WF: Your fund outperformed benchmark and peers on the way up in 2017 and also managed to fall less than benchmark and peers in the correction of 2018. What strategies helped you achieve alpha in both these very different circumstances? Did your strategies change with changing markets?

Lahiri: L&T Emerging Businesses Fund is a small cap focused fund which invests in smaller companies that have potential to deliver both revenues as well as profit growth in excess of the broader market. These companies are basically in the early stage of development and typically the management are more hands-on and are key contributors to the prospects of the company. We pick up companies from sectors that are evolving which have the ability to turn emerging businesses into opportunities to be the next success story. The focus is on owning businesses which occupy a niche position in a developed market or companies looking to acquire share of the unorganized players in a large industry. At L&T Mutual Fund we follow a proprietary investment process – G.E.M model. It involves Idea Generation, Evaluation, and Manufacturing & Monitoring of portfolio. Our competent research team rigorously examines an investment opportunity based on multiple parameters such as management track record, corporate governance, growth prospects, valuations, etc. before considering for inclusion in the portfolio. Furthermore, the risk-management function plays a critical role in highlighting key portfolio risks and defines limits in terms of the maximum holding that they can have in a company.

WF: What are the biggest factors that enable a portfolio to protect capital in steep corrections like we saw in small caps in 2018?

Lahiri: Volatility and corrections are regular occurrence in the equity markets. We look at good businesses with strong differentiating characteristics, run by competent management with a margin of safety. Companies that fulfil these criteria are usually the ones that bounce back once the fear in the market reduces.

WF: A rally in recent weeks in mid and small caps is beginning to enthuse market participants that a bottom has been posted and that we can look forward to a healthy rally in the coming weeks/months. Do you share this enthusiasm?

Lahiri: Post recent market rout, particularly in the mid and smallcap segments, valuations have become attractive for many companies with growth potential making them good bets for long-term investors.

WF: How are earnings shaping up in the small caps space? Which sectors within small caps do you see more robustness in, in terms of earnings growth?

Lahiri: Earnings growth has started trending upward with double digit growth in the last quarter and expects the coming quarter to be similar.

WF: You are underweight IT, Chemicals and Auto in your fund – at a time when some experts are seeing good value in these spaces, particularly among small caps. Can you take us through your thinking around these sectors?

Lahiri: The fund is primarily sector agnostic. Hence, the ideas to invest in companies that are strong financially and have competent management as stated above. Its sector weightages vis-à-vis the index is incidental. Broadly speaking in IT the global niche leaders are more often non-Indian companies. Therefore, the exposure will always be more stock specific. Similarly the chemical space as well, we have bought the strong companies at a price that was below the intrinsic value.

WF: Which sectors within small caps do you see creating sizeable wealth over a 3 year horizon?

Lahiri: We believe in bottom-up stock selection using our proprietary G.E.M investment approach. As a fund house, we look at individual ideas rather than particular sectors. We try and invest in companies that over period of time will qualify to become emerging midcaps and eventually become largecaps.

Disclaimer: This document is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds and secondary markets inherently involve risks and recipient should consult their legal, tax and financial advisors before investing. Recipient of this document should understand that statements made herein regarding future prospects may not be realized. Recipient should also understand that any reference to the indices/ sectors/ securities/ schemes etc. in the document is only for illustration purpose and should not be considered as recommendation(s) from the author or L&T Investment Management Limited, the asset management company of L&T Mutual Fund or any of its associates. Recipient of this information should understand that statements made herein regarding future prospects may or may not be realized or achieved. Neither this document nor the units of L&T Mutual Fund have been registered in any jurisdiction except India. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
CL06159

Share this article