Hello and welcome to Value Research Podcasts.You are listening to the Fund Manager Interviews.Stay tuned for insightful conversations on the markets, funds, and professional journeys of the fund managers.
Thank you, Ajay, for joining us.And this is one fund about which, you know, the whole country will be very curious about.This is UTI FlexiCap Fund, the largest fund in your stable, a fund which raises expectations.
You'll still have a lot of legacy investors coming from the days of MasterGain, which used to be the largest Indian equity fund then, with the largest number of, with exposure to largest number of investors. So it has a lot of history embedded in it.
And your journey, you know, as a fund manager here, you have been managing since 2016.Now it is quite some time.Looking at it, you know, it's history since 1992.You know, eight years is quite a long period, even in this span.
Could you share your journey as an investor, how you, you know, your investment philosophy has evolved over these years and managing this fund in particular?
Sure.First of all, I'm delightful to be here with you, Dhirendra, on this conversation.See, I've been with UTI for about 25 years now.I started my journey in 2000, and I joined the team as an analyst.
I was tracking the IT sector and the telecom sector back then.And I would say that, you know, the growth journey of the IT sector did have a big influence on me and my outlook towards investing back in the early days itself.
For me, it was about businesses which are actually growing. but growing profitably, creating value, and compounding that value year after year.
And as a result, what I realized was that I enjoyed basically testing businesses for their ability to grow, their ability to actually grow profitably and have a long compounding journey in front of them.
So in a way, that had a big influence on the philosophy with which I run my funds today.
I'm an investor who feels that the surest way for a business to create wealth for an investor is by way of that business, A, solving a customer problem, B, solving it profitably, and C, being at an early stage in terms of the industry lifecycle so that growth can continue for a fairly long period of time.
So essentially, my philosophy is all about businesses creating economic value. compounding that economic value and basically this entire journey leading to compounding of market value for their stock prices.
So that in nutshell has been the genesis of my philosophy and what I love doing today.
So how did this, you are a Y2K fund manager, so to say, how did it influence you?Because that was the technology boom, then Indian market was very narrow.I remember when we used to look at that fund,
Any equity fund then, we used to just look at the exposure of FMCG, Pharma and IT.And that was it.Rest of the portfolio was being referred as non-IT, Pharma and FMCG.So how did it influence you?
Great.I think that's a great question.I think the biggest learning I had being an IT analyst was that there is a 80-20 or a Pareto law with everything in life.
While there were two dozen IT companies, and I think we used to track pretty much all of those two dozen companies, by 2003 or 2004, it was evident to us that look, the ones which are still remaining and still standing tall are just a handful of them.
And I think that was a great insight itself, which is that look, when sunrise industries take shape, it doesn't mean that all the players who are participating in that industry, a would survive and therefore, you know, create value for investors.
So you have to be very, very selective.And I would say that that's, you know, helped me that's also helped UTI in general. We are skeptical about anything that has a narrative around it.
We want to see businesses which actually are structurally very, very strong, which have a winning business model, and which have a path towards profitability, and which are very conscious about the fact that, look, profitability has to happen sooner rather than later.
So I think the lessons learned during that Y2K phase, as you rightly put, have been extremely important.They haven't been lost on us ever.And I don't think they should be lost on any investor.Never get sucked into narratives.
Yes, Sunrise Industries and Grodi Industries create a lot of value.But within those industries, it's always a select few that create value.Of course, these select few businesses have their own unique economic characteristics.
And I can't ever undermine the software aspects in terms of management, vision and commitment. But they do have certain economic characteristics that can be quantified as well.Yeah.
On a day to day basis, you know, all these things, all your understanding, all the wisdom that you absorb over time has to translate into some kind of some set of rules for you. it eventually, you know, translates into do's and don'ts.
And some do's, you know, must do's and never, never to be done kind of thing as well.So what are your must, you know, never do kind of thing as a result of this?
Great question.If you look at the UTI FlexiCap portfolio, you'll realize that we don't have a single name
which basically doesn't have what I call as the most important ingredient, which any business should have, which is the ability to generate return on capital higher than cost of capital.
And that too, not at a particular point of time, but more importantly, through the cycle.So even the weakest of business strongest phase for either the economy or for that particular sector can deliver return on capital higher than its cost.
But that's not ever a good measure to figure out whether the business is great or not.
