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Edited excerpts:
How challenging has been handling midcap and smallcap funds in such a volatile and sometimes brutal market in 2022?
The market sell-off has been relentless and it’s been across market capitalisation. It has been a very challenging environment, as earnings growth will remain challenged in FY23 and it is unlikely one will see PE expansion in stocks, given rising cost of capital.
Although stocks have corrected across sectors and market caps, which pockets of the market are you finding attractive at this stage?
The correction in the markets has happened across sectors and market capitalisation. Within a sector also, the disparity of the sell-off has been stark. In such a scenario, the attractiveness lies in identifying individual stocks rather than sectors.
How comfortable are you with valuations now vis-a-vis the expected earnings trajectory in FY23?
The earnings trajectory for FY23 will continue to remain challenged due to higher energy and raw material costs, which will impact margins and profitability. Although stocks have corrected, it will be difficult to assess their reasonableness of valuations, given the uncertainty in earnings.
In a falling market, midcaps and smallcaps are always the worst affected. What strategies are you adopting to survive in such a situation?
Midcaps and smallcaps have corrected quite a lot. In a panic sell-off, everything gets sold off and there is very little one can do. Our team is aimed at identifying good businesses where the correction has been deep enough to justify valuations and we are slowly buying into these businesses. Hopefully, in a recovery, these stocks and the portfolio bounce back faster.
As a result of the FII exodus, do you think that certain largecaps have more value now than even small and midcaps?
The sell-off has been across market capitalisation and has undoubtedly been severe. This has also been the case with largecaps and some of them offer great entry points from a long-term investment perspective.
A lot of anti-ESG stocks like and have been performing really well in CY 2022. Is anti-ESG the new fad in the market or there’s a case of value buying?
Without categorizing companies based on ESG, markets have rewarded good business, where the impact on earnings is limited and where valuations are on your side.
What is the outlook on energy stocks in particular? Do you see enough money-making opportunities in this basket?
There are limited energy stocks in India. India has generally been an importer of energy and to that extent, the fortunes of the energy companies depend on how well they can go ahead and price products at market levels. We have generally avoided energy and commodity businesses, as they are cyclical and they could come under pressure if the fears of a global recession grows.
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