Ruchit Mehta of SBI Mutual Fund
The bout of volatility in the markets could continue for the near term, but investors should look at corrections as an opportunity to build a portfolio for the longer term. That’s the sense coming from one of India’s top mutual fund SBI MF’s Head of Research Ruchit Mehta. In a conversation with Moneycontrol, Ruchit said he is seeing opportunities ‘across the market cap spectrum and sectors’, and he is positive on infrastructure, discretionary and financials. Here’s the Q&A:
Few market experts or market gurus have started speaking about recession fear. So how do you make your portfolio recession-proof now?
Our security selection and portfolio construction process are premised on an investment horizon of 3-5 years. At times, we are willing to wait out even longer. This process inherently means you are selecting companies which have the ability to withstand exogenous shocks. This means the company and its business should reflect a certain set of characteristics, for example a large enough moat, flexible enough cost structure to protect cashflows, a modestly levered balance sheet (if levered at all), a large and growing market opportunity and focused capital allocation.
In our experience, such type of businesses tends to do well over long economic cycles. Some may even become stronger during times of a recession or an economic slowdown. We expect our approach to result in portfolios which are resilient across market cycles.
Do you expect extreme volatility to continue in the equity markets for some more time?
We expect volatility to continue. Markets love to swing between phases of exuberance and despair. This is no different than in the past. Investors should expect financial markets to remain volatile in the near future, till we get some direction of where key macro variables are headed (interest rates, inflation, growth etc.)
What are your three investment mantras that you want to share with new age investors who are entering into the markets that is seeing extreme volatility now?
Investors will do well by simply remaining disciplined in their investments, i.e., remain invested through cycles and not get swayed by extremes.
Paul Samuelson famously said, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $ 800 and go to Las Vegas.” Bull markets tend to draw a lot of new people to investing and invariably we end up being in a financial market version of Las Vegas.
The best way to think of investing is like buying a house. The typical house buyer take’s a 20-year mortgage and dutifully pays the EMI (equated monthly instalment) every month, every year, regardless of a boom or bust.
Make your investments like that, a boring 20 (or even longer) year plan. The power of compounding works massively in your favour over a long horizon.
After stupendous rally in IT, especially in midcap IT space in last two years, stocks corrected sharply. Do you think it is the time to start buying these stocks, or there will be more corrections?
Valuations in midcap IT had increased as growth had recovered sharply for many companies. There is some concern amongst investors over lowering of the growth profile for the sector, if the developed markets enter into a phase of weakening growth or an outright recession. We have an underweight stance on the IT space.
What are your thoughts on the markets for rest of the calendar year?
Expect it to be volatile. There will be bouts of exuberance and fear. This is likely to continue till we get a handle of what the trajectory of inflation, and therefore interest rates, is likely to be.
What are the pockets you want to buy, now that a lot of Bluechips are available at attractive valuations?
Market corrections are opportunities to build a portfolio, we see opportunity across the market cap spectrum and sectors. We have been positive on infrastructure, consumer discretionary and financials.
Do you think it is the right time to pick stocks in the auto space, especially after management commentaries post Q4 earnings?
We have been positive on the auto sector. The sector has been plagued by rising costs and a shortage of chips which has restricted capacities. We expect both capacity utilisation and costs to normalise in the coming few quarters. Inherent demand stays strong, especially in the premium segments, as customers are looking to upgrade, and new buyers are also coming back.
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