What we need to understand is that when things are bad, when things are adverse, is the business still having the modes around it to generate profitability regardless of the environment?And I think that is something which is the most important
You can either call it a do or a don't.It becomes a don't when you say that, look, I would let this... ball pass away, I won't swing my bat at this.
And it becomes a do when you say that, look, if we have found a great business, and the valuations are also may not be very cheap, but at least fair, then we need to swing the bat very hard.
So that is the North Star in so far as my philosophy is concerned, which gets reflected, you know, very, very evidently, when you look at the UTI FlexiCap portfolio, never ever, you know, overlook the simple rule of
Is the business creating economic value or not?
Yeah.So, but you know, you also are running an open end fund.And you know, when I look at and here is the fund, which you know, then it's now called, you know, designated as a flexi cap, it has all the flexibility.It's the largest fund.
So you have all the freedom.And the you know, how do you really deliver if not, you know, consistent performance, because that is something which is looking, you know, this is evading, you know, this fund for a while now.
Sure. So I think let me start with how we look at the definition of FlexiCap.
So for us, FlexiCap is not about jumping from one investment philosophy to the other, jumping from what's not doing well at this point in time in the market to something which
which could be the value style doing amazingly well, certain sectors doing very well.
So for us, the flexibility given by this category is certainly not about, let's just try and do what is being rewarded by the market and let's just forget about our non-stock.
No, that's not my question.You know, I was saying that, you know, here you have the absolute liberty to invest wherever you want to buy whatever choice, whatever you choose to.
I'm not looking at the constraints of flexibility or, you know, the joy of flexibility in terms of style.At least it gives you freedom to do whatever you want to.And given that, my expectation will be to be a more consistent performer.
Sure.So I think my response to this is that, look, for us, the most important thing is consistency in terms of thought process and philosophy.Look, outcomes are something which we never control.
Now, which basically means that yes, while every investor would want that there is some level of consistency in performance year after year.
But unfortunately, if I have to deliver that consistency, I also have to be inconsistent with my thought process and my philosophy.And you can hold on to only one thing.
We much rather hold on to our philosophy and be consistent there, which means that hopefully if our philosophy is right, the outcomes over longer periods of time should be good.
But it also means that the outcomes over the shorter period of time can be disappointing as well, which has been the case over the last two, three years.
Certainly because the kind of growthy companies or the kind of high quality companies that we like haven't done well.We have been missing a few sectors deliberately in our fund. We don't like the commodity space.We don't like the global cyclicals.
They have done very well.And therefore, we have underperformed.
But I'll go back to that flexibility question and say that, look, we are being flexible in terms of looking at each and every corner of the market in terms of market gap, large, mid, small.So we are unconstrained by that.
But yes, we deliberately want to be constrained by our thought process and our philosophy.We feel staying true to that in the long run is always rewarding.Yeah.
You will be now constrained to invest in, you know, a small cap, because in your scheme of things, being such a, you know, 28,000 crore fund, even if you get lucky with, you know, or spotting some great opportunity, high quality, small cap, it won't have any meaningful thing.
Is it really proving to be a serious constraint?
See, the answer certainly cannot be not at all.I would say it is to an extent a constraint, we can't go down the market cap, you know, levels of let's say 1000 crores or 2000 crores in terms of overall market cap of a company.So to that extent, yes.
But, you know, I also want to mention at this juncture that the portfolio turnover ratio of UTF FlexiCap has been sub 10%. The highest that I've witnessed over the last eight, nine years has been about 13%, 14%.This is per annum turnover ratio.
So we are very patient with our companies.
What this does to us is that if we really spot a great company, even if it's like, say, 4,000, 5,000 crores in market cap, we have the ability to buy it over a period of time because we know that we will be holding onto it for a period of, let's say, 10 years or even more.
It's not the very quick 50-60% returns that we tactically look at, where we find something to be cheap, we buy it, and then turn it around after we've delivered that return.
It's more of buying a business because we like what it can deliver over a five, seven-year period.Therefore, yes, can't get into companies which are highly liquid and in terms of market cap are, let's say, SEP 5000.
But yeah, between 5,000, sorry, higher than 5,000 something, basis are patience and a long holding period.We've been trying.
Yeah.So you still have broad enough universe to choose from.Yes.You know, you had a great performance, you know, in 2020, 2021, and 18, you know, they were the blockbuster years.
