“Markets could be justified in this stance if we see sustained improvement in the coming quarters,” he says. Edited excerpts from a chat:
In your DSP Top 100 Fund, you typically have a concentration of around 30 names. How have you been tweaking your portfolio in the last few months amid all the concerns around valuation and earnings growth slowing down?
I’ve been cautious about valuations for some time. Revenue growth had been slowing for several quarters, and now even profits are lagging. I haven’t had to make major adjustments to my portfolio, as I’ve maintained a conservative stance. I steer clear of sectors with high growth expectations that are already being priced at premium valuations. Disappointments in these segments are often penalized sharply. In a relatively concentrated portfolio, limiting downsides is what matters most. From my experience, even company management and promoters are sometimes surprised by the upside in their businesses. Upsides are hard to know. My focus remains on minimizing potential downsides.
There has been a bit of correction in the last few weeks. Did you use it to increase allocation and buy some of the stocks available at relatively attractive valuations?
I’ve made a few adjustments to the portfolio, but nothing major. I focus on businesses I want to buy and the prices I want to buy them at. Sometimes those opportunities might come at market peaks, and other times, I might not get them even after a 10% pullback. It’s a continuous and challenging process.
How bad do you think is the Q2 earnings season as a large number of NSE 100 companies have delivered disappointing numbers?
The quarter has been disappointing. In terms of the number of companies whose estimates have been downgraded this has been one of the worst quarters post Covid. Earnings growth itself has been slowing down for multiple quarters now.
Is most of the earnings downgrades already factored in the price or more pain is there in the offing?
Markets react to changes in expectations. When I see downgrades, there are two ways to interpret the numbers: one is that it’s a short-term issue, and the other is that the medium-term outlook itself has worsened. I don’t believe the market is factoring in the latter for most stocks. Markets could be justified in this stance if we see sustained improvement in the coming quarters.
PSU banks have stood out in the earnings season. Investors are also hopeful on IT and pharma but consumption has taken a hit as a theme in the near term. What is your sectoral outlook after the Q2 earnings season?
My largecap fund has significant exposure to BFSI, pharma, and auto sectors. I have minimal exposure to infrastructure and capital goods, mainly due to valuation concerns. IT is also a significant underweight. I find most consumer-focused stocks to be expensive.
Do you see chances of recovery in consumer demand beginning from the December quarter? Early signs during the festive season have been encouraging.
It’s nearly impossible for me to predict demand within a single quarter, and I make a conscious effort not to get caught up in this exercise. For a while, I’ve been discussing the K-shaped recovery in consumption. High-end consumption is showing some signs of fatigue, while low-end consumption has consistently fallen short of recovery expectations. I believe the growth expectations the market has for many consumer stocks, barring a few pockets, are optimistic, even if a recovery occurs. This makes my job easier.
