Basant Maheshwari, Smallcase Manager -; Founder, Basant Maheshwari Wealth Advisers LLP

16 Dec 2022 , 12:20 PM

Share with us a summary of the investment style followed by you.

Our investment philosophy over the years has been to identify high growth stocks which are sector leaders and have the potential to grow earnings at a very fast pace with high return on equity. They have been quality franchises with good management.
Some of our wealth creating ideas in the past have been Page Industries, Pantaloon Retail, DMART, Gruh Finance, Titan, Bajaj Finance and Canfin Homes.

Equities are on a fresh high. Do you see the momentum sustaining or call for some caution?

The domestic economy has been doing well. We are seeing robust GST collections. Credit growth has picked up smartly after a lull of many years. The capex cycle is picking up as we are seeing that corporates have de-levered their balance sheets. We are seeing signs of inflation peaking. The domestic flow of retail money into SIPs of Mutual Funds has been strong. The local money is saving us from external capital flow shocks.

With this backdrop where the economy is doing well and FII flows starting to improve we see the momentum sustaining and expect equities to outperform all asset classes in 2023.

Please briefly provide us with the details of “BM Focused Small Cap” smallcase.

The BM Vision 2030 is more for people who want steady returns with lesser volatility.  And the ‘BM Focused Small Cap’ is for people who aspire for higher returns with higher volatility. The short term returns will be higher because we are starting from a low base. However, in the long run there shouldn’t be much of a difference in returns between the two schemes. We are concentrating hard to pick up only the cream.

Our large cap offering (BM Vision 2030 smallcase – average market cap 70,000 crores) is like a blue denim in your wardrobe while our small cap offering (BM Focused Small Cap) average market cap Rs 15,000 crore) is like a white trouser in your wardrobe. The white trouser looks fantastic but catches a stain very fast. One can’t compare the two – he needs both.

Based on our principle of having ‘thick’ skin in the game, we will put in Rs 5 lakhs every month in our new smallcase also. Halwai apni mithai khata hai.

We also invest Rs 10 lakhs every month in our BM Vision 2030 smallcase. In all we are presently allocating Rs 15,00,000 each month in our smallcase offerings.

What changes have you seen in old investing and gen-z investing?

The new gen-z investor has access to more information, news and knowledge than what earlier people used to have. Actually, there is information overload nowadays. This also creates a problem as they continuously try to move in and out of stocks based on the news flow.

The long-term principles of investing have not changed. So, one needs to have not only knowledge but has to have the right mindset which will come only with experience.

How much AUM do you manage, and how has your fund’s performance been so far in 2022?

We have assets under management of more than Rs 400 crore. Our BM Vision 2030 Smallcase has given 30% plus returns since we started in June this year. Our PMS is invested mostly into smallcaps which are on the verge of joining this rally. Going forward, we are hopeful of smallcaps doing well. Hence, we also launched our new smallcase ‘BM Focused Smallcap’ last month to benefit from this.

Did your investment strategies change after COVID?

We had large caps during the COVID fall and sank neck deep in pain as our financials were battered black and blue. The losses we suffered during COVID were recovered from investing in cyclical stocks. We invested in cyclicals like Tata Steel, Vedanta, Tata Motors DVR and Tata Power which performed very well for us.

Which are the key themes/sectors you are bullish/bearish on? What are the reasons for the same?

We think IT companies should do well next year. Mid and small cap technology names have been beaten down by the fall at the Nasdaq. Though the companies haven’t spoken about deal downsizing, Indian IT services companies have underperformed due to concerns on higher inflation and US Fed increasing interest rates. We think that the same is built into the price now. And these stocks should do well once the Fed hits a pause on the rate hike.

Even if the US economy goes into recession for a quarter or two these companies have years of growth runway ahead of them.

Is the Indian share market overvalued compared to peers?

Global investors have been scared of the communist regime in China ever since the disappearance of Jack Ma of Ali Baba. Investors look at numbers but the trust that a business will be continued to function normally extends itself to beyond all numbers. That wall of trust is coming down for investors in Chinese stocks.

Hence, we are seeing the weightage of China in the MSCI decreasing and India benefits out of the same. This movement of funds towards India is more about the trust that businesses would be allowed to run normally and that the law of the land will prevail.

India has higher valuation due to the longer-term growth projections being highest among peers in the MSCI emerging market index. We don’t feel the markets are overvalued when we compare the valuations on a two year forward basis with peers.

What are the key downside risks investors should watch out for?

We don’t see inflation and Fed rate hikes as big risks for markets. These are already factored in by the markets. The biggest risk in markets is something which has not surfaced yet and which nobody anticipates. We can watch out for these risks like China-Taiwan conflict or even a China-India conflict. But it is very difficult to base any fundamental decision on such uncertain events.