And that is what really brought this fund on the, you know, what what actually led to that great outperformance?
How did you come at the top of the pack? And I know your next question would be that we've had some terrible years.What led to that?
I would say that, look, we've been very consistent in terms of how we construct our portfolio, how we think about buying businesses, how we think about being patient with them and holding on to them.But the market environment keeps changing.
The market environment was very, very gratifying and favorable to us in 2018. and some part of 2019.It was extremely favorable for us in 2020 and 21, but has been extremely unfavorable to us in 2022 and 23.I'll come to that in a bit.
But to your straight question, what did we do?My answer would be as you know, Foolish I may sound in saying that, my answer is that, look, we did nothing different from how we've been running this portfolio for the last eight, nine years now.
We just go by a rule book, buy great businesses.
Within those businesses, buy the ones which are compounding at least three to four percentage points higher than India's nominal GDP growth, which means we love owning businesses which at least have a 15% kind of growth.
And then don't go into them all at once.Be patient with them.Build that exposure over a few quarters.And if, let's say, the market gives you an opportunity and something corrects 15%, 20%, then be greedy about them.
And finally, and I think this is the most difficult part, once you've identified something great, keep testing the hypothesis.But please don't react to what the market is doing.Sometimes the market punishes
even the best of business, disproportionately, please don't get unknowed by that.This is the most difficult part.So to an extent, I would say, yeah, I mean, our patience was rewarded after two bad years in 2016 and 17.
I'm hoping that our patients should be rewarded after two bad years in terms of 2022 and 23.Yeah.
Did you have cash, enough cash to actually use whatever we are in the middle of right now?
Not really.So I mean, I have been slightly higher in terms of my cash levels.Cash levels used to be 2 to 3%.They are between 4 to 5% today.But yeah, I mean, really uncomfortable pushing the cash beyond 5%.
Okay, so you're mostly fully invested.
What is the lesson from, you know, underperformance?How much of a marketing or sales pressure or the business effect?You know, people expect, you know, it's a marketplace.Mutual fund is a consumer product.
And you have to save investors, you know, and people now have a choice.People have, maybe, you know, there is a problem of plenty today.Too much choice.But, you know, people will be asking question, how do you deal with it?
So I would say the biggest lesson that I've learned is that if you have been extremely categorical in terms of explaining what you do, and your first question I think was do's and don'ts, I think if you're able to tell your distributors about what to expect from the fund and what not to expect from the fund, then the blow
is much softer when you are sitting at a phase of underperformance.So the good part is that the market today is becoming mature.
There are players like you who are trying to educate the market in general about how different funds operate, what their style are, what to expect, what not to expect.
Some of the big distributors in this country do have their own research team and some very capable guys in this research team who do understand this.
Well, as far as the last man in terms of the retail investor is concerned, I don't expect that investor to understand all of these nuances well.So yes, you're right.
These investors will keep swinging in and swinging out depending on what your performance is.
we at least try to control the expectations from a section of our investment community and our partners and our distributors by being extremely candid with them, telling them that, look, there is nothing called an all-seasons fund and there is nothing called a fund doing well regardless of what the environment is.
But yes, our job is to stick to our philosophy and we remain committed to creating alpha in the fullness of time.So I think That lesson has only got reinforced over the last two years.Please be categorical in terms of what you can't do in the fund.
Yeah.Now getting to your portfolio and strategy.My bunch of questions is broadly divided into five parts about your portfolio and strategy.High concentration in financial and technology right now.
what drives it or is it a deliberate thing or it is just a function sometimes it happens and you know your basic philosophy being followed and this this happens where it's a bottom-up you don't care
So you're right on the second part, bottom-up.I wouldn't say we don't care, but yes, just to be very clear, we don't care about what we are holding and whether it's there or not there in the benchmark.So to that extent, you're absolutely right.
Since we are bottom-up, we have a very high active share.One of the reasons why we get blockbuster years in terms of performance and equally very disappointing years in terms of underperformance is because our active share is as high as 70%.
So I've heard many investors say that, look, I don't like, for instance, Reliance Industries, but it's a big weightage in the benchmark.So I've at least kept some in my fund.
Our answer to that is, look, if you don't like it and you can't understand what could be the driver in terms of value creation, then why have it at all in the fund?
So I think that high active share, as you rightly said, because of a bottom-up philosophy does lead to divergence.Now, The other part of your question was around financial services and IT.
