Etrarkets PMS Talk | PMS strategies that will perform better in the coming years than investment funds: Sushant Bhansali

Kshitij Anand: Let me start with a big question that everyone’s thoughts are: how will India perform in terms of Alpha Generation? How do you see playing in the coming years? Shall we be able to simulate the performance of the past?

Sushant Bhansali: I would say that the Alpha Generation was actually very difficult in recent years because everything and everything worked.

To perform better, you probably had to take more risk – both in terms of allocations and position format – as well as whether you identified whether you were in the top 20-30% of the companies in terms of profit growth.

In the next two or three years, given the current state of the economy, Alpha Generation will be a lot easier if you play well. That is because only selected companies will result in higher profit growth, while a vast majority will not do that.

So, by avoiding both companies that will no longer deliver capital to those who will deliver it, you can create enormous value – similar to how things take place between 2018 and 2020.

In the two to three years before COVID, within the Nifty itself, only about five to seven shares supplied excellent returns of more than 30% CAGR while the index as a whole achieved one-digit returns. I think we are now in a similar cycle.

Kshitij Anand: So, will portfolio balance again in the current circumstances?
Sushant Bhansali: I would say that the Churn will actually be lower compared to the past. Earlier we had to switch from one shares to another to catch the next fast -growing opportunity. Now, with fewer available opportunities, investors will probably adhere to the names that deliver and they will hold on.

Kshitij Anand: And it’s not Market-Cap Agnostic, do you feel?
Sushant Bhansali: It will pass over segments. As I said, it happened within Nifty, and also below – whether you are looking at midcaps or smallcaps – the general universe will probably see 20-30% of the companies perform very differently than the remaining 60-70%.

There will be possibilities in the market capic segments. What is needed is more research and conviction to distinguish yourself.

Alpha generation will mainly get the PMS side, I would say, because PMS strategies usually perform concentrated portfolios. On the other hand, many diversified portfolios – especially large investment funds – now have 100 or more shares because of their size.

From that perspective, PMS will probably make a meaningful distinction in the last three to four years when everything worked. It is not that PMS did not perform, but even investment funds performed well in that period.

Kshitij Anand: The Bharat theme became very popular, especially since 2014, and that remains. Defense has yielded multi-bagger type of returns. Is there a theme that is currently aware, now in Focus or can be in focus in the coming years? We thought that consumption could play a major role after the budget because the government was aimed at stimulating it, and that seemed to come. But now we see some records in the performance. Is there a theme that you have in mind?
Sushant Bhansali: In the end, things that have not worked in the past one or two quarters – or even the past one or two years – often start working in the next or two years or quarters.

You must be contradictory to identify the rotation of the sector, as we call it. I think that will take place, and in particular consumption shares not done so well in the last one and a half years.

Thus, during the next year and a half, especially with tax benefits, lower interest rates, higher liquidity and what I would call a Bonanza for government employees who are expected in the coming quarters, all these together should stimulate consumption.

Nationally, thanks to what looks like a good monsoon this year – is also struggling after the past three to four years. I think it really struggles the countryside nationwide, so that theme should play.

We expect a bumper performance … In fact, all the companies that we have spoken to the consumption sake – either mentioned or not mentioned – seem very enthusiastic.

They have built up a lot of inventory, something they had not done the last or two seasons. Everyone expects a bumper H2, but if it doesn’t happen, there is a high risk of considerable market correction.

Kshitij Anand: a quick last question in the field of profit. So far it was a mixed season. What are your expectations for the next quarters?
Sushant Bhansali: The income has been more or less in line for Q4 and even Q1 so far, but that doesn’t show you the true photo. They have been in line, but the expectations were already quite damped.

So everyone seems satisfied with them. If you look at most research reports, they tend to emphasize something else, such as the return of volume growth, stock levels that come down or work capital improvement – and then mention that Pat is only 4%or an increase of only 4%.

That tells you about the market environment, where companies are really struggling in the field of income.

This season there is about a week left for all companies to report. But our gamble is that by the end of the season no more than 20% of companies will be able to produce a profit growth of 15%.

If you look at recent history for the past five years, no less than 60-70% of companies released that growth, and for a few quarters, even more than that. But this has decreased the past four quarters.

That said, given the basic effect, we are of the opinion that after the Q2-Results-Start from the second quarterly we will start with high profit growth with one figure across the board, with the number of companies that produce 15% growth from 15-20% now to 25-30%, and ultimately up to 40-50% in the coming quarters.

(Disclaimer: recommendations, suggestions, views and opinions of experts are their own. These do not represent the views of economic times)