Reliance would underperform Nifty by 5-10%: Sameer Narayan

A small and midcap part of the portfolio is on the growth side while on the value side, we also have DAWN strategy that is large-cap oriented. We have banks, bit of consumer discretionary, industrials and even materials because they are likely to see some amount of earnings uptick.

What kind of a portfolio is caterpillar from 12 to 24 months forward earnings?

We currently own 20-22 companies in our portfolio. We expect earnings growth to be almost double on FY21 base and further growth of 40-50% in FY23. This is a growth-oriented portfolio. This earnings growth on a CAGR basis is roughly 34-35%, which is far higher than the market CAGR. And the multiple is currently at about 20 times FY23. So, the multiple is lower than the market multiple, and that is where we believe that this is growth has not been priced adequately.

We are betting on India as a growth market because from here growth will get delivered. That is something we have not seen in the last seven-eight years. We are trying to keep a low beta as well because it is a small and midcap strategy; so you tend to get a bit of volatility on both sides.

For 20 times forward multiple, you have managed to capture 30% plus kinds of earnings growth companies in your portfolio. Is there a similar picture on your large-cap portfolio?

On the large-cap side, it is a value portfolio. For example, the value portfolio on the large-cap side is called DAWN. We have earnings expectations of close to about 40% in DAWN this year and about 20% on the back of that. That would be more like a 20-22% kind of a CAGR, but there also it is quoting at about 21 times forward. We don’t want to buy expensive names and look for growth that hasn’t been valued. In India, the best part is not to go for very high priced or fancy multiples names because even a slight dip in the growth expectations can push back or make the multiple looks optically very large and are prone to a correction.

is at 10% weight in your large-cap fund. Do you have a Buy, Sell, Hold call? What factors are playing on?

Reliance is in our RISE strategy that is a value strategy, specifically focussed on operating and financial leverage. The stock fulfilled the financial deleverage part for a substantial period of last year. But what we are seeing is that the operating matrix for the energy business or the O2C business has materially changed. Today, we are getting oil at $80, gas prices are going to go up and so on. The perspective of operating leverage in the O2C business has also now joined the party. Plus, the Jio platform, the retail venture, there is inherent operating leverage available which is still to be unleashed because the platform affects what we are playing with. It fits well into the value components.

The stock does well in phases, so it had a very outperforming phase last year. But in the current year, on a one-year basis, it would probably be underperforming the benchmark by about 5%-10%, but that is fine. I think on a two-year basis also it is still doing reasonably okay.

In the PMS part of your portfolio, one private sector bank had a call emphasizing the technology play. Any other large bets on a sectoral basis in your PMS?

Since you mentioned, the bank that had the call day before yesterday that is amongst our large holding in the DAWN Strategy, which is a large-cap value strategy that we have on the PMS platform and apart from that, we hold a lot of other names aligned to the other portions of the financial inclusion market. For example, names like SBI Cards, Angel One. Those are businesses that perhaps are not having that much of a listed history, but they are low capital intensity businesses in terms of balance sheet exposure. At the same time, they are perhaps a play on the recovery trade/retail/consumer finance and even the fintech angle as far as Angel One is concerned. That is where we are trying to cover the gamut on financials per se rather than stay aligned to only the legacy corporate lenders.