So first of all, just to put the facts straight, we are underweight financial services.But yes, you're right that it is indeed one of the largest exposures at about 20 to 23% in the fund.And it's only about a few private sector banks.
We don't have any PSU banks in the portfolio.So our thought process is that some of these institutions, some of these banks will continue to do well in terms of credit growth.They have strong underwriting standards.
So we've seen them perform well and do well during adverse credit cycles over the last two and a half decades.And we expect the same behavior.These have strong ROAs and we are happy owning them.
The good part is that most of these banks are very cheap right now.A market which is trading at a massive premium to its long-term averages also has this sector which is actually trading at a discount to long-term averages.
So that's also one reason why we continue to hold on to these positions.IT is an interesting one, slightly overweight IT.And here I want to when you say technology, let me only say IT services here.
Because a big part of technology, as per the Amphi classification, is going into consumer services.And there too, we are very, very positive as you can see in your fact sheet.
So, IT services for us is one of those sectors which of course goes through its own cycle.Sometimes people are disappointed with the amount of demand environment in the US.Sometimes they get too excited.
Like I said, I started my journey as an IT analyst.What I've seen is that They are one of the best in terms of management quality and balance sheet quality and corporate transparency, highly cash-generating businesses, return on capital of 40%, 50%.
And yes, growth may not be 20%, but within our portfolio, we are slightly tilted towards the mid-tier companies, which indeed are growing at mid to high teens.So we want to remain true to both quality and growth.
We are finding a few businesses which have a mix of these.Our 30,000 feet view on IT services is that any new innovation around the world will have to be implemented by our homegrown IT services company.
So whether it is AI or whether it's the ongoing cloud transformation, any new technology that keeps coming in does need implementation partners and that's where the Indian IT services companies become relevant.Yeah.
Sure, but you know, a good part of their job is something like, you know, just putting man hours together and, you know, a lot of things is getting automated.
In fact, I look at it in my own operations, looking at it very objectively, it actually can translate into, you know, a lot of jobs getting reduced.
I'm not talking looking at the economics, they will be part of, they will be relevant, they will be part of the framework and you know, IT services will remain an outsourced thing.
And I'm not worried about quality because you know, somebody from Y2K times, one is aware that okay, Satyam does not exist anymore or you know, Pentafor does not exist anymore or DSQ.So you know, the sundry and crooks did disappear.
And whatever left was, you know, something to be very proud of. But, you know, does it not scare you, the doomsday?Because, you know, Indian IT services have been very low value-added services, so to say.
This is such an interesting question that you and I can keep conversing on this for hours together because this is a question which at least I love to read about a lot.
And I can just tell you my views as of now, who knows, I could be completely wrong.But my observation over the last 50-60 years of the tech evolution around the world is that you're absolutely right.
a new wave of technology always makes something which is mundane as something which can be done away with, with the advent of technology.So mundane jobs are the ones which actually get taken away.
Technology is able to provide a very good substitute and a solution to them.But then what happens is that after a few years, something new comes up, and therefore something which is then mundane, again gets taken over.
But what happens is that on a net basis, technology keeps growing in terms of the spend by corporates and therefore the budgets. Now, the evolution over the last 50-60 years, if you look at it, has actually been that.
And while at the corporate level, whether it's value research or at UTI, we do automate a few processes and therefore some resources become redundant.
But the technology company keeps growing its budget by working closely with either your organization or my organization.So Technology, in a way, is net additive.
The new waves of technology provide solutions for something which can be done away with, but then something new comes up.
And that's why, if you look at all these IT services companies, and you very rightfully pointed out about Y2K, you would recollect that many of us in 99 and 2000 were saying that, after Y2K, what next for these guys?
These guys will just write a small quote and then what's their relevance?And then every five years, something new kept coming in.And that's what I've seen over the last 25 years myself and read about these things over the last 50 years.
So I'm positive.These companies will remain relevant.You made a passing reference.Let me also just give you my view on that.So long as some of these IT services companies keep learning about the new wave of technology and keep
educating and training their workforce for the new waves of technology, they will remain relevant.
The day some of these companies say, Oh, look, we are not so positive on Gen AI, and we're not going to spend our dollars on educating and training our workforce, they will just cease to exist.
So they have to, Indian IT services companies have to be conscious of this.Yeah.
