Mahesh believes large cap outperformance vs mid and smallcaps which began a few months ago, will likely continue as retail flows into small cap funds have started slowing down while picking up in large cap funds. Relative valuations support this change in direction of retail flows.
Mahesh has managed ABSL Frontline Equity Fund for 19 of its 22 years. He summarizes his 6 key learnings from this 19 year journey:
1. Back your winners – ride your winners through market cycles.
2. Back your convictions when taking contra buy calls – that’s where you win big
3. Be clinical about evaluating laggards in the portfolio – be open-minded and objective
4. Respect the market – never ignore its feedback loop. Price is reality, price is collective wisdom.
5. Manage risk always – especially when the going is good. Judge every stock and sector on a risk-return framework.
6. Eliminate biases in decision making. Use tools like quants and technical to help you in this aspect.
ABSL Frontline Equity Fund’s above peer group average performance over the years slipped to peer group average in FY24. Mahesh says key performance detractors included selling some PSU stocks perhaps a little too early, overweight in banks which underperformed the market and bets on consumer discretionary – durable goods stocks that were slower on growth than anticipated.
Among banks, Mahesh prefers private sector banks over PSU banks now as PSU banks have got significantly re-rated in FY24, leaving private banks looking relatively more attractive.
In the power sector, Mahesh now prefers power equipment and ancillary companies over the main utility companies which have seen a huge re-rating in FY24. Overall stance on power continues to be bullish – stock choices are changing on account of relative valuations.
Mahesh is willing to buy into weakness in IT stocks as he expects recovery within a couple of quarters.
His prognosis for FY25 is that momentum may not work as well as it did in FY24, market breadth may contract a bit, we can see some rotation from value to growth – particularly quality growth stocks that have got ignored in last couple of years.