By Sanjeev Sharma New Delhi, Sep 22 : "We do not force ourselves to invest if opportunities are not available. We rather remain in cash and wait for opportunities and right valuations. This helped when the market fell sharply, and we could deploy our cash at some good valuations," said Neil Parag Parikh, Chairman and CEO, PPFAS Mutual Fund. In an interview with IANS, Parikh said the fund has a go-anywhere approach to investing. "We can invest up to 35% of the portfolio in overseas securities. The wide mandate and our investments in some truly innovative and growing companies has also helped in fund performance", he added. Parikh said AMFI has sent out its representation to SEBI about asset allocation in multi cap schemes. A lot of different options have been put out and hopefully there will be a rethink from SEBI on the subject. If not, there are options for fund houses for scheme reclassification, he added. "Liquidity in small caps is a big issue. Move in the small caps is more sentimental in nature mainly due to the SEBI circular on multi cap funds. The thinking is that multi cap funds will need to buy up small caps in huge quantities to meet the regulatory limits. I personally don't think this will happen anytime soon until there is absolute clarity for fund houses going forward", Parikh said. On the entry of new investors, Parikh said, "We have seen demat accounts on the rise these past few months. Technology has enabled ease of onboarding and facilitating transactions smoothly through various platforms. This ease of online fulfilment, the recent equity market rally along with people being stuck at home, makes it a perfect recipe for individuals to get enticed to the stock markets". On the outflows from mutual funds, Parikh said there are people who genuinely need the money in the current times or want to keep more in their emergency funds due to their personal circumstances. Some others seem to be booking profits due to the steep rise in the markets. "On average, mutual fund returns have not been that great the last few years, so this rise has provided some people an exit as uncertainty all around is still high. I believe this is a temporary trend and I would expect most of these people to come back once they are comfortable with the overall environment or their personal situation," he added. Q: What are your views on the silent but steep market rally since March? A: Markets are always forward looking. In February/March there was uncertainty of the virus, extreme fear and pessimism, doomsday predictions and the markets were looking forward to bad times. Post that, the markets realized that the virus is not going to wipe out mankind and death rates are quite low. Slowly but surely recovery will take place and things will open up. As such, the markets started looking forward and reacted positively. The low interest rates globally and high liquidity the world over further fueled the rally. Q: How do you see the impact of the SEBI circular on asset allocation on multi cap funds? A: AMFI has sent out its representation to SEBI about asset allocation in multi cap schemes. A lot of different options have been put out and hopefully there will be a rethink from SEBI on the subject. If not, there are options for fund houses for scheme reclassification. Q: Small cap stocks have been rallying ever since. How do you see this trend? A: Liquidity in small caps is a big issue. Move in the small caps is more sentimental in nature mainly due to the SEBI circular on multi cap funds. The thinking is that multi cap funds will need to buy up small caps in huge quantities to meet the regulatory limits. I personally don't think this will happen anytime soon until there is absolute clarity for fund houses going forward. On the other hand, there has been a wide divergence in performance between large caps and mid & small caps since 2018. So, there will be some mean reversion in terms of performance of the small and mid-caps over the medium term. Q: Some of the PPFAS schemes have given strong returns. How has that been accomplished? A: We have been following our investment discipline, process and philosophy for more than 20 years- earlier as a PMS and now as a Mutual Fund. So, the conviction and confidence in our investment approach has always been high. Fund management consistency and discipline is extremely important. Secondly, we do not force ourselves to invest if opportunities are not available. We rather remain in cash and wait for opportunities and right valuations. This helped when the market fell sharply, and we could deploy our cash at some good valuations. The fund has a go-anywhere approach to investing. We can invest up to 35 per cent of the portfolio in overseas securities. The wide mandate and our investments in some truly innovative and growing companies has also helped in fund performance. Q: What are the assets under management of the AMC? A: We run 3 mutual fund schemes. As on August 31, the AUM of our flagship fund Parag Parikh Long Term Equity Fund was 4,508 crore. AUM of our Liquid fund was 817 crore and AUM of our Tax Saver fund was 61 crore. Q: What is the investment strategy of the fund house? A: Simply put, protecting the downside and giving a reasonable upside has been the investment strategy that we have followed and done it quite successfully for over two decades now. We are in the camp of Warren Buffett/Phillip Fisher approach to value investing where one must look at the qualitative parameters. Management quality, economic moats, long term growth prospects and a sustainable business model are important characteristics to look for in businesses, along with reasonable valuations. Thus, we believe that quality at a reasonable price is a good approach to follow in India. Q: Lakhs of retail investors are entering the stock market for the first time partly due to work from home and to make up for erosion in income and salaries? A: We have seen demat accounts on the rise these past few months. Technology has enabled ease of onboarding and facilitating transactions smoothly through various platforms. This ease of online fulfilment, the recent equity market rally along with people being stuck at home, makes it a perfect recipe for individuals to get enticed to the stock markets. Q: Mutual funds have seen some outflows in recent months. What are the reasons and is it temporary? A: There are people who genuinely need the money in the current times or want to keep more in their emergency funds due to their personal circumstances. Some others seem to be booking profits due to the steep rise in the markets. On average, mutual fund returns have not been that great the last few years, so this rise has provided some people an exit as uncertainty all around is still high. I believe this is a temporary trend and I would expect most of these people to come back once they are comfortable with the overall environment or their personal situation. Q: How do you see the equity cult growing in India? A: India is still in a nascent and growing stage when it comes to investments in financial assets. It is important to attract more people and increase penetration into this space. As such I feel that active management, passive management, quants, smart beta strategies etc will all have a place to thrive, as long as there is a clear value proposition for investors. Furthermore, it will also depend on the investors risk appetite and preference. We have a long runway when it comes to equity investing in India and all business models will be able to coexist for a long time. Q: What are your index targets and which are the promising sectors? A: It is futile to predict market tops and bottom especially if one is a long-term investor. We are more concerned with the underlying businesses we own, or which are on our radar. Our preference has always been for cash rich, low debt companies which have some competitive edge or moats and are run by a credible management. These types of companies do well to weather the bad times, like we have seen recently and can gain market share. We like some of the innovative companies in the technology space, pharma, platform businesses and generally any businesses which have a network effect. Our portfolio in our equity funds reflects this thinking. Q: How has overseas investments helped the scheme? A: Since the beginning, we have believed that having overseas diversification significantly reduces country specific risk, reduces portfolio volatility, balances the portfolio nicely and gives us access to innovative companies and sectors where there are no Indian equivalents. Kudos to our investment management team for their conviction in stock selection and meaningful allocation to our best ideas. We follow a bottom up stock selection process and look at each investment opportunities on its own merit. While selecting overseas stocks, we want to buy globalized, innovative companies who we believe will thrive and increase market share in the years to come, in addition to be being available at a reasonable valuation. I believe, having this discipline has helped the fund grow. (Sanjeev Sharma can be reached at sanjeev.s@ians.in) /IANS