said there have been some changes in the portfolio: "Overall, as a house, we have increased exposure to the banking and lending businesses. There are good signs of them recovering with good balance sheets."As far as Sambre's specific portfolios are concerned, some trimmings were made at the beginning of the year in the midcap IT space due to the heightened valuations. "But now we have started looking at them as excessive valuations have come off," he said.As a house, DSP Mutual Fund has enhanced exposure to healthcare, he said: "It is underperforming year-to-date, but this gives us a good entry point into a sector that is neglected right now. Their core business metrics are fundamentally sound. Despite facing some transitionary pressures from high raw material prices, these companies are delivering good cash flow. Gradually, we are looking to increase exposure. Over the next 1–2 years, this can become a good category to own."Notably, Sambre added that the broader engineering space is also something they are looking at: "There is a clear sign of capex acceleration by the government across segments like railways and defence. PLI schemes are also adding to the momentum. These companies are seeing a good inflow of orders. It's a good long-term view as well. But we're aware that these companies are not trading cheaply, so we're cautious and slow on adding them.".About 9–12 months earlier, Upadhyaya said they were anticipating higher interest rates due to commodity inflation. "We started looking at sectors that could give us better insulation from the volatility expected. We were conscious that there would be sectors that would do better. We were also clear that domestic growth will be more resilient than global growth, which has panned out and will hold true in the future," Upadhyaya said.Upadhyaya started to reduce weightage in IT, especially mid-cap: "Valuations were above normal, and higher interest rates have an inverse relation with equity valuations. We felt it was better to tilt our portfolio toward domestic business. So we booked profit and moved into domestic-facing, cyclical businesses."He reasoned that cyclical stocks were preferred because some defensive sectors weren't set for a re-rating."If you look at some of the defensive sectors, such as FMCG, it was richly valued. Also, it was facing similar headwinds. but in segments such as banking, auto, and industrials, at least there was a possibility of re-rating as and when inflation subsides. Given our resilient economic growth, these were the sectors we thought would give us a chance of re-rating," Upadhyaya said.For Upadhyaya too, IT remained an 'underweight' sector. "Most commentary says the business will be weaker this quarter. All in all, 2023 will be choppy on the macro front. So discretionary IT spending will see some cuts or delays in concluding large deals. Momentum will be weaker," he said. .Portfolios at Edelweiss have become more concentrated than earlier, according to Trideep Bhattacharya. "It's now more about placing bets where there's conviction and upsizing those bets," he said.He added that portfolios are also getting more aligned with themes they are positive on, such as industrials, capital goods, financials, direct or indirect plays on real estate, country-specific, idiosyncratic themes such as China +1, Indianisation of defense, etc. "Those are the areas we have consciously populated the portfolio towards and pruned other bets. Earlier, we would've had a 75–80 stock portfolio. We've now moved to a 65–70 stock portfolio. So, concentration has gone up across portfolios. As we went through the year, we got more conviction on the themes and moved towards them," Bhattacharya said.Edelweiss remains significantly overweight on financials. "First the large-cap banks, and then the small-cap and PSU banks, were added. It's certainly helping. Now that we've seen a rally in high-beta and so-called low-quality names, we have started consolidating on high-quality names that can sustain growth rates and are reasonable on valuations. We also went overweight on lending financials—mostly banks but some NBFCs too," Bhattacharya said.As with Sambre and Upadhyaya, Bhattacharya went underweight in both mid- and large-cap IT. "Our 'underweight' peaked around August and September. We will not incrementally go further underweight, but at some point over the next six months would be a good time to allocate incremental money in IT, but gradually and slowly," he said.He added that the main issue of contention with IT is the FY24 growth rates and the impact of macro variables. "The first signs of that will only be available in the first quarter of the next calendar year, because that's when IT budgets are frozen," he said..How Investors Can Make Most Of Defence Opportunity, Explains Edelweiss AMC's Trideep Bhattacharya

How These Mutual Fund Managers Churned Their Portfolio Amid Volatility

Kotak Mahindra AMC's Harsha Upadhyaya, DSP MF's Vinit Sambre and Edelweiss's Trideep Bhattacharya speak to BQ Prime's Niraj Shah.

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