Weeding themselves has to be part of the design.So yeah, getting on to you know,
UTI has a risk framework and you'll be getting, you know, I know that you had a framework where you'll be getting flags and provocations in terms of what you can do and what can never happen in your portfolio.
How much of that is, you know, is it really, you know, contributing to your downside risk protection or some kind of enforced diversification or some such thing in your portfolio construct or sectoral exposure that you have?
I think that's an excellent question.Let me just tell you how we implement all these risk management frameworks.See for us, these risk management frameworks prevent us from going overboard, either in a single stock or over a particular sector.
But the intent of risk management is not to actually make the portfolio look as close as possible to the benchmark because then we are failing in our duties and then we're not being active.We're just being passive plus some element of divergence.
And that's really not the intent.So yes, risk management wants us to control our excitement if we get too carried away on a single stock or a single sector.
But if let's say we want to take an active view by saying, look, I don't want to be in the commodity space at all.
And therefore, I'm happy to have a divergence, then that's something which, you know, our risk management processes will not stop us from doing.Yeah.Okay.
You're not, it's not preventing you from doing that.
And now, you know, you're also head of equity that UTI, and you manage this fund, and you know, while supervising a team of fund manager.
how do you balance how much of your because as you said that you have very low turnover and you don't have to work very hard on on your own fund you just leap over it what else do you do what how much is your supervisory role and you know all the kind of things that you do
Duryendra, jokingly or maybe seriously, you know, not doing too much of activity on the fund is actually a very difficult job.You have to control yourself every day.You have to control that itch to pull the trigger every day.
So, you know, I always, since you're talking about the team, one of my jobs is to keep mentoring the team, to keep working closely with our youngest of the analysts, and also the most experienced of the fund managers.
Some of them are even more experienced than me.And I keep saying that, look, investment is about two things.Number one, making the right stock selection.
Number two, sticking with it with discipline and not getting swayed away what the market is telling you because the market will keep telling you something or the other every other day.
So have that ability to stay convinced about your hypothesis while testing the hypothesis every time.So in a way, not doing something is also actually doing a lot.
I understand, you know, it's a very big thing, you know, not working in this, you know, resisting your temptation to act in this noisy day to day affair.
Absolutely.Absolutely.You're right.So coming back to your question, see, it's part of my job to work with all the fund managers.But let me tell you how we work here at UTI.
For us, in terms of the core responsibility of stock selection and portfolio construction lies only with the portfolio manager.I am the head of equity.My colleague, Vetri Subramaniam, who you know very well, is the CIO.We only do a
quarterly fund review with our portfolio managers.And the job that we do there is to do a few things.Number one, like I am managing a portfolio or a strategy which is more quality and growth oriented.We have strategies which are value oriented.
We have strategies which are blends.We have strategies which are large cap.It is our job to see that we are being true to label.Since you do such a vast amount of research, I'm sure you and your team would have
also formed an opinion that in all of our strategies, we are being true to label.We are just being as congruous as possible to what we have stated in terms of our key objectives or our key philosophy.So that's one job.
The other is, yes, having a discussion with them and checking their conviction around their key overweights and underweights, trying to see whether they are fully convinced to hold on to a position. So these are the points of discussion.
And yes, we also keep referencing back to our own experiences of the last couple of decades so that some of the fund managers can be conscious of how things have moved around in the fullness of time.Yeah.
How much you are able to influence these people?
If you look at our portfolios, my portfolio versus some of my other colleagues, you will say that There is zero influence that Ajay has on any of the other portfolio managers.
We don't want... Not referring to that influence.Not in terms of some... No, influence doesn't mean somebody imitating your portfolio.
I'm saying that, you know, how much are you able to influence because they all, they're very young, they're not experienced and, you know, driving because and somebody forms a view that, you know, this new generation companies are going to be the next blockbuster and you strongly think against it.
So here again, I would say we work more in a collegial system, rather than having a veto or saying that, look, I won't let you buy Swiggy during the IPO.But yes, we reason out and debate a lot.
So if there is something which I think is not so exciting about a new IPO or a new company or a tech company that you said,
we would debate it for hours together and at least I will ensure that my views about that business are known and they are there in the public domain with the entire team.
Beyond that, if someone really still feels that my views are wrong and maybe some other view is right, we would not stop them from taking a contra view.So What we love to do is discuss and debate in the team so that there are no blind spots.
