Mr. Mahajan, for somebody who wants to invest for three-to-five years, now, again, you’ve given us the what. Now, give us the why or what’s the rationale for that and if you can supplement that with a couple of options that investors can look at, it will be more than helpful.
BHUSHAN MAHAJAN: So, the best way is to avoid equity as people are ready with the worst possible scenario in mind. Having said that, in three to five years as I said, I have an inclination to give some tactical allocation maybe up to 10% in the portfolio.
We have done that in the past and we have found it to be extremely useful to create the alpha in the portfolio. Like, till banking and finance came under trouble, we used to give banking as one of the thematic plays. After the pandemic, we have given that to pharma, IT funds and digital funds and they’ve worked well. Now as the results have been coming out, it seems that it’s a structured story. It’s a structured story for the next few years, so I wouldn’t mind taking that particular risk after explaining the client that this is the risk you’re taking, but they have to be viewed at the FMCG stocks at a little lesser valuation, something like that and even with the pharma story. The pharma industry has been reeling for a very long period of underperformance. So, this one year of 100% returns, doesn’t mean that you have to really dump it. Maybe it will give you index beating returns for a period of the next one or two years, you have to be alert to get the client out of the thematic funds because earlier we have had many experiences when infrastructure funds did well in the last bull run 2003 to 2007, and people continued to hold them for years together for a total misery of returns. So, the responsibility lies with the distributor of pointing out that, that period is over and now, maybe we’ll switch it to normal standard diversified equity.
Diversified equity has become almost synonymous with a flexi-cap fund nowadays because the fund manager has freedom to move large-cap to mid-cap to small-cap. So, that freedom does wonders for the book. As I said earlier, it has become very tough to beat the benchmarks though there are funds which have beaten SEBI’s official benchmark. But the choice being very restricted again to these top 100 stocks, so I think, large-cap outperformance is tough but still, I would prefer to make it my building block maybe about 40% because these are the most researched funds and negative surprises generally will not come.
Whatever negative surprises come, will be absorbed by the market as long as it’s in the good and particularly in this age when foreigners call the shots, sticking to large-cap becomes a very safe strategy. So, 40% is large-cap. International exposure as I said, I would have loved to have higher international exposure of at least 20 to 25% in the last decade because I repeat, the last decade belonged to the U.S. They had a real rate of return of at least six to seven percent whereas our real returns were hardly 2-3% and with our inflation, probably by 5-6% is also low. That was the time probably to look at foreign funds in total. I mean 20-25% would have done well now, for geographical expansion. One country is dicing us. You will find that the entire world has gone up, if you look at the foreign goods indicator, in China, they are resting at hardly 6-7%. It is because of many reasons, China has a lot of regulations too. So, that becomes a very attractive bet. So, I don’t mind giving some exposure to China and some exposure to the rest of the world. Here we have a few funds which are long tested. One of the oldest funds in this category was ICICI U.S. equity, Motilal Oswal has also come up with S&P 500 but about that, we’ll see after some more time. PGIM has a global equity fund as well. So, among these three funds we’ll select one. It is beyond doubt that stocks like Apple and Amazon are bound to do well. So, it will be predominantly U.S. based. Just to add a last line, we feel that the U.S. economy stocks will also do well. So, we may not be totally focused on science, there’s a lot of money there but these are the few reasonings.
