Mrinal Singh, CEO & CIO, InCred AMC, says “one can look at our cash as a proxy largecap allocation. We have kept that largely in anticipation of volatility in the market and we would look to deploy it as the market offers volatility at interesting prices.”
Did you come across that note, kind of a very honest admission from Chris Wood in the Greed & Fear newsletter, saying that, yes, India is the best game in town right now with superior macros? All of that is fine, but a kind of admission that it is turning out to be quite expensive. As a practitioner, are you finding it challenging too?Mrinal Singh: Yes, that is a practical challenge, yes. We had the market run up significantly in the last 12-18 months where it makes it more challenging. Obviously, when the valuations are elevated, the potential returns get subdued, so you need to also manage the return expectations and you need to go down the ladder in terms of market cap, you need to actually dig deeper and we expect customers to have a higher horizon when they make an entry at this juncture. It does become challenging when the markets have a very sharp run up in a short span of time.
Since you are saying that there is a possibility to jump in in the market even now, you just have to stretch your time frame. Where is it that you still see value and growth both on the table?
Mrinal Singh: Well, both value and growth, is too much to ask. The value school of thought will find it difficult to pick a lot of names because clearly the valuations have run up. From a growth perspective, yes, one can actually do it, because we are very rightly placed in the trajectory for the economy. So, from that angle, you can still try to narrow down on spaces.
Let us say, for example, rural areas would be a great place to be. There has been subdued demand. We have seen largely rural facing businesses seeing volumes contract in the last three years, but in the last two quarters in particular we have seen that there has been arrest in that decline and there has been some green shoots of growth, hopefully in the next 12 months we would start seeing rural demand picking up and it is a very large part of economy.
Rural consumption behaviour in terms of SKU preferences are very different. So, as growth percolates, as incomes improve, we would definitely see those SKUs benefit, so that is one space that we are quite upbeat about. We also think building material, particularly cement, is a very-very well-placed sector. It feeds into both housing as well as infrastructure and that is a significant capex attraction for both the government and the private sector.
The government continues to be a very large spender in the economy. The recent vote on account actually just cemented that and we do expect that as and when the private capex picks up, there will be significant beneficiaries in that space as well.
I was just going through the fact sheet of your emerging business fund as well and I see a lot of exposure to auto specifically. Almost 23% of the weight, Hero, Amara Raja, Maruti, Sandhar Tech, a lot of these auto names featured in the list. What makes you that bullish on the auto sector right now? Has not it run up already and are you looking at trimming some positions?Mrinal Singh: So, well, the large weight is in a way a reflection of, as you say, the run-up that has happened in a year or so. But if you notice, it is auto and auto ancillary and it is equally spread between two-wheeler, four-wheelers and ancillaries. And within that, more towards volume trajectory. Like my earlier comment, we are also making a step into the rural consumption basket through this investment. So, two-wheelers in particular is a very rural-heavy business so clearly but that weight is largely a reflection of our investments having done well in the recent past.I see cash and cash equivalent being 26%. Is that right? Is it that difficult to find ideas right now? And also, financials is one space you are clearly underweight on. Are you turning the corner there and looking at financials positively or is there further derating this year?Mrinal Singh: So, on financials in particular, very stock specific. We have seen drawdown in one large name looks appealing from a longer perspective, very-very stock specific, so we have been running a large underweight on financials and that cash that you see there would be some that would get deployed in that direction as we progress, as we find the risk-reward getting interesting. But I would avoid making a blanket statement on financials because it would not be fair. Compared to less than six months ago, there are at least reasonable valuation, at least in a pocket or two over there.
You can look at our cash as a proxy largecap allocation. We have kept that largely in anticipation of volatility in the market and we would look to deploy it as the market offers volatility at interesting prices.
What are your thoughts on NBFCs? There appears to be a lot of activity there. A completely broken down, very large NBFC appears to be resurrecting and have just completed a Rs 4,000-crore rights issue with marquee names coming in. Then, one of the biggest south-based NBFCs is in talks to bump off their housing portfolio and focus on CV which is their mainstay. Anything beyond just the housing in NBFC space which interests you or some MSME names?
Mrinal Singh: Very clearly in pecking order in financials, housing is the most interesting space to us. Our portfolio reflects that. Then, we would prefer a portfolio mix which is more secured lending on the banking side in particular and then on the NBFC side, our preference is for lenders who are having a very robust credit evaluation process and MSME lenders.
In that sense, we are trying to step into the private capex side of things. And we do believe that MSME is going to be the biggest beneficiary as well as the driver of private capex in growth and employment, so that is how we place ourselves. Every NBFC is a combination of fintech, it is a combination of a variety of other things. We have to look at it case by case basis, their geographical presence, their approach to business are very different. But the pecking order in our mind is very clear. We prefer the housing, mortgage providers. We prefer the secured lenders on the banking side, at least a number portfolios on the secured side followed by MSME lenders.
How do you find value within healthcare right now?
Mrinal Singh: A very interesting question. Healthcare is an umbrella which has gone far beyond pharma. Besides hospitals, we have diagnostics. A couple of diagnostic names look interesting to us. It is one of the names that in the new fact sheet might actually see presence. We of late find in the healthcare space diagnostic also a very appealing space so where incremental moneys could be deployed.