And sometimes, you know, I could have a blind spot, somebody who's just 10 years into the industry, may have a better understanding on that subject.So that's what we try to ensure.
But the final trigger is always pulled in by the respective portfolio manager.
Yeah.Okay, so you know, how does it you know, how much time you get to spend with, you know, all your colleagues here? You know, as head of equity with other fund managers, how does your morning routine looks like?
You know, you get an opportunity to interact with them or it's just a quarterly review and end of the story.
So quarterly review is a formal framework where these reviews are documented.There are a set of questions that we would churn out and the portfolio managers will answer those questions so that we will document everything.
But you have a very interesting question here.The day itself starts with an hour and a half interaction with the entire team.
You know, for us, every day in the morning, starting 9am, we have what is known as a morning meeting, which is attended by all portfolio managers and all analysts, unless they are traveling or they're not there in the office.
And that's the forum where we discuss and debate multiple things.It could be a new company, it could be an old company, it could be a sector review, it could be a result review. And that's where this discussion and debate happens.
So that's a more formal 90-minute thing every day.Now beyond that, you see every day you just come out and speak to the team once in a while on something which could be of topical interest.
So the more formal, I would say, the informal discussions keep happening through the day.The more formal occasions are the 90-minute window every day and the quarterly reviews, specifically with the portfolio managers.
How does Vetri help you in shaping, you know, your strategy or, you know, how do you collaborate with him?
You know, because one is to actually, you know, supervise or keep an eye or sometimes, you know, any blunder or, you know, protective, preventing it.But how do you work?How closely you work with him?
So I would say, you know, I spend a lot of time with him on a daily basis on different subject matters.Okay.Being very specific in terms of examples, especially when, you know, what we've also realized
And that's something which would be true of all investors and all organizations.The biggest risks always come from the new ideas.While the biggest, I would say, wealth creation and value creation also comes in from new ideas.
But then by the same token, the biggest risks also come from new ideas.And here again, I'll reference this famous Pareto law.So we track 10 new companies.
Without a doubt, two or three companies will grow exponentially and create amazing wealth for investors, but then seven would also be done.So I think it is on all of these new ideas that the discussion and debate with Vetri is very, very intense.
Not as much on an Infosys or a TCS or let's say HDFC Bank and so on.So I think that's where we always get him in for all our discussions.And of course, he has the richest experience in our team, more than three decades now.
And because he doesn't run any strategy, his views are more dispassionate.They're not as colored as any of the other portfolio managers.So, you know, he gives the most neutral views, so to speak.And absolutely the macro perspective.
As CIO, he also has the view in terms of what's happening in fixed income.And therefore, he's always able to, you know, chime in along with a very good macro perspective.
The other thing where he's always engaged is the risk management processes that you just mentioned.So we also have to take care of Do we need any tweaks in the risk management processes?
Because nothing in the investment field, nothing is cast in stone.It just requires a few tweaks every now and then.Yeah.
Now looking forward, what is the upcoming challenge in terms of all the uncertainty that we have started ruling now and the volatility?And we have been an island of still prosperity. What are you doing specially to navigate these times?
More so now, you know, the last week or so.Is it really prompting you to think differently?
Actually, one of the things that we've been skeptical about over the last one year now has been the color and texture of this rally.I would say up until 2023 middle, we were still fine with the way the markets were moving up.
But post-July-August 2023, we've been extremely circumspect and wary of how the markets went up in a hurry.Certain quadrants of the market, whether it's the mid-caps or small caps, they're moving up.
And more importantly, a narrative being created around a few sectors.So that has always gotten us worried.And possibly we were worried ahead of time.And the markets continued moving up for six, seven months, despite we being cautious.
So in a way, what's happening now in the market over the last, I wouldn't say just about one or two months, I'm sorry, one or two weeks, but over the last one or two months is some sanity and rationality coming back.
People wanting to test the businesses for their outcomes rather than just creating narratives and buying them at any multiples.This is an environment we feel more confident about.
We feel that most of our strategies will do much better in an environment where people are cautious. and they're not endlessly bidding up valuations of companies.So we're not doing anything right now.
At some juncture, I think we still feel that the correction of the last couple of months, which is just about 5%, 7%, is barely scratching the surface.We think that as the tone of the market changes, we could have a much deeper correction.
