Are you going to add real estate stocks because that is a multi-year cycle when it goes up?
We have thought of playing real estate through the proxies. Once the demand for real estate goes up, we will see that it is backed up by demand for various categories which are linked to the real estate sector — be it building homes, tiles, sanitaryware or electrical cables.
After seven or eight years we are seeing the real estate outlook improving and that is a good trend. We want to capture it through some of the real estate proxies and not directly by buying real estate companies. That is how we have placed our bets in our portfolio.
The other two sectors that are missing in your portfolio are metals and the pharmaceuticals, barring Ipca Labs. What is the rationale behind that? Do you think that pharmaceuticals have peaked out?
In pharma, generally we have a long-term positive view. It is just that at a certain point in time, where we saw valuations rise, we have trimmed the exposure but our long term view on the healthcare sector continues to remain positive. In fact, our dedicated healthcare fund is one of the funds which we are pushing at the moment because we believe that the healthcare spends globally and in India are going to increase, the penetration is going to increase.
We think that just like in specialty chemicals, in pharmaceuticals too India has an edge and they will be catering to the world demand. That is something which is positive and as the economy opens up, the sector is likely to see positive growth. Due to the lockdowns, even the healthcare market was impacted to some extent. Those will come back now.
So we have a positive view. Time and again, in our diversified fund, we keep looking at companies and so we do not have a negative view. As far as metals are concerned, we have been very selective. We have some exposure to metals but not a large part because we all understand it is very cyclical in nature. The variables which affect the sector are too many and difficult to predict.
But at the moment, we are definitely somewhere closer to the peak considering the fact that we were talking of China slowing and China regulatory changes and these are very uncertain times. China is a big economy which impacts the commodity price point. Plus, if the US dollar continues to rise, that would be a negative for commodities. So, it is better to be measured as far as the metal sector is concerned that is showing in terms of our portfolio exposure as well.
Would you recommend reallocating funds out of the small and midcap schemes and a larger allocation to large caps?
I think most investors probably are grappling with this type of a query in their minds. I would say that to some extent, there is merit in reallocating some parts of your exposure from the smallcaps particularly to the midcaps and largecaps as we have seen a significant amount of rally in smallcaps. There is a bit of a speculative element also which has led to some froth getting accumulated.
What we are sensing is that there is a lot of noise which is creating exuberance in that category. It makes sense to look at the midcaps, which is a good segment as such. The companies are doing well. There is a good amount of opportunity available for these companies in the next few years as the economy expands.
So there is merit in shifting. As far as the broader thought on the categories are concerned, it is also good to look at diversified flexi cap type of categories where there will be a judicious mix of all the categories. That is what investors can look at.
We may see volatility in the short term but as the economy is expanding, we are going to see the fruits of this growth percolating down to various segments. Over the next four, five years, it would still make sense to be a part of the broader set of the corporates, within which we have each of these plays doing well.
There will be periods where smallcaps may underperform largecaps and midcaps may outperform but on the whole. over a period if one has the right balance of midcaps, small caps and a good holding period, it should be fine even if one holds some bit of small cap in the portfolio.
