Markets

It’s time to diversify and Dhirendra Kumar is betting on these 4 funds

ICICI Prudential Value Discovery, Parag Parekh Financial Long-term Growth Fund, Quantum Long-term Growth Fund and Mirae Asset India Opportunity Fund are what Dhirendra Kumar, CEO, Value Research, is betting on. Kumar was talking to ET Now.

Edited excerpts:
How do you protect the returns that you have already made in some of the IT stocks or IT funds? Is it time then to redeem those?

Generally speaking, one should not be investing in sector funds because the mainstreaming of technology has already happened. The technology sector was different 10 or 15 years ago. Now, it is completely different. 16% of our Nifty allocation are in technology. It is going through all the cyclicality of any ordinary business. What is the case for a sector fund if you are able to get a targeted diversification in a sector which is otherwise not available to you or which you are not exposed to or the mainstream broad market does not have representation of?

There could be a case for a media index or media fund or something which is otherwise not part of this or may be some other sector which has a novelty factor. but I do not see a case for that because most diversified portfolio has a certain allocation. Now comes you know is it good time if you are already there for some reason, should you take a part of it, I think so because the whole case of investing through a mutual fund is to be broadly diversified. This does not fulfil that. That apart, this has become a fairly general business with all the cyclicality. IT still reflects the kind of growth which we do not see in many of our domestic businesses but it has also been a great expectation dampener. Once you have expectations then a marginal gap actually will translate into or magnify the whole decline. That is what we see in the upheavals in the IT stock prices which is unusually different from earnings upheaval.

What is the approach that one should have to the sectoral funds to capture the upside?

My view remains very old fashioned which is that mutual funds are not for trading and one should diversify. If accidentally, you took a punt on IT fund, then square up and get into your SIP mode. It is a good time to be investing in high quality growth stocks. Many are getting cheap. Therefore, diversify, diversify and diversify and be regular is what I keep emphasising. In the last 15 years, ever since they became an investment option, we have seen radical moves there. They are still long-term great performers but the whole idea is that do not bet on a sector.

What if someone is hell bent on having that IT exposure in their mutual funds portfolio? Would that trim the size of the exposure?

I do not know. If you are going to hold it for many years and if you are believer that you should have twice as much exposure to IT stocks then the mainstream index, you want to have 30% allocations in IT stocks rather than 15-16% that we have in the mainstream indices, by all means have it. But I would say that you take that view that you should not square it up. After that, if somebody accidentally drifted into a technology fund, then by all means he should square it up and take the profit, diversify and be on to regular investment plan.

Among the diversified funds which would be the most prudent to invest in?

You have plenty of options to choose from. Also, the case for a technology fund is very weak because most technology funds are so overweight, if you have to really buy a technology fund and incur 2.5% expense, you might as well buy the four stocks equally and you will be better off because I do not see significant value addition consistently by the technology funds. Coming to the mainstream the multicap funds, you have plenty to choose from and after this reclassification exercise, I many of them will remain consistent with their line of portfolio approach. I like ICICI Prudential Value Discovery at this point or Parag Parekh Financial Long-term Growth Fund or Quantum Long-term Growth Fund or Mirae Asset India Opportunity Fund. These are few names which comes to my mind.

As a strategy, would you say that given the market correction, a lot of sectors are looking very attractive? Is this the time to take any concentrated bets on any other individual sectoral funds or would you say that keep it risk averse, keep it multi cap or for that matter even balanced funds right now?

The case for balanced fund is very straightforward for the person who has no experience of the market. He will need to onboard in a manner so that he would not be scared or driven out of the market. B balanced or equity income funds are for such inexperienced investors. Key point is should you be taking a concentrated bet on any sector? That is the whole idea of a mutual fund, Even Warren Buffet is diversified and that is the simplest thing. The other is that if you are still in the accumulation phase, being regular and consistent across market cycles is the safest thing to do.

But if you want to really take little chances and optimise your return, we do not have those options as we do not have those sector rotation funds, which are betting heavily on certain sectors and keeping away from some sectors completely. Going by the principle of being a contrarian, because I believe in reversion to mean and looking at sectors which are completely out of favour, banking comes to the forefront. But which part of the banking should one bet on and how long will it take for you to fructify?

Any strategy that you follow, should be following some principle as otherwise it will become a random movement, random action and it will look like a speculative move and you will not know why you have succeeded of failed.

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