'India Is Not A Favoured Destination Today'
In the go-go years of India's stock market, Apple Mutual Fund had launched two funds; Apple Midas in 1994 and Apple Platinum in 1995. Like other mutual funds, both were struggling with sagging net asset values later. In October 1996, Nischal Maheshwari joined Apple and has managed to turn the funds around. Since then the Midas NAV has gone from Rs 6.03 to Rs 10.02 and the NAV of Platinum has risen from Rs 4.5 to Rs 7.25. Maheshwari, chief executive officer, Apple Asset Management, spoke to Niraj Bhatt and Aravamuthan Sasikant on his investing strategies.
Q: What was the background of the fund when you joined?
A: Apple Midas was a Rs 57 crore scheme and the Platinum corpus was Rs 56 crore. The focus of both the funds was in initial public offerings where quick money was being made at that time. Initially, the funds made money but got stuck with these stocks later. The earlier fund managers had a bottom-up approach and their focus was on the second category stocks in leading industries as they thought there was value. But since then, the one major factor that has happened in Indian markets is globalisation. Fringe players are no longer viable as they do not have the capacity or efficiency, lack finances and management capabilities. These things have caused these players to become marginal players or go defunct.
In October 1996, I was expecting an economy that would not be very healthy in 1996-97 and the strategy was to increase our liquidity in order to pick up stocks at the bottom of the market. At one point of time, we went down as low as to holding 45 per cent in the equities market, the rest being cash. We sold heavily and booked huge losses.
Q: What strategy did you adopt?
A: We decided to give up the bottom-up strategy and adopt the top-down approach, as it is more effective in a bearish market. This is because there are only certain categories that do well when the economy is down. Defensive sectors also do well.
We brought down the number of stocks from 140-150 to 45-50 stocks. Twenty-five of our top stocks account for 85 per cent of the fund. Our horizon is six months to one year.
Fortunately for us, we identified a growth sector: software. We have been one of the initial investors to buy software and we continue to hold large chunks. Our view is that software will continue to do well though the growth rate may slow down from the current 70-80 per cent to 40-50 per cent over a two-three year horizon. We also bought FMCG and pharmaceutical stocks. We looked at banking and telecommunication too. Except for telecom (MTNL), all the other sectors have given good returns.
Q: What is software as a percentage of your portfolio? What are the stocks and at what price did you buy?
A: In Platinum, software accounts for 40-45 per cent of the equity portfolio which is about 90 per cent of the fund. In Midas, it is about 35 per cent. Though we have not increased our investments, other industries have not done as well and our holdings have appreciated as software stocks have risen.
We hold Satyam, Infosys, NIIT, Aptech, Leading Edge, Tata Infotech and Software Solution. We bought Satyam at an average of Rs 60, Aptech at Rs 200, both NIIT and Infosys at around Rs 500. We bought BFL Software around Rs 120 and sold at Rs 500.
Q: Are you a growth investor or a value investor?
A: Basically, I am not good at timing, so I am a value investor. We do not try to time the market. If we like a particular stock, we buy it in a particular band of price. If we are not comfortable at a particular price, we stop buying. For example, we started looking at Hero Honda around Rs 350 (till April 1997). But we stopped looking at it when it touched Rs 450. The stock went going up after that. Looking back now, it's been a mistake but at that time we were not sufficiently interested.
Q: What do you think of the market at present?
A: I think this kind of listlessness will remain for another 3-6 months. The government alone cannot do anything to the economy. The economy has to come out of the lacklustre scenario naturally. Ever three-three and a half years, the economy has cycles of ups and downs. I think that the cycle is about to get over if you start with 1996. By 1998 end, the economic numbers will start looking positive. The natural upturn and the possibility of the government doing something will be able to take the market up. There is no large upside and a downside of another 10 per cent is likely.
I am worried about the international scenario. The Dow Jones has been dropping. If the yen goes to 150-160 a dollar, then the Chinese currency will be devalued and this will create a major crisis for south east Asia. Locally, all the issues have been more or less discounted, whether it is sanctions or anything else. But the south east Asian issue keeps cropping up and most governments and economists are talking about 2-3 years for them to come out which is quite a long period. If this is the situation, nobody is going to look at India in particular. Whatever credibility was left has gone after Pokhran II and India is not afavoured destination today.
Q: Under such circumstances which sectors, besides software, will do well?
A: Defensive sectors will continue to do well. Pharmaceuticals is attractive. The first half results of FMCG companies like Nestle, Pond's, Lever, etc are also quite good. Cyclicals do not make much sense right now. But funds with a horizon of over two years can do some bottom picking.