'Time to construct a good portfolio'

In the second series of interviews in Smart Portfolios, Kashyap Pujara, fund manager, ENAM Direct, shares his current investment strategy, impact of the global slowdown and his advice to investors with Rex Cano. Since the launch of Smart Portfolios on September 1, 2008, the benchmark index, BSE 200, has dropped 37.38 per cent, while Kashyap Pujara’s portfolio value has dropped by 16.24 per cent till date.

Have you made any changes in your strategy because of the global financial crisis?
Our near-term strategy has been more conservative which is obvious with the cash levels in the portfolio. Though there are concerns of a slowdown, we would yet see growth in the 6-7 per cent range and the long-term story of India's economic growth led by the twin engines of consumption and investments largely remain intact. Hence, in spite of being tactically overweight on cash in the short term, it is an ideal time for revisiting companies that can build on their competitive edge over the long term and consistently deliver outstanding shareholder returns.

What will be your strategy going forward?
In an effort towards flight to safety, capital has been moving in the wrong direction, out from developing world which has a higher return on capital employed to developed world which have lower returns. In the long-term, capital would flow to assets with better returns on capital and eventually the developing/emerging economies will become magnets atattracting capital.

My strategy would clearly be to participate in the long-term growth of the Indian economy backed by positive demographics, rising middle class, consumption story and KG basin or gas opportunity. A business cycle is fluctuating in nature and hence one has to realise that any economy fluctuates between contraction and expansion. In such times, when the economy slows, valuations get cheap. At these times, one can really construct a good portfolio from a longer term perspective.

Hence my strategy would clearly be to make the most of this distress by actually participating in companies that are poised to emerge stronger during the next expansionary phase. 

Which stocks have worked for you and which have not?
Well, I am not yet fully invested and hence I think it is too early to judge. Also, cash levels maintained in the portfolio are more tactical in nature from a near-term perspective with a view to get fully invested at some point.
 

KASHYAP PUJARA Fund Manager , ENAM Direct
Top Holdings	% of  assets	Cost (Rs) Price	Current price (Rs)	Value (Rs lakh)
Sterlite	8.92	410.13	249.00	0.75
SBI	5.94	1201.25	1244.25	0.50
ICICI Bank	4.99	521.55	417.95	0.42
Century Tex	3.85	343.87	161.40	0.32
Reliance Comm	2.45	374.08	205.00	0.20
Total investments	26.15	-	-	2.19
Cash	73.85	-	-	6.19
Net worth	-	-	-	8.38
Returns (%)	-16.24	-	-	-

Which sectors will do well and why?
Generally during the period when the economy slows, the money supply typically expands, but recovery comes with a lag effect. As we see our inflation going southwards and interest rates being cut with the view to spur consumption and growth, we would see recovery coming through. At such times, stocks in general are attractive investments. From a sector-specific basis, commodities, banking and interest rate sensitives are attractive.
 
What is your advice for investors?
With the bond yields close to 5-6 per cent, the bond P/E is close to 20 times and equity PE from FY09 perspective is close to 11 times. Hence, we are seeing a situation wherein risk free assets are overbought. Going forward, this difference in valuations can shrink.

My advice to investors is that firstly, do not double count the negatives, remember that equities were more riskier at higher prices of over 20,000 Sensex levels than they are now at substantially lower prices of below 10,000 index levels. Obviously, do your homework well before investing, just because a stock price has corrected, does not mean it's an investment opportunity, one shall have to ascertain the longer term potential vis-à-vis near term concerns. Either an investor needs cash to invest and build portfolio or courage to churn portfolio from weaker stocks to stronger stocks. Adopt a diversified portfolio strategy to diversify away the unsystematic or stock specific risk in the portfolios.

Lastly, as legendary investor Warren Buffett says, “Be greedy when others are fearful.”
 

AMAR AMBANI
Vice President (Research), India Infoline

Amar Ambani is 100 per cent in cash. His net worth stands at Rs 10.03 lakh.

 

ANAND AGARWAL Vice President, Reliance Money
Top Holdings	% of  assets	Cost (Rs) Price	Current price (Rs)	Value (Rs lakh)
Jet Airways	11.30	165.26	185.65	0.93
Satyam Comp	9.90	149.38	135.50	0.81
Total investments	21.20	-	-	1.74
Cash	78.80	-	-	6.47
Net worth	-	-	-	8.21
Returns (%)	-17.86	-	-	-

 

SADANAND SHETTY Vice President, Kotak Securities
Top Holdings	% of assets	Cost (Rs) Price	Current price (Rs)	Value (Rs lakh)
Areva T&D	4.38	185.31	188.15	0.40
SBI	4.04	1154.76	1244.25	0.37
Reliance	3.94	1169.58	1212.00	0.36
BHEL	3.80	1294.51	1300.15	0.35
Allied Digital	3.22	330.00	349.90	0.30
Total investments	25.52	-	-	2.35
Cash	74.48	-	-	6.88
Net worth	-	-	-	9.23
Returns (%)	-7.67	-	-	-