It could be either time-wise or price-wise.But we think that the valuation should correct at least by another 10% to 15% for us to get really very, very convinced about the return potential over the next 12 to 24 months.Yeah.
It will start looking reasonable to you.Exactly.
Your quality orientation, has it helped you in terms of withstanding this decline, the free fall rate for now?
Absolutely.If you look at the performance of our funds over the last three months and six months, you will see a massive improvement.
And it is because of, you know, the market now finally starting to move towards the quality rather than just remaining stuck in that value and low PE bat.
Yeah.So what you will emphasize, you know, are you doing anything proactively to cover the lost ground?What will you emphasize in your portfolio right now?
I don't think this is a business where you try to do something very, very proactively to compensate for the underperformance of the last couple of years.
This can be a strategy which can be very dangerous because this can force you to take double the risk to actually compensate for what's not happened.I think the way this
entire thing works mathematically is that if you have been right in your stock selection, if you've also been right in avoiding a few stocks, which went up like a rocket, then you gain your lost ground because these stocks, which unwarrantedly went up, also come down like a rock from the sky.
So rather than doing anything, you just go back there and say that, look, my job is not to just regret and repent over the underperformance of the last one year.My job is to see, am I missing out any businesses which fall into my core philosophy?
Am I missing out any quality growth businesses?Have I spent enough time on evaluating, for instance, an IPO like Swiggy?Is this going to be a great business to own?And the market takes care of all the rest.So
I'm sure you and your team have done deep work around how even a successful investor like Warren Buffett went through many years of underperformance only to recover that significantly over the following years.
And we feel that this is how this game is played.So let's be more conscious about what we are missing out in terms of companies which fall into our core philosophy rather than regretting what we missed out. and what created underperformance for us.
Give me some insider perspective on how has the debate evolved around the changing mindset around Zomato, the stock?
Okay, I can give you historical facts.UTI was an anchor investor in Zomato. We believed in this story in 2021 itself because we saw the company was coming out for an IPO.It was new, but at least the business had been around for long.
And what convinced us back then was that this market from being a five, six-player market had already become a duopoly.So in 2021 itself, there were only two players standing.
And while both were loss-making, but we realized that it's a matter of time that they become profitable because their unit economics were fine, but they were investing so much by getting into multiple cities that at the aggregate level, they were loss-making.
Now, let me be honest here once again. In 2022, when health broke loose, when interest rates went up and all growth stocks were punished, so was Zomato.Did we have the courage to double up our exposure in 2022?The answer is no.
But we were very, very quick to not only double up but increase the exposure meaningfully in 2023 when we saw signs of profitability in the core food services business and also
started appreciating what they can do with BlinkIt in terms of their commerce.So yes, our ability to hold on to Zomato in 2021 and 22 allowed us to actually significantly increase exposure in 2023.
And of course, let me say this is still an evolving subject.I don't want to call victory by saying, oh, we know that Zomato is going to keep compounding like Infosys did between 95 to 2005.
But our conviction right now is that the market opportunity is very large.
If they can execute like they have over the last few years in food services, by which I mean, if their execution in quick commerce is as strong as in quick services, then I think there is massive value creation opportunity ahead of us.
So that's our core hypothesis right now.
Yeah.Coming to the last question, what is your message to your disgruntled investors right now?What should they expect from you?
Sure.I would say that, look, in our business, looking at the past performance of one or two years and then making an investment decision or fund selection is never the surest way to compound wealth.
Just like as a fund manager and as an investor, we always look at businesses in terms of their outcomes and not get influenced by prices.On the contrary, act more on solid businesses which are trading at
valuation discount or which haven't done well over the last couple of years.Likewise, fund selectors and fund analysts and investors should also, first of all, draw comfort from what's the core philosophy of the fund, what's there in the fund.
If it's underperformed over the last couple of years, maybe it's a great buying opportunity and increasing exposure in that fund.So our message is, please judge us by our consistency of philosophy.Please judge us by
the portfolio of the fund that you see in front of you.If you don't like the portfolio for whatever reasons, this fund is not meant for you.
For those who resonate with the kind of philosophy and the kind of portfolio we have, I would just say that an underperformance is actually an opportunity to get in.Yeah.
So you think that you remain a quality portfolio and that is what will actually work for investors too.Okay.Thank you for your time and I'll come and seek an update once again.Thank you.
Absolutely.Thank you Dhiren for these lovely questions.
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